The FTT's jurisdiction on public law arguments

Houldsworth v HMRC [2024] UKFTT 224 is another case which considers the jurisdiction of the FTT to consider appeals based on public law arguments. It concerns a claim that HMRC should have been bound by its guidance in IR20 on the question of residence and that failing to apply that guidance was a breach of the taxpayer's legitimate expectations. The FTT has decided that it did not have jurisdiction to consider the argument that the taxpayer had a legitimate expectation and accordingly struck out that part of the appeal. Any such argument in this case should be raised by way of judicial review.

Ultimately the question whether the FTT's jurisdiction extends to public law issues depends on the statutory provisions dealing with the particular right of appeal and the nature of HMRC's actions. In the context of the particular Taxes Management Act 1970 provisions dealing with appealing the closure notice, it was the assessment/amendment that was being appealed, not the (non) application of IR20 guidance.

Background

The case concerns the tax situation of Mr Houldsworth dating back to 2005. He claimed that he became non-resident at the start of April 2005 such that he was not subject to tax on certain dividends received during the 2005/2006 tax year. HMRC disputed that based on the facts of the situation and assessed the taxpayer to over £320,000.

On the taxpayer's appeal to the FTT against the assessment, the taxpayer sought to argue that the assessment was an abuse of power on the basis that he had a legitimate expectation that HMRC would apply the guidance in IR20 on the question of residence. HMRC sought to strike out that ground of appeal.

FTT decision

The FTT has closely considered the earlier jurisprudence on the ability of the FTT to consider points of public law. In particular, the taxpayer relied heavily on the UT decision in KSM Henryk Zeman [2021] UKUT 182 where the Tribunal held that the critical question in determining whether the Tribunal has jurisdiction to hear public law arguments is whether the relevant statutory appeal scheme expressly or by implication excludes the ability to raise such arguments. However, the FTT noted that the comments of the UT in Henryk Zeman were only obiter dicta and the Tribunal also agreed with other dissenting statements that "it is not clear that the decision in Henryk Zeman is soundly reached" (though the FTT was not in a position to find that Henryk Zeman was wrongly decided).  

In any event, the Tribunal noted that Henryk Zeman dealt with a very different situation to the one here. In particular, the provisions of the VATA 1994 appealed were a "may" provision, not a "shall" provision and the appeal was made under section 83(1)(p) which did not ex facie appear to oust the Tribunal's jurisdiction.

The taxpayer also argued that the concept of "residence" is a vague one which necessitated the application of some discretion by HMRC in applying it (bringing the position closer to that in Henryk Zeman). That was rejected by the FTT.

Ultimately, the FTT indicated that whether or not there is jurisdiction in any case depends on the language of the relevant legislation and the nature of HMRC's act or discretion. However, the Tribunal considered that an argument that, in essence, it would be oppressive for HMRC to enforce a tax liability would appear to be appropriately the subject of judicial review proceedings (not an appeal to the FTT). And, in this case, in essence, the taxpayer's appeal was arguing that it would be oppressive to apply the full multi-factorial approach to residence, being the statutory position, rather than rely on IR20.

The statutory appeal scheme in this case was that in TMA 1970. HMRC had issued a closure notice with an assessment and the taxpayer had sought a review by HMRC under s.49A of "the matter in question". Following that (unsuccessful) review, the taxpayer had brought an appeal pursuant to s.49G for the tribunal to determine the "matter in question". That appeal was pursuant to the right in s.31. The taxpayer's argument was, in essence, that the matter in question was the application of IR20 at least in part since the HMRC review referred to it at length. However, based on the guidance given by the UT in Daarasp v HMRC [2021] UKUT 21, it was clear to the Tribunal that argument was incorrect. In essence, the matter to which the appeal relates will simply be the conclusion or amendment in the closure notice.

In this case, the closure notice was to the effect that the taxpayer was UK resident and was liable to UK tax in an additional amount of over £320,000. Accordingly, the taxpayer in this case was appealing the assessment of tax, which in turn depended in part of the question of residence. In contrast, the application of IR20 was not mentioned in the closure notice and may or may not have featured as an underlying reason for the conclusion. Certainly, the HMRC review considered the application of IR20 at some length, but the UT agreed with other dicta that "the scope of the "matter in question" could not be altered by the subsequent review process".

Accordingly, the FTT held that the scope of the appeal in this case was simply the conclusion and amendment in the closure notice, the provisions dealt with were not discretionary and that the statutory scheme for appeals did not admit of a public law argument.

Comment

This is the latest decision on the scope of the powers of the FTT to consider public law arguments of the type which are normally the subject of judicial review proceedings. It is also one of the few that deals with the question outside the scope of VAT. In doubting one of the main authorities on the subject and clearly considering its jurisdiction limited to the statutory appeals process, the decision may tilt the balance further away from the hearing of public law arguments in the FTT.

In many ways this is disappointing for taxpayers who are put to the trouble of separate (and costly) High Court applications for judicial review. Moreover, as the FTT noted, where there is a factual dispute as well as a legal one on a question of public law, there is something of a "chicken and egg" problem. The FTT pointed out that "if there was a dispute as to whether, on the facts, the appellant had ever been non-resident, then, to paraphrase, it would be a "chicken and egg" argument on legitimate expectation. If the appellant had never been non-resident, as averred by HMRC, he could never have had a legitimate expectation that HMRC's guidance IR20 would help him". Quite so, but perhaps this is a good argument for having both factual and legal arguments (on public law) in the same forum.

On the other hand, the Tribunals, Courts and Enforcement Act 2007 conferred a judicial review function on the UT but not the FTT and a wide approach to allowing public law appeals in the FTT would provide a very extensive judicial review jurisdiction on the FTT without any of the procedural safeguards, in particular the filter of permission to bring judicial review, and time-limits to which ordinary applications for judicial review in the Administrative Court are subject.