[2010] UKFTT 51 (TC)

TC00364

Appeal number: TC/2009/10724/28/26/44

FIRST-TIER TRIBUNAL

TAX 

MR MERVYN COX
MR MICHAEL COX
MR COLIN COX
MR JOHN LONDAL
		Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: Dr Christopher Staker (Tribunal Judge)
                 Ms Rachel Perez   (Tribunal Judge)
                                Mr Mohammad Hossain (Tribunal Member)

Sitting in public in Audit House, London on 14th October 2009

Having heard Mr Mark Levitt of Hazlems Fenton for the Appellants, and Mr Scrymgeour of HMRC for the Respondents, and having considered post-hearing written submissions for all parties

© CROWN COPYRIGHT 2009

DECISION

The Tribunal decided that—

(1)	pursuant to rule 8(2) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, these appeals are struck out to the extent that they seek to appeal against any exercise of HMRC’s discretion under s.59B(4A) of the Taxes Management Act 1970 (the “TMA”);

(2)	to the extent that Mr Michael Cox, Mr Colin Cox and Mr John Londal apply to the Tribunal, by a reference under s.55(3)(b) of the TMA, for postponement of tax in respect of the year ended 5 April 2005, the applications are dismissed; and

(3)	in accordance with s.55(3)(b) and (6) of the TMA, the tax to be postponed on the amended self-assessment of Mr Mervyn Cox for the year ended 5 April 2005 is £924,000.

In respect of the Tribunal’s decision, mentioned at paragraph (1) above, to strike out the appeals, the appellants have a right to apply for permission to appeal against that decision pursuant to rule 39 of the Rules.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Tribunal’s full findings of fact and reasons for the decision

Introduction

1.	Proceedings in these appeals were commenced by notices of appeal dated 4 June 2009 by Mr Mervyn Cox, Mr Michael Cox, Mr Colin Cox and Mr John Londal. In each appeal, the appeal was stated in the notice of appeal to be an appeal against a decision of the Respondent dated 8 May 2009.  However, in the case of Mr Mervyn Cox, the decision appealed against appears in fact to be a letter from HMRC dated 11 May 2009, not 8 May 2009 as stated in the notice of appeal.  Similarly, in the case of Mr Colin Cox, the decision appealed against appears in fact to be a letter from HMRC dated 12 May 2009, not 8 May 2009 as stated.  Nothing appears to turn on these discrepancies.

2.	In the notice of appeal of Mr Mervyn Cox, the grounds of appeal state that:

“We are appealing against the decision not to allow the losses from the Liberty Fund arrangements to be used against the tax due.  The Liberty Fund arrangements has not been agreed but there is no reason why the losses cannot be utilised against the payment already made to H.M. Revenue and Customs.”.

3.	The notices of appeal of Mr Michael Cox, Mr Colin Cox and Mr John Londal contain materially similar grounds of appeal.  In the case of Mr John Londal, hardship grounds were also stated:

“As H.M. Revenue and Customs are aware Mr Londal has suffered considerable losses in relation to his funds held at Kaupthing Singer & Friedlander (Isle of Man) Limited.”.

4.	In the case of Mr Michael Cox, Mr Colin Cox and Mr John Londal, the relevant letter from HMRC which is the subject of appeal states that HMRC is of the view that it is not appropriate to postpone any of the tax charged on an amendment to the relevant Appellant’s self-assessment for the year ended 5 April 2005.  In the case of Mr Mervyn Cox, the relevant letter from HMRC which is the subject of appeal states that:

“... in my view the appropriate amount to be postponed is £924,000.00.  This means that an amount of £520,000.00 would remain payable.”.

5.	Each letter contains a statement that if the relevant Appellant does not agree with the amount to be postponed, he could “ask for an independent tribunal to decide the amount of tax to be postponed by writing to the Tribunal within 30 days of the date of this letter”.  Although the letters do not cite the legislative provision pursuant to which such an appeal would be brought, the Tribunal considers this, in light of the parties post-hearing written submissions, to be a reference to s.55(3)(b) of the Taxes Management Act 1970 (the “TMA”), which in fact provides for a reference, rather than an appeal, to the Tribunal.

