Tax – Jury still out on VAT assessments

Many people question why direct tax appeals are heard by the Chancery Division of the High Court, and indirect tax ones by the Queen’s Bench Division, when they would prefer both to be dealt with by the same judges. Perhaps the recent decision of Mr Justice Carnwath in Rahman (t/a Khayam Restaurant) v C&E Commissioners provides a good answer to that question.

Carnwath is a Chancery Division judge, who seems to be lent out to the Queen’s Bench Division from time to time, to hear VAT appeals.

Carnwath was concerned with an appeal against a VAT assessment. Where it appears to Customs & Excise that a return is incomplete or incorrect, it has the power to assess the amount of VAT due, to the best of its judgement.

The taxpayer then has a right of appeal with respect to ‘an assessment … or the amount of such an assessment’.

Logic suggests that these are two distinct things. Is the assessment valid and, if so, is the amount correct?

Appealing approach

This two-stage approach was confirmed by Mr Justice Woolf, in December 1980, in the case of Van Boeckel v C&E Commissioners. Since then, everyone has been following that procedure.

In Van Boeckel, the taxpayer contended that Customs had failed to act to the best of its judgement on the material before it. Obviously, it must perform that function honestly and conscientiously.

Tolley’s VAT Cases discloses that 11 different tribunals have set aside appeals on the Van Boeckel principle, holding that – on the information available to Customs – it ought not to have assessed the amount that it did.

In Rahman, Carnwath – ‘as one who is more familiar with the assessment process in the context of Taxes Act’ (as he describes himself) – questions the established wisdom.

He is puzzled as to why this two-stage approach has not been followed in direct tax matters.

One suggestion I would put forward is: because the law is different. The general and special commissioners are not required to determine the amount of the assessment.

If it appears to them that the appellant is overcharged, they are required to reduce the assessment, but otherwise it must stand good. They do not have to form a judgement of the amount that should be assessed; they must either be convinced it is wrong, or they must uphold it.

I do not find it surprising that the route to discharge this different responsibility should differ from VAT appeals.

Carnwath does not actually dismiss Woolf’s two-stage approach; he accepts, in principle, that there is nothing wrong with it. There, however, he departs from the approach that has been followed since Van Boeckel, in that, from his direct tax background, he states: ‘That kind of case is likely to be extremely rare.’ He does concede, though, that an assessment can be set aside ‘if it is shown to have been wholly unreasonable or not bona fide’.

Who are they to judge?

In the normal case, it should simply be assumed that the Commissioners have made a genuine attempt to reach a fair assessment. The debate before the tribunal should be concentrated on judging whether the amount of the assessment should be sustained or not.

In other words, part of the Van Boeckel test is, in most cases, a formality, as Customs is almost always entitled to win. No matter that, statutorily, the right of appeal against the assessment is distinct from the right of appeal against its amount.

Carnwath, however, offers no suggestion as to what that separate right of appeal is intended to cover. His interpretation seems to limit the VAT tribunal to a sort of judicial review role, although it is inherently improbable that parliament intended to give such a role to a tribunal.

So, must we now all get used to this brave new world? Well, not exactly.

A couple of weeks later, in Murat v C&E Commissioners, Mr Justice Collins, a Queen’s Bench Division judge, followed the Van Boeckel approach.

Confused? I am. The scope of the right to appeal is clearly a fundamental matter on which taxpayers are entitled to know where they stand. Pre-Rahman, the position was clear. It is no longer so.

Parliament needs to sort out the mess that has been created.

Robert Maas is a partner with Blackstone Franks.

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