Hok landmark case clips first-tier’s wings

by Calum Fuller

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29 Oct 2012

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The Royal Courts of Justice

IF YOU COULD BET on court cases, it is likely you would have got long odds on a taxman win in the Hok case.

The first-tier tribunal had admonished the Revenue for what it saw as deliberately failing to act in "good conscience" after architechtural company Hok missed the May deadline to file its PAYE employer's tax return for the 2010/2011 tax year.

The company's one employee ceased employment midway through the year and Hok was unaware a return still needed to be filed.

However, HMRC did not send the penalty notice until October, which caused the fine to accumulate.

Now, though, the first-tier tribunal has, in turn, been admonished by the upper-tier, with first-tier tibunal judge Geraint Jones QC's ruling described as "not appropriate" and based on "assumption" by Judge Bishopp, who presided over the upper tier ruling.

As a result, the accumulated fines have been restored to £500 - £100 for every month missed.

Bishopp even acknowledged that his decision, along with HMRC's pursuit of the case, might appear unfair in the light of recent changes to the taxman's practice, with regular notices of liabilities now sent out.

Not only that, but Hok's non-presence in court - instead making only written arguments - did not afford it the "benefit of any oral submissions to counter those [arguments] advanced by [HMRC]", said Bishopp.

But quite apart from anything else, the key element here is the extent of the first-tier's jurisdiction.

According to the upper-tier's transcript, numerous first-tier tribunals have adopted similar approaches to that taken by Jones in this case, but HMRC contended that the tribunal's authority did not extend so far as to allow it to discharge penalties.

"If the officer has imposed a penalty in circumstances where one is due, and the penalty imposed is of the correct amount, there is nothing the tribunal is permitted to do", argued the taxman.

Bishopp agreed - in what can only be described as a bloody nose for the first tier - that the tribunal's power was limited to correcting mistakes on fixed penalties; deciding that an officer is wrong in believing a penalty was due or; a penalty was imposed of the wrong amount. Wider powers, though, are to not be available to the first tier.

According to Bishopp, there is no doubt that HMRC should act with fairness, rather what is in doubt is whether "the first-tier tribunal can give effect to that duty, by providing a remedy if it is breached".

He ruled that "the first-tier tribunal does not have any judicial review jurisdiction", and while Hok accepted its liability for a fine in the first instance, Jones's position that there was deliberacy in HMRC's delay in notifying Hok of the fines appears not to have sat well with Bishopp.

The response from the wider tax community has not been what one might call a fanfare.

Indeed, one commentator simply asked: "what is the point in a tribunal that can't consider fairness?", while another branded it "extreme and disproportionate".

The reaction has largely been one of disappointment after the taxpayer's apparently reasonable response and the Revenue's recognition - and implementation of - the need for more regular notification of penalties.

Not only that, some are questioning why the case was brought at all, especially over such a meagre figure as £500.

This, though, was a point of principle for both the taxman, which wanted to ensure the first-tier tribunal sticks strictly to its remit in the future, while simultaneously demonstrating its will pursue all tax liabilities rabidly.

In that, the Revenue has proven successful, and has effectively clipped the first-tier's wings in making an example of Hok.

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