Relevant legislation

4.	Section 48(2) of the TMA provides in relevant part as follows:

“(2) 	In the case of—
(a)	an appeal other than an appeal against an assessment, the following provisions of this Part of this Act shall, in their application to the appeal, have effect subject to any necessary modifications, including the omission of section 56 below;
(b) 	any proceedings other than an appeal which, under the Taxes Acts, are to be subject to the relevant provisions of this Part of this Act, the relevant provisions—
(i)	shall apply to the proceedings as they apply to appeals;
(ii)	but shall, in that application, have effect subject to any necessary modifications, including (except in the case of applications under section 55 below) the omission of section 56 below.”.

5.	Section 55 of the TMA provides in relevant part as follows:

“(1)	This section applies to an appeal to the tribunal against—
...
(b)	an assessment to tax other than a self-assessment, ...

(2)	Except as otherwise provided by the following provisions of this section, the tax charged—
(a)	by the amendment or assessment, ...shall be due and payable as if there had been no appeal. 

(3) 	If the appellant has grounds for believing that the amendment or assessment overcharges the appellant to tax, or as a result of the conclusion stated in the closure notice the tax charged on the appellant is excessive, the appellant may—

(a)	first apply by notice in writing to HMRC within 30 days of the specified date for a determination by them of the amount of tax the payment of which should be postponed pending the determination of the appeal; 
(b)	where such a determination is not agreed, refer the application for postponement to the tribunal within 30 days from the date of the document notifying HMRC's decision on the amount to be postponed.

An application under paragraph (a) must state the amount believed to be overcharged to tax and the grounds for that belief. 
...
(5)	Any such application is to be subject to the relevant provisions of Part 5 of this Act (see, in particular, section 48(2)(b)).
(6)	The amount of tax the payment of which shall be postponed pending the determination of the appeal shall be the amount (if any) in which it appears, that there are reasonable grounds for believing that the appellant is overcharged to tax; ...

(6A)	Notwithstanding the provisions of sections 11 and 13 of the TCEA 2007, the decision of the tribunal shall be final and conclusive.

(7)	If the appellant and HMRC reach an agreement as to the amount of tax the payment of which should be postponed pending the determination of the appeal, the agreement shall not have effect unless—
(a)	the agreement is in writing, or
(b)	the fact that the agreement has been reached, and the terms of the agreement, are confirmed by notice in writing given—
(i)	by the appellant to HMRC, or
(ii)	by HMRC to the appellant”.

6.	Section 59B(4A) of the TMA provides as follows:

“(4A)	Where in the case of a repayment the return on the basis of which the person's self-assessment was made under section 9 of this Act is enquired into by an officer of the Board—
(a)	nothing in subsection (3) or (4) above shall require the repayment to be made before the day on which, by virtue of section 28A(1) of this Act, the enquiry is completed; but
(b)	the officer may at any time before that day make the repayment, on a provisional basis, to such extent as he thinks fit”.

The hearing

7.	These appeals were heard in London on 14 October 2009, a request for postponement made for the Appellants by Mr Levitt two days before the hearing having been denied.  One of the Appellants, Mr Michael Cox, attended the hearing with Mr Mark Levitt and Mr David Hughes of Hazlems Fenton LLP representing all four Appellants.  Mr B Scrymgeour and Mr Gray of HMRC appeared on behalf of the Respondents.

8.	The background to this case as outlined by the parties was complex, and the Tribunal was initially unclear what it was being asked to decide.  Ultimately, the matter as presented to the Tribunal by the parties is as follows.

9.	Although the Appellants’ tax liability in respect of the tax year ended 5 April 2005 has not yet been finalised, it is not disputed that each Appellant has a certain outstanding tax liability in relation to that tax year, the amount of which is not in dispute.

