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Continuing his submissions on the second day (2 February) of the judicial review hearing into the termination by HMRC of Christopher Lunn & Co’s (CLAC) status as a tax agent, the firm’s counsel moved on to consider a series of legal propositions, writes Mike Truman.
He supported them by references to precedent. In summary, he argued:
- HMRC has discretion over the care and management of the tax system, but that discretion has to be exercised on reasonable grounds and is subject to judicial review.
- When adjudication is taking place, the person affected should normally have a right to be heard, particularly when being deprived of livelihood.
- That the cases disclosed three types of case in this area: forfeiture cases, in which an existing right was being revoked; application cases, in which there was no pre-existing right; and expectation cases, in which there is a legitimate expectation that something will happen. Counsel submitted this was a forfeiture case, or if not then a legitimate expectation case, which in both cases would engage natural justice rules at a higher level.
- Adequate notice is normally required for the principles of natural justice to be met, and the defendant has a right not to be taken unfairly by surprise in disciplinary situations. If the full allegations against CLAC could not be disclosed prior to making the decision to terminate its status, a summary should have been provided. The issue of confidentiality would not arise when the allegations concerned its own work for clients.
- Although acknowledging that this was more controversial law, counsel argued that the cases had arrived at the point at which reasons were normally required to be given if the rules of natural justice were to be met, although not at the point where reasons were always required. He argued that this was a case in which reasons that reflected the reality of how the decision was arrived at should have been given.
- On the issue of legitimate expectation, he argued this was inextricably bound up with legal fairness and could arise from past conduct. HMRC had continued to deal with CLAC and its advisers right up to the date agent status was terminated, without giving any indication it was under consideration.
Summarising his submission based on the law and facts, CLAC’s counsel said the decision was procedurally flawed, because the firm was not given the opportunity to make representations before the Commissioners for Revenue & Customs reached their decision.
CLAC should have been given notice and access to the evidential material the commissioners were to consider. The firm had a legitimate expectation that it would continue to be allowed to act as an agent, because it had been through the formal process of authorisation, and it had been allowed to continue despite the criminal investigation and the search in June 2010.
The reasons given for the decision did not reflect the evidence now seen, which proposed the two possibilities of suspension in respect of pre-22 June accounts and returns only, or a total ban. Had CLAC seen this material, it could have made cogent representations to the issue at which the commissioners were looking.
Counsel disputed the contention from HMRC that the imminence of the 31 January self assessment (SA) deadline prevented the option of the commissioners issuing a letter saying they were ‘minded to revoke’ the firm’s agent status and inviting representations before such a decision was finalised.
By 30 November, most of the work for clients would already have been done and returns submitted. With letters arriving on 3 December, a Christmas holiday after which most people did not go back to work until 10 December (this may not be a picture that many readers recognise), it was inconceivable that new agents could be instructed in time for the 31 January SA deadline to be met.
Indeed, the deadline was a red herring, because of the statement by the criminal investigation team that there was no evidence of any fraudulent conduct after 22 June.
If HMRC really believed the claimants were ‘flawed through and through’, then they had the evidence on which they could rely well before this. The criminal investigation had started in 2009, the search had taken place in June 2010, and the claimants’ interviews had taken place at the end of June.
If at that point the Revenue had addressed the question of terminating CLAC’s agent status, it would have given plenty of time to allow representations in advance. That, however, was not really the issue that was in the investigator’s mind.
This was borne out, counsel contended, by what actually happened. On 12 January, when it became clear that the judicial review hearing would not take place in time for CLAC to be reinstated as an agent, it was agreed that the firm’s clients would be allowed to submit hard-copy returns, showing estimated or provisional figures, with no penalty.
This drove a coach and horses through the idea that the SA deadline was the key. HMRC had a right to terminate a firm’s status as a tax agent, but they should have gone about it differently; the way that they had made their decision was manifestly unfair.
A report of the defence from HMRC will be posted on Taxation.co.uk tomorrow.
Arguments in the case concluded on 2 February, and the judge reserved his decision. He said he recognised the urgency and would give his judgment as soon as possible.
