A substantial amount of my time as a tax adviser is spent reading tax cases. Keeping abreast of court and tribunal decisions is a necessary and vital part of my work. Actually, anyone involved in tax to any significant extent needs to be aware of new developments, including judgments which change the prevailing interpretation of the tax law.
The First-tier Tribunal (FTT) is the primary destination of most tax appeals. The FTT deals with a considerable number of tax cases each year. Decisions of the FTT do not generally create a binding legal precedent. However, they can be influential in other decisions of the courts and tribunals, and are often cited by HMRC and taxpayers in support of their contentions in disputes on the numerous ‘grey’ areas of the tax legislation.
When looking at individual FTT cases, it is worth noting how the taxpayer was represented at the tribunal hearing. For example, some taxpayers are represented by a tax barrister (also known as tax counsel). Other taxpayers use tax enquiry specialists, or perhaps a representative from the firm of accountants acting as their agents. Sometimes taxpayers choose to represent themselves at the tribunal hearing; or they are not represented at all.
Does it matter who represents the taxpayer at a FTT hearing? The correct answer surely has to be that it does. However, the nature and complexity of tax appeals varies widely. For example, much of my work involves technical disputes with HMRC about how the tax legislation should be interpreted, as opposed to (say) appeals about penalties or surcharges. My own approach has previously been to instruct tax counsel if the technical dispute was complex and appeared to be heading for a contentious appeal hearing before the tribunal. Consequently, my experience of contentious appeal hearings has so far been an appearance before the General Commissioners (which preceded the FTT).
The rationale for this approach was that I was acting in the client’s best interests, on the footing that tax counsel had the requisite experience of preparing and presenting a case before the tribunal. I suspect that a number of Taxation readers will be working on a similar basis. Of course, the main criticism of such an approach is that the only way to gain experience is (to quote a well-known advertising slogan) ‘just do it’!
I therefore asked tax counsel from Pump Court Tax Chambers for some practical tips and advice about representing clients before the FTT. I was also interested in their views on what types of cases are potentially suitable for the inexperienced, and what cases would be better handled by tax counsel.
An easy start?
Everyone has to start somewhere, as the expression goes, and representing a client before the FTT for the first time is no exception. Is there such a thing as an easy start? In Sadiya Choudhury’s view “there is no ideal ‘first case’ someone could take to the tribunal.” She added: “while it would be easier to take a relatively small matter such as a default surcharge or penalty appeal to the tribunal, this would not provide much useful experience when it came to dealing with a more complex matter”. Laura Poots was not sure that there is a particular type of case that would be suitable for a ‘first-timer’ either, but suggested that it was perhaps best to start with something that is not very factually complex.
However, whilst there is probably no ideal first case, Charles Bradley pinpointed some potential features to look out for: "cases most suitable for a beginner are ones which will not require a long hearing; which will not involve substantial witness evidence; and which do not raise novel points of law or require extensive citation of authority”. However, he warned: “sometimes in tax this is easier said than done!”
Leave it to the experts?
Of course, tax is an enormously complicated area of law. Whilst some cases before the tribunal may be suitable for those who are inexperienced but well-prepared, others will undoubtedly be unsuitable.
What types of cases would be better handled by someone with the requisite tax knowledge and experience of tribunal hearings, in particular tax counsel? Sadiya Choudhury considered that such cases included those with a long or complicated factual background, or those involving finely balanced points of law. Laura Poots and Charles Bradley added to that list cases involving detailed legal argument (eg over how legislation should be interpreted, or how case law should be applied), cases involving witness evidence which is likely to be contested, and cases involving areas of law other than tax law (eg trust or company law).
In a significant number of the more complex FTT cases in particular, the taxpayer’s accountants or solicitor will instruct tax counsel to represent their client. Tax counsel may be ‘junior’ (the somewhat archaic term used to describe a barrister who has not yet attained the rank of Queen’s Counsel), or Queen’s Counsel (otherwise known as ‘Silks’), or both.
When should a client instruct a Silk in an appeal before the tribunal? Giles Goodfellow QC commented: “if the facts are important to the appeal and are controversial, the first hearing is the appellant’s best, and probably only, chance to obtain a favourable set of findings. The better the findings, the less ambitious the submissions of law have to be in order to win the appeal. Bad findings of fact, on the other hand, cannot be put right on appeal.” Of course, professional fees are a major consideration for many clients. However, Giles pointed out: “whilst it's tempting to minimise expenditure on the first appeal, it may not save money in the long term.” In practice, the clerks at counsels’ chambers will often help to control costs by directing the client to counsel with appropriate seniority for the particular case.
Rules of the game
One aspect of appeal hearings which may be offputting for some is that there are rules and procedures which must be observed. The law governing the First-tier Tax and Upper Tribunal generally is contained in the Tribunals, Courts and Enforcement Act 2007, while the rules applicable to tax appeals before the FTT are contained in the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, SI 2009/273.
How important is it to know the tribunal rules and procedures? Thomas Chacko noted: “Tribunal procedure is quite informal, but on things like appeal deadlines it is important to get them right.” Sadiya Choudhury added: “the tribunal will provide some assistance to a lay client in relation to the relevant rules. However, the advice and assistance provided by the tribunal to a tax adviser representing their client is limited, as they will be generally assumed to be aware of the rules.”
