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Tribunal refuses to hear preliminary issue in bank payroll tax case

A procedural point on whether HM Revenue & Customs (HMRC) had validly given notices of enquiry within the requisite time limits should not be heard separately as a preliminary issue, the First-tier Tax Tribunal (FTT) has decided in a case concerning bank payroll tax (BPT).07 Dec 2018

BPT was charged at 50% on bonuses of over £25,000 which were 'awarded' to a bank or building society's employees in the period from 9 December 2009 to 5 April 2010.

Companies in the Credit Suisse group were disputing around £63m of BPT which HMRC said was due, following an enquiry into the returns made by Credit Suisse. It argued that the notices were invalid because HMRC had not given notice of their intention to enquire into the BPT returns within the required time limit.  The group also argued that the tax was not due because the remuneration had not been 'awarded' in the period in which BPT applied.

The remuneration in question had been paid under an employee incentive scheme, outside the period when BPT applied, but HMRC claimed that payments were 'awarded' within the chargeable period because they were made pursuant to obligations or arrangements in existence during that period.

Credit Suisse wanted the procedural point in relation to the enquiry notices to be considered as a preliminary issue, but HMRC opposed the application.

FTT judge Charles Hellier consider the application and decided that hearing the enquiry notice point as a preliminary issue would not substantially reduce delay and, in fact, could lead to serious delay in the hearing of the BPT point if the enquiry point was appealed. HMRC had indicated that if it lost on the enquiry point, it would want to appeal the decision.

Although hearing the enquiry point as a preliminary issue could save costs if Credit Suisse won on that point, the judge said the issue was "finely balanced", but decided that "the dangers of delay outweigh the  potential costs saving" and so refused to hear the enquiry point as a preliminary issue.

“There is often a reluctance on HMRC’s part to allow taxpayers the opportunity to pursue a procedural challenge in isolation at a preliminary hearing,” said Jake Landman, a tax disputes expert at Pinsent Masons, the law firm behind Out-law.com.

“Because this is a case management decision, the bar for overturning it will be a high one, such that the group may decide not to pursue a challenge to what the FTT has decided in relation to whether there should be a preliminary hearing," he said.

In making his decision Judge Hellier considered the key principles set out in the 2015 Upper Tribunal case involving Wrottesley and HMRC. This said that the power to deal with matters separately at a preliminary hearing should be "exercised with caution and used sparingly"  and should only be exercised where there is a "succinct, knockout point" which will dispose of the case or an aspect of the case. The Upper Tribunal said that to be 'succinct' a point must be capable of being decided after a relatively short hearing, as compared to the rest of the case and without significant delay.

They said that regard should be had to whether there is any risk that determination of the preliminary issue could hinder the Tribunal in arriving at a just result at a subsequent hearing of the remainder of the case. They also said that account should be taken of any potential for overall delay, making allowance for the possibility of a separate appeal on the preliminary issue. The possibility that determination of the preliminary issue may result in there being no need for a further hearing should also be considered.

The judges in the Wrottesley case said that consideration should be given to whether determination of the preliminary issue would significantly cut down the cost and time required for pre-trial preparation or for the trial itself, or whether it could in fact increase costs overall.

They stressed that the Tribunal should at all times have in mind the overall objective of the tribunal rules, namely to enable the tribunal to deal with cases fairly and justly.