Judicial review and CPR Part 8 claims

The normal route for a tax appeal to take is via the statutory appeal process for the tax in question or, where the reasonableness or legality of a decision of HMRC is questioned, a claim for judicial review. However, in two recent cases the taxpayers have sought to use the potentially more advantageous route of a CPR Part 8 claim (which can generally be used where there are no significant factual disputes) to resolve the tax disputes in question. In both of these cases, however, the courts have held that this approach is an abuse of process and have struck out the claims.

HMRC v Labeikis [2024] EWHC 2009 involved a claim for declaratory relief by taxpayers affected by the loan charge legislation. The taxpayers argued that the loan charge legislation was contrary to the fundamental freedoms in the EU Treaty and/or the Human Rights Convention.

The second case, Austick v HMRC [2024] EWHC 2175 concerned an application under the Part 8 rules for a declaration that the taxpayer had no tax liabilities beyond those shown in his tax return. The background to this case was the use of a film partnership tax avoidance scheme. HMRC sought to recover tax initially repaid to the taxpayer by way of an amendment to his partnership tax return. Enforcement of that liability was stayed pending judicial review in another case considering whether HMRC had followed the correct procedures. Following resolution of that case, HMRC wrote to the taxpayer confirming that they had followed the correct procedures and that he now pay the tax due. The taxpayer then sought a declaration using the Part 8 procedure that no tax was due.

In both cases, HMRC essentially argued that it was an abuse of process to attempt to bring what would normally amount to judicial review claims by way of an ordinary Part 8 Claim. In particular, Part 8 has longer limitation periods compared to judicial review. In both cases, the High Court has agreed with HMRC on this point.

In Austick, the Court noted that the central issue was whether HMRC had adopted the correct procedure to create an enforceable tax liability. That was a question of public law and it did not matter whether the claim arose as part of HMRC enforcement proceedings. The claim was brought by the taxpayer and it was clear it should have been brought by way of judicial review. Seeking to bring it by way of a Part 8 claim was an abuse of process (by essentially seeking to side-step the stricter time limits and requirements of a judicial review claim).

The Court contrasted that position with the case where HMRC themselves bring the proceedings for enforcement (for example by way of debt enforcement). In that scenario, the taxpayer would be entitled to challenge the existence of a tax debt by way of defence and in doing so may argue that HMRC have followed the wrong procedure or that their actions do not result in a tax debt arising.

Whilst accepting that, at first sight, it might be surprising that a taxpayer can raise arguments by way of defence to enforcement but cannot take pre-emptive action by way of ordinary civil claim declarations where HMRC have merely threatened enforcement, it was clear that any pre-emptive action in such a case required the claim to be brought by way of judicial review.

Turning back to the Labeikis case, the High Court also held that essentially public law claims as to the validity of the loan charge should clearly have been brought by way of judicial review and to seek to bring them by way of Part 8 claim was an abuse of process.

In Labeikis, HMRC also argued that the Part 8 claims also infringed the exclusivity principle. That is, that it was a misuse of the Part 8 claims process to challenge prospective decisions by HMRC which would have been (once made) subject to the exclusive jurisdiction of the FTT under a statutory appeals procedure. The taxpayer had argued that the exclusivity principle infringed the EU principle of effectiveness and, in particular, the requirement that Member States should provide an effective remedy and this required domestic law to allow a taxpayer to be able to have point of law as to the compatibility of tax legislation determined in advance of any assessment to tax. The Court rejected that argument concluding that “It is not the proper function of the court to grant declaratory relief on a claim whose primary purpose is not to rule on any actual dispute between the parties, but rather to enable the claimant to obtain guidance from the court on how to manage or arrange their tax affairs. The proper role of the court is to adjudicate on real and specific disputes, not on hypothetical or academic arguments.”