Thus in spite of the relative informality and ‘user-friendliness’ of the FTT, familiarity with the First-tier Tribunal Rules is necessary and important (although, as Charles Bradley pointed out: “on the plus side, they are not very long!”), and the procedures should be carefully followed.
Aside from the tribunal rules, Charles pointed out that some legal principles apply to the tribunal as they do in other courts of law. He observed: “a point often overlooked both by taxpayers and HMRC is the ‘rule in Browne v Dunn’  6 R 67 HL, under which the tribunal is not entitled to disbelieve a witness’ evidence on a point unless it has been specifically challenged in cross examination. For a recent tax case in which this was relevant, see the Upper Tribunal's decision in Joseph Okolo v HMRC  UKUT 416 (TCC).”
Preparing for the hearing
How should one prepare when taking a case to the FTT for the first time? Jonathan Bremner pointed out that in order to prepare and present the evidence properly in a hearing, it is important to establish a suitable procedural timetable at an early stage. This can be agreed with HMRC or, in default of agreement, set by the tribunal. Jonathan commented: “the most sensible approach is to work backwards from the likely date of the hearing and set realistic deadlines for making disclosure, exchanging witness statements and exchanging expert reports”. He added: “in the run-up to the hearing sensible bundles need to be agreed with HMRC. If the documentary material is not well organised the tribunal will find the evidence and the arguments difficult to follow.”
A statement of facts and issues should also be agreed if possible, so that both parties are clear about the issues actually in dispute. Laura Poots considered that this is particularly important if there is a long history of correspondence, where a number of issues have been raised and argued already. In addition, Thomas Chacko advised: “make sure you understand HMRC’s arguments - they may be better than you think.”
The overall message is that preparing for a hearing requires a significant investment of both time and effort. In Charles Bradley’s view: “proper preparation is both time-consuming and essential to success. The good news, though, is that there is no particular magic to it. The key is to make sure that you have planned the structure of your submissions in detail and thought about answers to the obvious questions the tribunal might ask about your case.” Charles suggested that a possible approach would be for the adviser to write out exactly what he or she was going to say, although this should not be used as a script on the day of the hearing.
The day itself…
The day of the tribunal hearing finally arrives. The inexperienced adviser has diligently prepared the client’s case. But what about presenting the case to the tribunal? The overriding advice of counsel was to remain objective, calm and unruffled, and to be thoroughly prepared. In addition, the following specific tips were offered:
- Know the papers - Jonathan Bremner’s advice is to make sure that the representative is on top of the case documents and knows where they are in the bundles of papers. He warned: “a tribunal gets irritated very quickly with an advocate who is not on top of his material. Even if the points made are good points, poor presentation diminishes their impact.”
- Speak slowly and carefully – When presenting the case to the tribunal, the recommendation of Laura Poots was: “speak even more slowly than you might think, and watch for the Judge taking notes - pause if necessary to allow them to make their notes.” Charles Bradley agreed, and also suggested keeping a glass of water at hand.
- Don’t be ruffled by questions from the Judge - The tribunal may ask questions on the day. However, in Jonathan’s view this may not be such a bad thing: “the fact that questions are asked of you does not necessarily mean that the Judge is not ‘on side’. Many judges like to test even the arguments which they are finding persuasive. Conversely, a judge who does not ask a single question may still go away and write an unfavourable decision. At least if questions are asked you can see what the Judge’s concerns are, and you have an opportunity to deal with them.”
- Prepare your witnesses – Charles Bradley recommended: “you cannot, of course, coach witnesses giving evidence for your side, but you can make sure that they are put at ease, and that they understand what they are going to be asked to do, and when.”
- Handling HMRC – A potentially daunting challenge on the day of the tribunal hearing is facing HMRC (or their representative, which may be tax counsel). Sadiya Choudhury warned that the taxpayer’s representative must be ready to deal with the arguments that HMRC will make against the client's case. Thomas Chacko advised: “if HMRC surprises you with a new case or new evidence, ask for time to consider it. You may need to ask for an adjournment, though you might not get it.” Thomas added that it is important to keep track of what HMRC asks your witnesses in cross-examination. He explained: “if they don’t challenge a witness in the box, but then make submissions that imply the witness was lying, the tribunal won't necessarily pick them up on that, so you will have to be ready to do so.”
Taking appeals to tribunal hearings is an additional service that many tax professionals would no doubt like to offer their clients, or possibly provide on a more regular basis. However, new or inexperienced professionals would seemingly need to be aware of their limitations, and be able to objectively identify those client cases which would be better served by instructing a more suitably qualified and experienced representative, such as a tax barrister. That aside, the good news seems to be that the necessary skills and qualities in the preparation and presentation of an appeal to the tribunal can generally be learned and acquired over time, through practice and experience.
Equipped with this knowledge, and also the words of wisdom from tax counsel in this article, all that’s needed now is one or two potentially suitable cases to take to the First-tier Tribunal. On the other hand, the expression “be careful what you wish for” is perhaps an apt one!
I am grateful to the following counsel at Pump Court Tax Chambers for their helpful views and comments in this article: Charles Bradley, Jonathan Bremner, Thomas Chacko, Sadiya Choudhury, Giles Goodfellow QC and Laura Poots. Many thanks as well to Nigel Jones, Senior Clerk, for his kind co-operation and assistance.
Mark McLaughlin CTA (Fellow), ATT (Fellow), TEP
The above article was first published in ‘Taxation’ (12 September 2013).