As HMRC’s powers increase, we are seeing more and more cases being decided in the High Court under Judicial Review (JR). For many tax advisers, JR remains a black box; it has been heard of and relevant decisions are referred to but without really knowing or understanding the mechanics of the process. Mala Kapacee, Director of the London Tax Network, attempts to demystify JR, explaining what it is and when and how it can be used.
Judicial Review is the courts reviewing a decision made by a statutory body or government department (“public body”) where the decision may not have been made with power being used in the way Parliament intended.
JR applies to ensure that public bodies act reasonably and within the powers conferred upon them by Parliament. So, for example, where legislation suggests that an officer of HMRC has “discretion” to make a decision, at face value it may appear that there is no legal limit to that discretion. It is possible to challenge the decision via JR the decision reached is unreasonable/irrational or the procedure adopted was unfair. Whether or not a decision is considered to be reasonable is determined in line with the Wednesbury Principles (Associated Provincial Picture Houses Ltd v Wednesbury Corporation (1948) 1 KB 223):
- “a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question could have arrived at it”; or
- “beyond the range of responses open to a reasonable decision maker”.
Individuals can therefore request a review of a decision made by a public body where
a) the public body exercised their powers beyond the scope intended by Parliament (acting ultra vires);
b) the decision was reached incorrectly by not taking into account all relevant facts or by incorrectly disregarding facts; or
c) there was a breach of proportionality, where the decision reached is out of proportion to the issue at hand.
Effectively, JR is a way for the Crown to ensure its “police” are held to account for the way they make their decisions. That said, JR judges do not have jurisdiction to “correct” the decision. They can only rule on whether they consider the decision to have been reached on an incorrect basis, by not following required procedures or by acting outside the powers granted. It may still be possible for the same decision to be reached following the correct legal routes.
Advisers should make clients aware that a positive result in JR may not ultimately change the result; it may be possible for HMRC to issue the same decision on different grounds. The point should be considered carefully as, if the final outcome is unlikely to change, the client may wish to settle with HMRC rather than go through the stress and cost of an open hearing.
In summary, JR is a type of court proceeding in which a judge reviews the lawfulness of a decision or action made by a public body. The Courts and Tribunals Judiciary define JR as “a challenge to the way in which a decision has been made, rather than the rights and wrongs of the conclusion reached”. The judge in a JR case will not overturn a decision if they believe the correct legal procedure has been followed and the relevant public body has acted within its powers in the way that Parliament intended.
In this article, JR is addressed as a way of challenging HMRC decisions as these are most likely to be relevant to tax advisers. In tax cases, JR is most commonly used in relation to:
- Accelerated Payment Notices and Follower Notices, where there is no right of appeal;
- Information notices issued with the approval of Tribunal, where the taxpayer cannot therefore appeal to tribunal;
- Failure by HMRC to apply an Extra-Statutory Concession, which is a challenge to the use of discretion; and
- The treatment of taxpayers (including discrimination, breach of human rights, legitimate expectation or other agreements, explicit or implied).
JR hearings relating to tax have increased significantly since 2014 when Accelerated Payment Notice and Follower Notice legislation was enacted in Finance Act 2014. However, it took until 2019 for an appeal against APNs and FNs to succeed at JR (R (on the application of Haworth) v R & C Commrs  BTC 13). The claim was for the FN/APN to be quashed on the grounds that HMRC had misunderstood the significance of a prior judgement and that the notice had been issued illegally because the legislative requirements for issuing a FN had not been met.
Clients will rely on guidance from their tax advisers as often, they will be unaware of JR as an option or how it will apply. Advisers in turn need to be aware of when clients can go for JR and what time limits apply. Failing to adhere to time limits will almost certainly result in a lost case.
Another example of a JR case successfully brought against HMRC is R (on the application of Vacation Rentals (UK) Limited) v HMRC  UKUT 383. In this case, the appellants demonstrated their reliance on HMRC’s guidance and the High Court found that HMRC’s decision to levy VAT on credit/debit card transactions was unfair and an abuse of power. Legitimate expectation is another area that is often disputed and advisers need to be aware of what it means and when clients may rely on it.
When and how does Judicial Review apply
JR claims can only be made where there is a decision made by a public body and no other "alternative remedy" is available. Applicants require permission from the Court to apply for JR and applications for JR can only be made by lawyers. There is no right of appeal against Accelerated Payment notices and therefore, a number of these cases have been heard in JR since 2014 on the basis that HMRC have issued them illegally/unfairly.