10.	The Appellants’ tax liability in respect of the tax year ended 5 April 2006 is the subject of an ongoing HMRC enquiry, and is expected to be litigated.  The Appellants’ position, which is disputed by HMRC, is that they are entitled to loss relief for that year.  

11.	At the hearing, Mr Levitt’s position was that the Appellants are seeking to reduce the amount immediately payable by them to HMRC in respect of the tax year ended 5 April 2005 by the amount of tax relief to which they claim to be entitled in respect of the tax year ended 5 April 2006.  Mr Levitt said that, in the event that they are ultimately unsuccessful in proceedings relating to the tax year ended 5 April 2006, the Appellants would pay the additional amount of tax due at that stage.  On behalf of the Appellants, Mr Levitt clarified at the hearing that the Appellants rely only on s.59B(4A)(b) of the TMA as HMRC’s source of power to agree to this proposal, and that in the present proceedings the Appellants were seeking to appeal against HMRC’s refusal to exercise that discretion in the Appellants’ favour.

12.	At the hearing, the Tribunal of its own initiative raised the question of whether it had jurisdiction to entertain an appeal against a decision by HMRC not to exercise its discretion under s.59B(4A)(b) of the TMA in favour of a taxpayer.  Neither party had anticipated this issue, and neither was prepared to address that question at the hearing.  In the circumstances, the Tribunal decided that it would proceed to hear the parties on the merits of the appeals, and directed that the parties would have the opportunity to file post-hearing written submissions on the issue of whether the Tribunal had jurisdiction.  Pursuant to rule 6(4) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Rules”), the direction was subsequently confirmed to the parties in writing.  The Tribunal indicated at the hearing that, after receiving any written submissions of the parties on the issue of jurisdiction, it would determine whether it had jurisdiction, and that if it determined that it did, it would then proceed to issue a determination on the merits based on the submissions of the parties at the hearing on 14 October 2009.

13.	On the merits of the appeals, on behalf of the Respondents it was submitted that the amounts of tax were due and payable and that the Tribunal was requested to confirm a nil postponement.

14.	On the merits of the appeals, on behalf of the Appellants, Mr Levitt submitted that the Appellants had been cooperative with HMRC.  He said that the Appellants had made an offer to settle their tax liabilities which had in fact been recommended by the HMRC caseworker to his manager, but that the manager had not approved acceptance of the offer.  Mr Levitt submitted that the process had been slow and could take years to be completed, and that in view of the delays, there was no reason why HMRC could not exercise its discretion under s.59B(4A)(b) of the TMA.  He referred to the difficulties arising as a result of the credit crunch.  He submitted that the HMRC decision was arbitrary, and that HMRC were required to exercise their discretion in the particular case and not just rigidly apply a policy of not giving refunds while enquiries are ongoing.  He relied on authorities including March v Revenue & Customs [2009] UKFTT 94 (TC) (TC00062); Customs and Excise Commissioners v  Dee Limited [1995] STC 941 and R v Maff [1995] 2 All ER 714.

The parties’ post-hearing written submissions

15.	The Appellants’ post-hearing written submissions dated 27 October 2009 state that “A decision under Section 59(4A) TMA 1970 is not subject to a right of appeal and judicial review appears to be the only remedy available to an aggrieved taxpayer”.  Contrary to what was argued at the hearing, the Appellants’ case is put in the post-hearing written submissions on the basis that the present proceedings before the Tribunal are an application to the Tribunal under s.55(3)(b) of the TMA.

