Tribunal jurisdiction confirmed

In cases concerning a Notice of Requirement (NOR) is the Tribunals jurisdiction merely supervisory or does the Tribunal have full appellate jurisdiction?

In the cases of MICHAEL STEFAN DUMA (MD) and HARRIOT K ROCKEY (HR) the Tribunal concluded it has full appellate jurisdiction and set aside the NOR’s.

Notice of requirement

A Notice of Requirement was given to Influence Network Ltd made under the Value Added Tax Act 1994, Schedule 11, paragraph 4(2)(a) requiring the provision of security of £40,932.25 for 24 months.

A Notice of Requirement was given to Influence Network Ltd made under the Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), regulation 97N and the Social Security (Contributions) Regulations 2001 (SI 2001/1004), Schedule 4, paragraph 29N requiring the provision of security of £96,439.34 (PAYE) and £79,307.61 (NIC) (a total of £175,746.95) for 24 months.

A Notice of Requirement in materially identical terms to the PAYE/NIC notice was given to MD.

A Notice of Requirement in materially identical terms to the PAYE/NIC notice was given to HR.

The Tribunals Decision

In the light of subsequent events, the Tribunal considered that there is no longer any purpose in maintaining the NOR’s in relation to PAYE and NIC. In other words, the NOR’s are no longer acting to protect the revenue but have the effect of punishing the Appellants for the previous failings of their company.

HMRC internal manual

HMRC’s submissions referred to the fact that HMRC’s internal manuals proceed on the basis that the Tribunals jurisdiction is only supervisory. Those manuals are not legally binding.

PAYE and NIC

With regard to the PAYE and NIC appeals the Tribunal found that it is clear from the relevant statutory instrument, which expressly provides that the nature of the matter is an appeal, that the Tribunal’s jurisdiction is broader than exercising a binary choice of upholding or quashing a notice, in that the Tribunal has the power to vary particular requirements within the notice.

VAT

For the equivalent VAT provisions, the conventional approach has been that, on any appeal, the Tribunal’s role is only supervisory. In section 83(1)(l) of the VAT Act 1994, there is a right of appeal with respect to “the requirement of any security”.

Section 84 does not contain any provision commenting on the scope of an appeal under section 83(1)(l). In contrast, section 84(4ZA), (4A), (4C), (7), (7ZA) and (7B) (which address other types of appeal) all expressly provide for situations where the role of the Tribunal on an appeal is supervisory only. The Tribunal could see considerable merit in saying that the absence of any express restrictions concerning section 83(1)(l) appeals means that the Tribunal has a full appellate jurisdiction on appeals against NOR’s to provide security in the VAT context.

Quantum

Had the NOR’s not been set aside the Tribunal conclude that the NOR’s should not have covered the amount of pre-existing PAYE/NIC debt and should be limited to £18,853.00 (PAYE) and £16,834.00 (NIC) totalling £35,687 as opposed to £175,746.95 as per the NOR’s.

Unlawful

The Tribunal commented that had the Tribunal jurisdiction been purely supervisory that it could consider HMRC’s original decision to include the pre-existing debt in the amounts for which security was sought to be unlawful. Given the fact that the pre-existing debt constituted such a significant proportion of the amount being sought (and could not be dismissed as de minimis), that unlawfulness would then have tainted the entirety of each Notice of Requirement and it would in such circumstances be obliged to set each Notice of Requirement aside in their entirety.

It can thus be seen that even if an NOR is valid questioning the amount required can be successfully disputed.

Contact

To discuss a Notice of Requirement or a Tax Tribunal jurisdiction issue call Solve VAT to speak to one of our VAT specialists on 0161 883 2120.