For a person to challenge a decision at JR, they must also have “sufficient interest”, though – according to the Judge Over Your Shoulder guidance note published in October 2018 (JOYS) - this term should be interpreted widely by the courts and may include more than just the taxpayer directly affected. This could be relevant in tax cases that have been taken as far as they can and where the taxpayer directly affected may no longer wish to continue the fight for financial or personal reasons (for example). If it is agreed that the case in question revolves around a particular point of law that may set a precedent for future, another person may have “sufficient interest” to then take the case to JR.
The claim against the decision must be for
a) a mandatory order – compelling HMRC to take a certain action;
b) a prohibiting order – to prevent HMRC from taking a particular action, for example, collecting a debt immediately;
c) a quashing order – which invalidates a decision made by HMRC, most commonly applied for in tax cases; or
d) an injunction order - an order made to stop HMRC from acting unlawfully.
A claim for judicial review may include a claim for damages, restitution or the recovery of a sum due but may not seek such a remedy alone.
Once it has been determined that there is no alternative remedy, the taxpayer must obtain permission for their case to proceed. The purpose of this is to ensure that the case is being brought for the correct reasons and that JR is the correct forum to hear the dispute.
Administrative Law is the law the governs public bodies as they carry out public functions and as such, any claims for a review of a decision made by such bodies must be filed in the Administrative Court. JR and Administrative Law regulate the making of decisions and the application of relevant decision making procedures. Courts have also determined that JR can apply to subordinate legislation. In terms of tax, this includes Statutory Instruments and HMRC guidance.
The application for a JR claim must be filed within 3 months of the date the disputed decision is issued. The claim form must be filed – in person – at the Administrative Court and the fee (£154) paid. In cash. There are several regional centres for the Administrative Court but the main one is in London at the Royal Courts of Justice. Note that the application for JR can only be filed by a lawyer and legal advice is recommended before proceeding down the JR route.
Prior to filing an application for permission to proceed to JR, the claimant usually sends a pre-action protocol (PAP) to HMRC. Whilst this is not a compulsory step, it is expected and those who do not send a PAP will be expected to explain why at the hearing.
Where a tax practitioner considers that JR may be worth exploring to appeal HMRC’s decision, it is important that they contact a lawyer sooner rather than later bearing in mind the strict deadlines. The success of an application for a taxpayer to proceed with JR will depend largely on the facts of the case and therefore the grounds for requesting JR should reflect the basis of the claim itself.
Historically, permission for JR is initially refused in the majority of cases on the basis that there is an alternative remedy or that the application is out of time. If the latter applies, it is unlikely to be overturned on appeal. If the initial application is refused on paper, the claimant can then apply to renew it at an oral hearing. In this case judges are leaning towards “rolled up” applications where if application is granted, then the outcome of JR will be decided at the same time. This underscores the importance of a well prepared application for permission to apply for JR.
In order to determine the “lawfulness” of a decision, Administrative Law requires the Judge to look at the following:
• Legality – acting within the scope of any powers and for a proper purpose...;
• Procedural fairness – e.g. to give the individual an opportunity to be heard;
• Reasonableness or Rationality – following a proper reasoning process and so coming to a
• Compatibility with the Convention rights and EC law.
In relation to the first point, legislation in relation to HMRC Powers may be drafted broadly (e.g. in relation to information that can be requested under Sch36, Finance Act 2008). In these cases, JR is unlikely to confirm that HMRC have acted ultra vires. However, not only may it be possible to argue the point vis a vis reasonableness and proportionality, the threat alone of going to JR may compel HMRC to reconsider their position.
Since the power to determine tax payable is based on legislation, the courts may only overrule the legislation where it conflicts with EU law (e.g. Human rights). Many cases have been brought to JR on this basis but very few have succeeded so far. As with all tribunal cases, anything can happen on the day and though JR is far from being a “silver bullet”, used wisely, it can focus HMRC and push them to consider whether they are confident enough to defend their approach in court.
Key points to identify before applying for JR:
- what is the disputed decision?
- was the decision reached incorrectly, is it disproportional/unfair or has HMRC acted ultra vires?
- no alternative remedy?
- timelines - is the client in time to file for JR (and do they want to)?
If all the above criteria are met, or if there is any doubt, then advisers should contact a lawyer sooner rather than later to ensure that time limits do not elapse and that there is sufficient time to prepare all relevant paperwork.
Mala Kapacee is a Chartered Tax Adviser and Director of London Tax Network Ltd, a Tax Investigations Specialist consultancy. Her experience includes resolving tax enquiries, CoP8 and 9 Investigations as well as disclosures for a range of taxes and situations; self-employment, property, owner managed businesses and non-UK domiciled individuals. Mala lectures regularly for professional bodies including the CIOT and the CIMA. She founded the London Tax Society in 2017 and actively encourages networking and technical development for Young Professionals. She was a finalist for Best Rising Star in Tolley’s Taxation Awards 2020. Email firstname.lastname@example.org or call 07783 236 845.