16.	The Respondents’ post-hearing written submissions dated 2 November 2009 argue that the Mr Michael Cox, Mr Colin Cox and Mr John Londal have not been overcharged by the assessments issued in accordance with s.9C of the TMA, and that appeals against those amendments have not specified valid grounds in accordance with s.31A(5) of the TMA to show that the Appellants have been overcharged.  In relation to Mr Mervyn Cox, the Respondents’ post-hearing submissions state that as a result of information provided subsequently, it is the opinion of HMRC that there has been an overcharge of £924,000, and that the Tribunal is requested to determine that the amount of £924,000 be postponed in accordance with s.55(6A) of the TMA, leaving the net amount payable of £520,000.  HMRC submits that “The appellants’ argument is based upon a claim for provisional loss relief in a later year being available to set off by way of carry back against tax charged on assessments in accordance with S9C TMA 1970”, that the loss relief in question is not agreed by HMRC and that no relief is appropriate until such time as the relief is agreed as being due and enquiries into the claim for loss are concluded.

The Tribunal’s findings and reasons

Section 59B(4A)(b) TMA

17.	The parties have pointed the Tribunal to no provision by which it is empowered to entertain an appeal against an exercise of HMRC’s discretion (or any refusal to exercise such discretion) under s.59B(4A)(b) of the TMA.  The Appellants’ post-hearing submissions appear to concede that the Tribunal has no such power.  The Tribunal finds that it has no such power.  The Tribunal further considers that there is no other tribunal having jurisdiction to which this Tribunal could transfer the proceedings pursuant to rule 5(3)(k)(i) of the Rules.  Accordingly, pursuant to rule 8(2) of the Rules, the Tribunal strikes out these appeals, for want of jurisdiction, to the extent that they seek to appeal against any exercise of HMRC’s discretion under s.59B(4A)(b) of the TMA.

Section 55(3)(b) TMA

18.	We turn now to the Appellants’ applications, by way of reference to the Tribunal under section 55(3)(b) TMA, that the Tribunal postpone amounts of tax for the year ended 5 April 2005.

Jurisdiction

19.	The Tribunal first considered whether it had jurisdiction to decide the applications for postponement of tax.  It considered this point because section 55(1) TMA 1970 requires there to be an appeal pending in order for it to have jurisdiction under section 55(3).  In addition, section 55(3) requires there to have been “first” made to HMRC an application for postponement of tax, in accordance with section 55(3)(a).  Section 55(3) also requires that the application for postponement state the amount believed to be overcharged to tax.  The Tribunal considered whether this had been done, in each of the four cases, and whether any failure to do this went to jurisdiction or only to the merits.

Was there an appeal pending for the purposes of section 55(1) TMA?

20.	The Tribunal finds that there was an appeal pending, in each of these four cases, for the purposes of section 55(1) TMA.  It makes that finding for the following reasons.

Mr Mervyn Cox and Mr Michael Cox

21.	In the cases of Mr Mervyn Cox and Mr Michael Cox, there was a statement in Mr Scrymgeour’s (HMRC) letter to each of them which, if accurate, would mean that the Tribunal did not have jurisdiction, because of section 54(4) TMA.  That statement by Mr Scrymgeour was that Hazlems Fenton had “verbally withdrawn” the appeal (HMRC letter of 27.4.09 (3rd paragraph) for Mervyn Cox and HMRC letter of 21.4.09 (3rd paragraph) for Michael Cox). 

22.	In the case of Mr Michael Cox, if that statement were accurate, it would mean that his appeal had been “verbally withdrawn”.  If that had happened, then, as HMRC did not notify him within 30 days or at all that it was unwilling to accept the withdrawal of the appeal, the appeal would have fallen away by virtue of section 54(4) TMA.  As no other appeal was alleged to be pending, that would have meant that there was no appeal pending so as to satisfy the condition in section 55(1) TMA.  That in turn would have meant that the Tribunal did not have jurisdiction to hear Mr Michael Cox’s application for postponement of tax.

