In Knibbs v HMRC  EWCA Civ 1719  BTC 28 (see here) several hundred claimants sought to argue, in proceedings issued in the Chancery Division, that, for procedural reasons, HMRC was unable to recover tax relief granted in respect of various tax schemes (many of which concerned film finance) which were subsequently held by the tribunal to have failed.
Warren J had held that commencing private law proceedings in the Chancery Division under CPR Part 7, rather than appealing, or claiming judicial review where there was no appeal, was an abuse of process, contrary to the principle of procedural exclusivity following O’Reilly v Mackman  2 AC 237.
On appeal, the Court of Appeal upheld Warren J’s decision, holding (1) in those cases where HMRC had opened an enquiry, the approach re-affirmed in Autologic Holdings plc v Inland Revenue Commissioners  1 AC 118 required the claimants to pursue appeals to the FTT and renders any attempt to litigate their liability to tax or their right to repayment in Part 7 or 8 civil proceedings an abuse of the court’s process, and (2) that, in the present case, the correct procedure for individual partners to challenge amendments made to their return was by judicial review, and not by ordinary civil proceedings.
In the linked case of R (Astley) v HMRC the claimants sought judicial review of decisions raising the same tax point as in Knibbs. The claimants accepted that the appeals of those claimants whose year 2 was 2006/7 or earlier, before the coming into force of the Income Tax Act 2007, were bound to fail, the Supreme Court case of R (De Silva) v HMRC  1 WLR 4384 being clear authority, at the highest level, for the propositions that:
(a) full information about the taxpayer’s carry-back claim must be included in his Year 2 return, even if he has previously made the same claim in Year 1 under schedule 1A to TMA, and even if HMRC have already given effect to that earlier claim without opening an enquiry into it under schedule 1A; and
(b) HMRC may then institute an actual or deemed enquiry into the Year 2 return under section 9A of TMA, in which all aspects of the claim can be examined, and if it emerges upon completion of the enquiry that relief has been given in error, the Year 2 return may be amended so as to recoup the sums wrongly paid (in reliance on the words “or otherwise” in paragraph 2(6) of schedule 1B to TMA).
The claimants’ argument that those claimants covered by the Income Tax Act 2007 were not also bound by De Silva was rejected, on the basis that, although the new regime was highly prescriptive for calculation of income tax liability, there was no need to construe it as excluding from its ambit the operation of paragraph 2(6) of Schedule 1B, where a carry-back claim for trade loss relief had been made by the taxpayer. On the contrary, it was clear that Parliament had intended paragraph 2(6) to continue to apply to such claims, and that effect should be given to them in the context of the calculation of tax liability.
Legal press coverage is available here.
Vikram Sachdeva QC acted for HMRC, both at first instance and on appeal. Vikram also acts for taxpayers.