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Reform of the tribunal system

Category Technical Articles
AuthorTechnical Department
Article by Adrian Rudd of PricewaterhouseCoopers and Tax Adviser’s representative on the Technical Committee. Published in the January 2002 issue of Tax Adviser. This article outlines the Institute’s response to the Leggatt Committee’s report, published in August 2001, which recommended a radical reform of the tribunal system in England and Wales. The Institute’s response focused on tax appeals tribunals, in which many members appear as advocates and some are past or present chairmen, members or clerks. The Institute’s prime concern is that tax appeal tribunals should function efficiently in the new environment.


The Institute stressed that tribunals should be independent of the Government Department that has responsibility for the subject area concerned, and also should be seen to be independent. The developing case law on human rights suggests that this is of particular importance where tribunals are concerned with penalties imposed by government departments (see, for example, Han and Yau v C&E Comrs and other appeals [2001] STC 1188). Penalties form a significant proportion of the cases dealt with by tax tribunals.

Structure of the Tribunals

The Institute believes that the present tax tribunals (the General Commissioners, the Special Commissioners, the VAT and Duties Tribunal and the Section 703 Tribunal) should be amalgamated to form an “independent executive agency”. This should exercise the jurisdiction of the present tribunals, and the jurisdiction currently exercised by the High Court in relation to stamp duty and inheritance tax.

The “independent executive agency” should be divided into two tiers. The second tier should hear complex cases, including appeals from the first tier. Other cases should be heard by the first tier.

Introducing the change

Structural change involves reducing the number of tribunals to a more manageable level. The Leggatt Committee recommended a unified tribunal (not limited to tax tribunals) organised in nine divisions. The Institute agreed that this is a logical structure, but it would require a lot of administrative effort, cost and time to become fully operational. The Institute felt that it was too ambitious a target for a single reform.

Thus, while a unified tribunal may well be a desirable long-term objective, the sheer scale of the task suggests that evolution is a better approach than revolution. The most important thing is to enable users to deal with appeals on related matters under a common system. A common system for resolving (say) all tax disputes is more important than a common system for resolving disputes on any subject.

Membership of the tax tribunals

The Institute proposed that the panel of tribunal members should include individuals who, in addition to their other qualities, have specialist accounting expertise. The nature of “profit” as a measure of income tax and corporation tax liabilities is becoming increasingly important. The tax computation starts with the profits disclosed in the financial statements. Chargeable profits will be incorrectly computed if the financial statements fail to comply with generally accepted accounting practice (GAAP).

Financial instruments and derivatives, for example, give rise to complex accounting problems. Tax inspectors are increasingly challenging the basis on which financial statements have been prepared. It should be appreciated that accountancy is a broad church and that an accountant specialising in tax, for example, is not necessarily an expert in accounting practice.

Rights of audience

At present anyone can represent the appellant at an appeal or application before a VAT and Duties Tribunal. This right should be extended to all tax appeals. If representation is to be confined to a limited class of professionals, Chartered Tax Advisers should be included in that class. At present, Chartered Tax Advisers fall within the class of person who can be prevented from representing a taxpayer in an appeal before the General or Special Commissioners.


The Leggatt Committee report recommended two important changes:

  1. a right of appeal from the first tier would lie to the second; and
  2. a right of appeal from decisions of the second tier (whether in respect of cases heard at first instance or on appeal from the first tier) would lie to the Court of Appeal, and then to the House of Lords.
The Institute had two serious objections to the second recommendation:
  1. it necessarily involves losing the valuable experience of Chancery Division judges in taxation matters.
  2. the Court of Appeal might have difficulty dealing with the increased workload – in 2000 some 40 High Court judgments were given from decisions of the General Commissioners (6), Special Commissioners (9) and VAT and Duties Tribunal (25).
The Institute’s preferred solution was to give the second tier an equivalent status to the High Court. This has three advantages:
  1. it would facilitate the secondment of Chancery judges to the second tier.
  2. it would enable the second tier to exercise a supervisory jurisdiction in relation to discretionary decisions of the revenue departments.
  3. it would remove any objection to the appellate jurisdiction of the second tier in respect of first tier decisions.

The Leggatt Committee asked whether only selected second tier decisions be binding; or, given that they are limited to points of law, should all second tier decisions be binding?

The Institute proposed that second tier decisions would necessarily have the status of High Court judgments if, as recommended, the High Court ceases to play a role in the appeal process. In consequence, all second tier decisions should be binding on first tier tribunals whether they are heard at first instance or on appeal from the first tier.

One caveat is that a second tier decision should be binding only if it has been published. It would be wrong for the first tier to be bound by a decision that is not in the public domain. The same principle demands that neither party should be permitted to cite unpublished decisions.

The decisions of some tribunals may be relevant to cases decided before other tribunals. For example, the question whether a person is employed or self-employed is relevant to unfair dismissal, income tax and VAT. Decisions of the Employment Appeal Tribunal have been cited more than once in income tax and VAT cases. The Institute considered that second tier decisions should be binding on first tier tribunals in all divisions of the unified tribunal.

Second tier decisions should have persuasive authority only in the second tier, in line with current High Court practice. The VAT and Duties Tribunal currently follows this practice (see Pendred Hairdressing Ltd (1973) VATTR 81).

Judicial review

The Institute considered that second tier tribunals should exercise a supervisory jurisdiction, whether or not they have an equivalent status to the High Court. On this basis, the second tier should determine the lawfulness of actions in the first tier and that the Court of Appeal should determine similar questions in relation to the second tier. Both tiers should be excluded from judicial review by the Administrative Court.

Rules of procedure

The Institute believes that different tribunals’ procedural rules should be made as consistent as possible with each other. Every business person faces the very real possibility of becoming involved in litigation before the Employment Tribunal, the General Commissioners, the Special Commissioners and the VAT and Duties Tribunal. These are different tribunals with different rules.

At present, the experience before one tribunal is an uncertain guide to what will happen before a different tribunal. This is clearly an obstacle for both appellants and their representatives. They are more likely to make procedural errors when moving between tribunals or between the tiers of a tribunal. Moreover, as procedural rules are there for the protection of the parties, unfamiliarity with the rules may lead to a denial of justice for individuals and an unfair advantage for the state. Differences in procedure between different divisions, and between different tiers of the same division, should be minimised.

It is unclear whether it is feasible to formulate common rules of procedure to be applied in both tiers of all divisions or whether separate rules will be necessary. However the rules should be drafted in clear everyday English with the needs of appellants in mind. Any differences in procedure should be readily identifiable, and if common rules are to apply to both tiers of the same division – which the Institute considers desirable – they should be applied with a lighter touch in the first tier.


The Leggatt Committee recommended extending the scope of Community Legal Service funding to cover legal representation in some tribunal proceedings. However, funding would be available only in exceptional where there is a reasonable prospect of success.

The Institute pointed out that tax appeals can have particularly serious outcomes”. The sums at stake may be of considerable importance to the individuals concerned, even if they are regarded as trivial by anyone else. The aged and infirm cannot be expected to grapple with the complexities of tax law unaided and the amounts involved would be soon swallowed up by the costs of legal representation. Also penalties in tax cases can be as high as 100% of the tax lost. The Institute noted that imposing penalties can be regarded as a “criminal charge” for the purposes of the European Convention on Human Rights (see Han & Yau v C&E Comrs and other appeals [2001] STC 1188, CA). It follows that tax is clearly an area where funding needs to be made available.

Technical Department
020 7235 9381

January 2002 by Adrian Rudd


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