Effectively leapfrogging the Upper Tribunal in tax cases

The position of the Upper Tribunal in HMRC v Colchester Institute Corporation [2024] UKUT 397 is an extremely unusual one. In essence, HMRC admitted that its appeal in the case should be dismissed, but reserved the right to appeal the case to the Court of Appeal. In essence, HMRC accepted that the situation in this case was covered by an earlier UT decision but took the view that that decision was wrongly decided. However, rather than seeking to persuade the current UT that the earlier decision was incorrect, HMRC seeks to take the issue to the Court of Appeal through the UT without arguing the issue in the UT. In this case, the UT has been persuaded that such an approach, designed to save on judicial time and resource, is appropriate and has dismissed the appeal.

Background

The case concerns the VAT treatment of payments received by Colchester Institute from government funded bodies in respect of education and vocational training. In an earlier decision in relation to materially similar grant-funded education and training but for earlier periods, the Upper Tribunal held that the payments amounted to consideration for supplies applying the CJEU decision in Le Rayon d'Or (Case C-151/13).  

HMRC are now seeking to challenge new but materially similar grant-funded arrangements on the basis that the funding is not sufficiently connected with supplies to amount to consideration for VAT purposes. It argues that the earlier decision of the UT was incorrect. However, rather than seeking to persuade the UT that it should not follow the earlier decision, HMRC wishes, effectively, to by-pass the tribunals and make its case before the Court of Appeal. As such, it accepted that since it had not set its arguments out before the Upper Tribunal, the Upper Tribunal should find against it.

Decision of the Upper Tribunal

The Upper Tribunal has accepted this approach, in part since the taxpayer did not object to HMRC essentially reserving its position to make the arguments before the Court of Appeal should it obtain permission to appeal. However, the UT did point out the obvious risks for HMRC in this approach:

"If the UT refuses any permission to appeal application and the Court of Appeal does too there will be no onward appeal and HMRC will have lost the

opportunity to try to persuade the UT with the benefit of full argument on the issues to depart from the earlier UT decision. It should also be noted the procedural framework does not provide a leapfrog procedure from the FTT to the Court of Appeal. The normal course is for appeals to proceed from the FTT to the UT and if allowed onwards after a full hearing in the UT. The stance taken here means that if the matter proceeded to the Court of Appeal that court would not have the benefit of the UT's analysis in response to the detailed arguments that would otherwise have been rehearsed before it on whether the earlier UT decision was wrong. Against that is the risk of two conflicting UT decisions and the uncertainty that creates if the UT were to agree with HMRC and no appeal was made against the later decision and also the saving of judicial, administrative and party resource."

However, in the particular circumstances and in the light of the taxpayer's lack of objection, the UT was content to recognise HMRC's position before the UT and the reservation of the points in issue. Accordingly, the UT simply rejected HMRC's appeal on the basis that the position was covered in the earlier decision of the UT on materially similar facts.

Comment

This is a highly unusual case where HMRC has sought to by-pass the normal process of arguing its point before the UT. However, the Tribunal was persuaded that the approach had some merit in the circumstances in the saving of judicial time and resource. HMRC will now need to persuade the UT or the Court of Appeal that it should be allowed to appeal the matter further.

It is also of interest in showing that HMRC do not accept that the grant-funded payments in these circumstances are consideration for a supply of services. In particular, HMRC argue that the earlier decision wrongly identified the degree of specificity required for there to be a direct link for VAT purposes between the funding and actual services provided.