High Court: year-long wait in tax First-tier Tribunal case 'frankly unacceptable'

Figures obtained by Pinsent Masons, the law firm behind Out-Law.com, show that the backlog of tax disputes waiting to be heard by the FTT reached 28,800 last year, more than double the 2009-10 figure. It is the third year in a row that the number has increased.

"The Administrative Court was highly critical of the fact that the FTT appeal might not be heard for a year. The case illustrates the very serious impact that delays in the FTT can have on taxpayers," said Jake Landman, a tax disputes expert at Pinsent Masons.

Mr Justice Mostyn made the comments in a judgment granting an injunction to make HM Revenue & Customs (HMRC) temporarily reinstate an approval that a wholesaler of alcohol needed in order to trade.

HMRC had withdrawn approval for an unnamed company to store duty-suspended alcohol in its warehouse. A wholesaler of duty-paid alcohol has to be registered and approved as a 'fit and proper' person by HMRC and commits a criminal offence if it sells alcohol after a determination by HMRC that it is not fit and proper. Anyone purchasing alcohol from a wholesaler who is not approved commits a criminal offence if he knows or ought to have known of the lack of approval.

The company appealed HMRC's decision to the FTT but there would be a lengthy delay before the FTT could hear the issue so the company asked HMRC to temporarily reinstate the approval. HMRC refused but as the FTT has no power to reinstate the approval temporarily, the company had to apply in the Administrative Court for an injunction against HMRC arguing that it would go out of business if it could not trade in the period before the hearing.

"Of course, it is a blot on our legal system that this kind of case needs to happen at all. In an efficient, well-resourced tribunal service arrangements would surely be in place to ensure that in a case such as this, where the FTT has no power to award interim relief, the appeal would be heard extremely quickly", Judge Mostyn said.

HMRC's decision to withdraw approval was made on 11 January 2019 to take effect on 11 April 2019. The appeal to the FTT was filed on 30 January 2019 but the appeal is not due to be heard until sometime between 14 June 2019 and 14 January 2020 – possibly almost a year after it was filed.

"This is frankly unacceptable", the judge said. "The system should provide in a case such as this that the appeal should be heard within a matter of weeks and certainly before the date on which the withdrawal of approval takes effect. Were that the norm then satellite litigation of the type on which I have spent two days (including reading and judgment writing), at some considerable expense to the parties, would be avoided, thus freeing up the court's most precious resource, namely judicial time."

"I have to say that I find it disturbing that in this case one arm of the government fails to provide a sufficiently resourced appeal service to enable a challenge to a withdrawal of approval to be heard without harmful delay, while at the same time another arm of the government, namely HMRC, argues that it is reasonable for the claimant to be exposed to the risk of insolvency caused by that very delay," he said.

The judge said that to succeed the company had to show "to a high degree of probability" that if the order was not made its appeal to the FTT would be rendered "nugatory or illusory" because the company would go out of business before the appeal was heard. Having considered the evidence of a predicted loss of around £200,000 if the company could not warehouse alcohol, the judge was satisfied that the company had shown this.

The judge was also satisfied, without prejudging the case, that the company's appeal to the FTT was arguable and would not be susceptible to being struck out as disclosing no reasonable prospect of succeeding.

He said the final step was then for him to "conduct a balancing exercise" weighing the advantage to the company in being allowed to continue to trade against the disadvantage to HMRC. He said the balancing exercise "comes down firmly" in favour of the company

"The claimant has the right to challenge the reasonableness of [HMRC's] decision. That right is not given an effective remedy if the claimant is exposed to a high probability of collapse into insolvency because of the delay before the challenge can be heard. The right of [HMRC] as regulator to render its decision is undoubted but it is a qualified or conditional right since it is subject to the appeal process," the judge said.

Jake Landman said: "The judge also commented that the existence of the FTT appeal right effectively made the claimant company worse off. Had such an appeal right not existed then the company would have been free to pursue a judicial review in respect of the withdrawal of the approval itself which the Court considered would be more likely to result in a speedier resolution."