Judicial review and the accessibility of tax justice

Most HMRC decisions affecting taxpayers carry a right of appeal. Where rights of appeal are absent, the appropriate remedy is normally by way of judicial review – but how accessible is that form of redress to the majority of taxpayers? The purpose of this article is not to argue about the merits or otherwise of denying rights of appeal in such cases, but to consider how the alternative remedy of judicial review might be made more accessible than it is at present.

There is a right of appeal against HMRC decisions on assessments, amendments of self-assessments, closure notices following an enquiry, claims, imposition of penalties and their amount, and many others. The HMRC decisions that do not carry a right of appeal are generally those involving the exercise of a discretion, on the grounds that discretionary decisions call for a discretionary rather than a statutory remedy. In addition, there is usually no appeal against decisions that have already been approved by a tribunal, such as the issue of certain information notices, follower notices and accelerated payment notices. Follower notices can only be issued if there is an enquiry in progress, where there will be a right of appeal against the closure notice, or a pending appeal.

Sometimes, the absence of a right of appeal is unobjectionable because there is a more suitable remedy – for example, in the case of a determination, where the taxpayer can displace it by filing the overdue self-assessment. And in some cases the refusal of an extra-statutory concession can be taken by way of a formal complaint to the Adjudicator, whose handling of cases involving ESC A19 is a frequently recurring topic in her annual reports.

But where the exercise of a discretion can have a substantial effect upon the taxpayer’s financial wellbeing, but is not an appropriate subject for an official complaint, should not judicial review be more accessible than it is at present?

What is the problem?

Judicial review can be an effective and helpful remedy. But it is too often out of reach of ordinary taxpayers for the following reasons.

First, it sets a very high bar. In order for a judicial review action to succeed, the decision being challenged must be so irrational that no public body acting rationally could have reached it; and as Lord Greene MR observed in the leading case of Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 233: “to prove a case of that kind would require something overwhelming”.   

Second, the time limits are very strict. The claimant must begin the claim promptly, and no later than three months after the act or decision complained of. Only in very exceptional cases will the time limit be extended.

Third, despite the need for the claimant to observe strict time limits, the procedure itself can be quite laborious – not to say daunting, for the non-expert taxpayer. Judicial review cases can only be heard in the High Court, as only the High Court can, at common law, consider the lawfulness of legislation and acts of public authorities and grant appropriate remedies – although the Upper Tribunal does have limited judicial review jurisdiction by virtue of statute (Tribunals, Courts and Enforcement Act 2007, sections 15-19). There are pre-action protocols that the court expects to be observed, and a permission stage at which are considered the merits of the case and whether permission should be given for it to proceed to a substantive hearing.

The fourth hurdle the claimant must face is that of costs. The High Court is expensive. The claimant may be a wealthy individual or a corporation or institution with adequate funding for this kind of action. On the other hand, if the claimant is a private individual of modest means, their only hope of avoiding substantial and probably unaffordable costs would be if they were:

• supported by a trade union, charity or similar body with a wider point of principle to defend;

• represented by a barrister who was prepared to act pro bono; or

• successful in an application for legal aid, for which there are stringent criteria.

Even then, there is no guarantee that the public authority under challenge would agree to waive its own costs in defending the action, which the claimant may be required to reimburse if the case were lost. Given that very considerable hurdle, a claimant of modest means may be better off pursuing a formal complaint if they can, if necessary as far as the Adjudicator, rather than risking their limited funds on a throw of the dice.

A role for the First-tier Tribunal?

This important remedy need not be so inaccessible. The First-tier Tribunal currently has no jurisdiction to make decisions outside the statutory parameters laid down for it, but it can legitimately consider questions of public law that arise in the course of hearing an appeal against a decision of HMRC which itself falls within a statutory provision giving a right of appeal (per Sales J in Oxfam v HMRC [2009] EWHC 2078).

Many (including the CIOT and LITRG) have argued in favour of extending the statutory jurisdiction of the First-tier Tribunal to include the ability to grant discretionary remedies such as judicial review, a recommendation most recently taken up by the House of Lords Economic Affairs Committee report The Powers of HMRC: Treating Taxpayers Fairly (December 2018) in paragraphs 105-109.

Such a reform would make justice more accessible to the majority of taxpayers, and provide a forum for resolving disputes about the use of official discretion in the costs-free environment of the First-tier Tribunal rather than the prohibitively expensive arena of the High Court. It would also enable decisions to be made at the first instance in cases where the only reason why the First-tier Tribunal dismisses a taxpayer’s case is because it has no jurisdiction to do otherwise.

For example, in Joost Lobler v HMRC [2015] UKUT 0152 (TCC), a case concerning taxation of partial surrenders under Income Tax (Trading and Other Income) Act 2005, section 507, the Upper Tribunal granted the discretionary remedy of rectification normally reserved to the High Court after the First-tier Tribunal had dismissed the taxpayer’s appeal because it felt it had no jurisdiction to do other than apply the strict words of the statute, however harsh the result. If the First-tier Tribunal had been empowered to administer a discretionary remedy as was the Upper Tribunal, the right result could have been achieved at first instance, saving the taxpayer the costly and time-consuming necessity of appealing. Once Mr Lobler had won – but only then – the way was clear for HMRC to apply a similar remedy on its own initiative to many similar cases brought by unrepresented individuals.

After all, if the Upper Tribunal has jurisdiction to hear certain judicial review applications and to grant discretionary remedies because it has been granted such jurisdiction by statute, there seems no reason why the First-tier Tribunal’s statutory powers should not be similarly extended, subject to appropriate rights of appeal from the First-tier to the Upper Tribunal. If that were done, a growing and important area of redress would be more freely available to individual taxpayers of modest means, just like the taxpayers in the Lobler line of cases.

Guest blog by Robin Williamson MBE, CTA (Fellow), a former Technical Director of the CIOT’s Low Incomes Tax Reform Group and a former senior policy adviser at the Office of Tax Simplification. He received the Lifetime Achievement Award at the Tolley’s 2020 Tax Awards. Robin’s book Taxpayer Safeguards and the Rule of Law has just been published by Claritax Books (more here).