Tribunal erred in law by refusing HMRC's application to strike out taxpayer's appeal

In HMRC v Tasca Tankers Ltd [2022] UKUT 00088, the Upper Tribunal (UT) held that the First-tier Tribunal (FTT) had erred in law by refusing HMRC's application to strike out a taxpayer's appeal against HMRC's decision to deny input VAT.

Background

Tasca Tankers Ltd (Tasca) was incorporated in September 1994 and became VAT registered in February 1995. Its main business was the manufacture, sale (new and second-hand) and repair of road tankers. In addition, in 2014, it commenced trading in second-hand cars but did not inform HMRC. Following the receipt of mutual assistance requests from the Republic of Ireland’s tax authority, HMRC visited Tasca's premises in 2016.

Following this visit, HMRC claimed that Tasca's second-hand car business was connected with the fraudulent evasion of VAT by various traders. HMRC subsequently issued a decision to Tasca on 13 October 2016 (the Decision) relating to Tasca’s input tax for VAT periods 12/14-06/16. HMRC denied Tasca the input tax on the basis that it knew, or should have known, that certain transactions were connected with the fraudulent evasion of VAT in accordance with the Kittel principle (Axel Kittel v Belgium & Belgium v Recolta Recycling SPRL C-439/04 and C-440/04 [2008] STC 1537). Tasca appealed the Decision to the FTT.

HMRC applied to the FTT to strike out Tasca's appeal, pursuant to Rule 8(3)(c) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the Rules). Rule 8(3)(c) permits the FTT to strike out the whole or part of proceedings if it considers that "there is no reasonable prospect of the appellant’s case, or part of it, succeeding".

The FTT refused HMRC's strike out application (a copy of the FTT's decision can be viewed here) and refused HMRC permission to appeal o the UT, but permission to appeal was subsequently granted by the UT. 

UT's decision

The appeal was allowed and the FTT's decision was set aside. 

The UT agreed with HMRC that the FTT judge failed to consider HMRC's case, instead stating that such an appeal required a full hearing without providing an explanation as to why this was the case. In the view of the UT, there was a critical gap in the judge's  reasoning (at paragraphs 77-83 of his decision) and elements of his reasoning did not support his conclusions. Although the judge had correctly identified the relevant test of law to be applied, he had failed to apply it to the evidence before him.  

The UT therefore allowed the appeal and remitted HMRC's strike out application back to the FTT to be reconsidered by a different judge to be chosen by the President of the Tax Chamber of the FTT.

Comment 

We have noticed an increased tendency on the part of HMRC to make strike out applications under Rule 8(3)(c) of the Rules. Whilst there will be cases where such an application is  justified, the tax tribunals need to be vigilant to the risk that such applications become the norm whenever HMRC consider a taxpayer's case to be weak. As a result of HMRC's actions, the taxpayer in this case has been put to the trouble and expense of having to attend what will be three separate hearings before the tax tribunals before its substantive appeal is considered by the FTT. Whilst HMRC may have deep pockets, taxpayers have limited resources at their disposal.

It will be interesting to see the outcome of HMRC's strike out application when it is considered by a different FTT judge.  If that judge reaches the same conclusion as the first FTT judge, it is to be hoped that HMRC will not seek to appeal that decision to the UT and will allow the taxpayer to have its day in court where the evidence it wishes to rely upon can be tested.

The decision can be viewed here.