23.	In the case of Mr Mervyn Cox, although HMRC’s letter of 27.4.09 could possibly be taken to be a notification that HMRC was unwilling for the appeal to be withdrawn for the purposes of section 54(4)(b) TMA 1970, that letter was dated more than 30 days after the alleged verbal withdrawal; whereas for section 54(4)(b) to be satisfied, the notification had to have been made within 30 days of the “verbal withdrawal”.  As no other appeal was alleged to be pending, that would have meant that there was no appeal pending so as to satisfy the condition in section 55(1) TMA.  That in turn would have meant that the Tribunal did not have jurisdiction to hear Mr Mervyn Cox’s application for postponement of tax

24.	However, the Tribunal was given no evidence as to whether what was said for these two appellants in any telephone conversations was indeed intended to be taken as a “verbal withdrawal” of each of these two appeals.  Nor were any submissions made to the Tribunal on this point.  The Tribunal therefore finds that it does not have sufficient basis on which to make a finding that each of those two appeals was verbally withdrawn so as to mean, by virtue of section 54(4) of the Taxes Management Act 1970, that the appeal was no longer pending.

25.	Accordingly, the Tribunal finds that the appeals of Mr Mervyn Cox and Mr Michael Cox were pending at the time of the hearing before it of 14 October 2009.

Mr Colin Cox and Mr John Londal

26.	In the cases of Mr Colin Cox and Mr John Londal, HMRC’s letters of 12 May 2009 and 8 May 2009 respectively were less specific than the HMRC letters mentioned above in relation to Mr Mervyn Cox and Mr Michael Cox.  Although those HMRC letters to Mr Colin Cox and to Mr John Londal each referred to a letter of 21.4.09, that letter was not before the Tribunal.  Further, the two HMRC letters (12 May 2008 and 8 May 2009) which were before the Tribunal, although inviting written confirmation of withdrawal of the appeals, did not specifically state that the appeals of Colin Cox and John Londal had been “verbally withdrawn”.  So, the Tribunal did not have evidence on which to base a finding that section 54(4) TMA had caused the appeals of Mr Colin Cox and Mr John Londal no longer to be pending.  The Tribunal finds therefore that the appeals of Mr Colin Cox and Mr John Londal, against the amendment of their assessments, were pending at the time of the hearing before the Tribunal of 14 October 2009.

27.	Accordingly, the Tribunal accepts that there was a section 31 appeal pending in each of the four cases.  It finds therefore that the first of the conditions in section 55 in order for the Tribunal to have jurisdiction (the condition in section 55(1)(a)(i) TMA) was met.

Had each appellant first made an application to HMRC for postponement pursuant to section 55(3)(a)?

28.	A second condition in order for the Tribunal to have jurisdiction under section 55(3)(b) was that section 55(3)(a) required the appellants each to have “first” applied by notice in writing to HMRC within 30 days of “the specified date” (as to which see section 55(10A)) for a postponement of tax.  There was no evidence before the Tribunal that this had been done; but nor were any submissions made to the Tribunal as to whether it had been done. As HMRC took no point as to this, the Tribunal finds that an application had been made which satisfied section 55(3)(a), in each of the four cases.

Did each application state an amount believed to have been overcharged to tax? Are there reasonable grounds for such a belief?

29.	The crucial question remains however whether the Appellants have stated an amount believed to be overcharged to tax, whether in a section 55(3)(a) application to HMRC or in the reference to the Tribunal under section 55(3)(b). Such a statement was required by the concluding sentence in section 55(3).  

Mr Michael Cox, Mr Colin Cox and Mr John Londal

30.	The Tribunal finds that Mr Michael Cox, Mr Colin Cox and Mr John Londal did not state an amount believed to be overcharged to tax.   There was no evidence before the Tribunal to suggest that those Appellants had made such a statement.  First, their notices of appeal made no such statement.  Second, there was nothing in any of the other papers before the Tribunal to suggest that they had made such a statement, or held such a belief.  Third, what was said on their behalf by Mr Levitt at the hearing, and in the post-hearing written submissions, did not amount in our judgment to such a statement of belief.  At the hearing, the case for the Appellants was put on the basis that it would be appropriate to postpone tax because of circumstances such as that the Appellants had been cooperative, that the process may take years to complete, and that the Appellants claimed to be entitled to loss relief for the subsequent tax year.  The Tribunal finds that none of this amounted to a statement that there had been an overcharge to tax.

