No FTT jurisdiction for incorrect HMRC advice

Sewell v HMRC [2024] UKFTT 773 is another case involving, effectively, a public law challenge to HMRC’s decision to refuse to refund tax based on incorrect guidance given to the taxpayer. And it is another case in which, despite having great sympathy for the taxpayer, the FTT has held that it does not have the jurisdiction to entertain such an argument. Any such argument should have been brought by judicial review.

Background

The case concerns the claim by the taxpayer for a refund of VAT incurred in relation to the building of a caravan on the site owned by the taxpayer. In advance of undertaking the works, the taxpayer called HMRC to confirm his understanding that he would be entitled to recover input VAT he incurred on the works. The HMRC adviser told him that the construction of a static caravan on a fixed concrete base would qualify as a zero rated construction under VATA 1994 Schedule 8 Group 5 as a new residential build and pointed him to VAT Notice 708.

Following construction of the caravan, the taxpayer claimed repayment of over £16,000 and HMRC rejected that claim. HMRC rejected the claim on the basis that the caravan was not a building, it was only for use incidental to the existing property and caravans were dealt with under Group 9 of Schedule 8, not Group 5. The taxpayer appealed to the FTT on the basis that HMRC gave him the incorrect information and should be held to that information.

Decision of the FTT

Unfortunately for the taxpayer, the FTT has held that it had no jurisdiction to entertain the argument raised by the taxpayer that HMRC should be bound by the advice that they gave him. The FTT held that it is clear from the case law that the FTT does not have jurisdiction to consider public law arguments where the question in the appeal relates to the amount of tax due and nor does the FTT have any jurisdiction where HMRC has no discretion and the appeal relates to the taxpayer’s liability. That does not mean that the FTT can never consider public law arguments. The FTT may have no judicial review jurisdiction but that does not mean that it cannot consider questions of public law in the course of exercising the jurisdiction that it does have. It all depends on the statutory provisions under consideration.

However, this case essentially involved a freestanding public law ground of appeal (namely that HMRC cannot go back on their word and to do so would involve unconscionable behaviour) and it was clear that the FTT had no jurisdiction to consider this argument as a basis for allowing a VAT refund. As such, the FTT was obliged to strike out the application.

The FTT also went on to point out that, since the taxpayer had admitted that it would have gone ahead with the construction of the caravan even if HMRC had pointed out that it would not have been zero rated, even if the taxpayer had made a judicial review claim then it was clear that he had not relied to his detriment on that advice.

Nevertheless, the FTT had considerable sympathy for the taxpayer and was extremely critical of HMRC’s behaviour. It is perhaps worth quoting the final comments of the tribunal in full:

“However, I have considerable sympathy for the appellant who was wholly wrongly advised (on HMRC’s pleaded case) that he could obtain a VAT refund as the services supplied to him were zero rated. And I have equal sympathy for his view that HMRC are behaving in an objectionable way in having first said that he could have the refund and are now saying that he should be denied it. I have not seen that HMRC have made any apology for this error. Certainly, none was made by HMRC in their skeleton argument nor by Mrs Hanif at the hearing. Mrs Hanif suggests that the appellant’s grounds of appeal should be more appropriately made by way of a complaint. Whether the appellant has the appetite for this is a matter for him. But HMRC’s patent misdirection calls into question the validity of the point they make in many tax cases where they criticise taxpayers for failing to contact HMRC to clarify their tax position. Whilst I do not underestimate the quality control issues faced by HMRC, if this is typical of the quality of advice that is given when making contact, then HMRC might want to consider whether that criticism is justifiable.”