31.	For the same reasons, the Tribunal is not satisfied, as required by section 55(6), that there are “reasonable grounds for believing that the appellants are “overcharged to tax” for the year ended 5 April 2005.

32.	The applications of these three appellants, referred to the Tribunal under section 55(3)(b), for a postponement of tax for that year, must therefore fail.

33.	The  Tribunal received no submissions as to whether the failure to state the amount overcharged went to its jurisdiction, or whether that failure went simply to the merits of the applications referred under section 55(3)(b).  The Tribunal decides therefore to treat the failure to state the amount overcharged as going merely to the merits of the applications.  The Tribunal accordingly dismisses, rather than strikes out for want of jurisdiction, the applications of Michael Cox, Colin Cox and John Londal for a postponement of tax.  

34.	The Tribunal also concludes that the failure to state an amount believed to have been overcharged to tax gives the applications no real prospect of success.  However, the Tribunal concludes that it is not appropriate to strike out the applications under rule 8(3)(c) because the Tribunal has not invited the representations of the Appellants on this (as required by rule 8(4)) and there appears nothing to be gained by inviting such representations given that the Tribunal is in any event dismissing the applications.

Mr Mervyn Cox

35.	In Mr Mervyn Cox’s case, HMRC accepted that there was an amount overcharged to tax of £924,000 and that that amount should be postponed.  This was proposed in HMRC’s letter to Mr Mervyn Cox dated 11 May 2009.  It was re-iterated in the post-hearing written submissions of HMRC: those submissions expressly request the Tribunal to determine that the amount of £924,000 be postponed in accordance with s.55(6) of the TMA, leaving the net amount payable of £520,000.

36.	It was not suggested for HMRC that Mr Mervyn Cox has not stated a belief that the amount of £924,000 had been overcharged or that no application was made to HMRC under section 55(3)(a).  In view of that, and in view of HMRC’s request in the post-hearing submissions, the Tribunal finds that such an application was made and that that application stated a belief that the amount of £924,000 was overcharged to tax.  It was common ground that HMRC had accepted the revised lower valuation of £2.5million for the asset transferred into the “FURBS” and that the amount of £924,000 was indeed  therefore overcharged to tax (52% share of £2.5million asset transferred x 40% tax = £520,000 and not £1,444,000).  The Tribunal finds therefore that there are reasonable grounds for believing that Mr Mervyn Cox is overcharged to tax in the amount of £924,000.  Accordingly, the Tribunal finds also that the requirements of both section 55(3) and section 55(6) are met.  The Tribunal accordingly determines, in accordance with s.55(3)(b) and (6) of the TMA that the tax to be postponed on the amended self-assessment of Mr Mervyn Cox, for the year ended 5 April 2005, pending the determination of his appeal against the amendment of his self-assessment, is £924,000.

37.	As Mr Mervyn Cox has not however stated a belief that an amount greater than £924,000 has been overcharged to tax, the Tribunal finds that section 55(3) is not satisfied in his case in relation to any amount greater than  £924,000.  In addition, in view of that failure to state such a belief, and in light of the figures which were common ground between the parties (paragraph 36 above), the Tribunal finds that there are no reasonable grounds for believing that Mr Mervyn Cox is overcharged to tax in an amount greater than £924,000.  The Tribunal finds therefore that section 55(6) is not satisfied either.  Accordingly, the Tribunal dismisses Mr Mervyn Cox’s application to the extent that it requests postponement of tax of an amount greater than £924,000.  

38.	The Tribunal chooses to dismiss Mr Mervyn Cox’s application (to the extent that it requests postponement of tax of an amount greater than £924,000) rather than to strike it out, for the same reasons as are stated above in relation to the other three Appellants.

Signed	Christopher Staker	Dr Christopher Staker		Tribunal Judge
Signed	Rachel Perez		Ms Rachel Perez		Tribunal Judge
Signed	Mohammad Hossain	Mr Mohammad Hossain	Tribunal Member

Issue Date:		11 December 2009