HFFX LLP & Ors. v The Commissioners for HMRC
[2023] UKUT 73 (TCC)
UBS AG, R (on the application of) v The Commissioners for HMRC
21 August 2024
[2024] UKUT 242 (TCC)
Upper Tribunal
UBS argued HMRC unfairly refused to let them avoid paying tax on their employee's bonus. HMRC initially said they needed more information. The court agreed HMRC made some mistakes, and ordered them to reconsider their decision, but it didn't force them to side with UBS. HMRC has to make a new decision, fairly this time.
Key Facts
- •UBS AG challenged HMRC's refusal to exercise its discretion under s684(7A)(b) ITEPA 2003 to relieve UBS from PAYE obligations concerning employee Jonathan Wood's gilt income.
- •HMRC's November 2022 decision refused to exercise the discretion, citing the need to confirm liabilities first.
- •HMRC subsequently withdrew its defense and sought consent to withdraw from proceedings, intending to make a new decision.
- •UBS argued the claim was not academic and sought declaratory, mandatory, and quashing orders.
- •The dispute centered on whether HMRC's refusal was unlawful under the Padfield principle and whether it contained misdirections of law.
Legal Principles
Padfield principle: A discretionary power must not be used to frustrate the object of the Act conferring it.
Padfield v Minister of Agriculture, Fisheries and Food [1968] UKHL 1
Wednesbury unreasonableness: A decision is unlawful if no reasonable decision-maker could have reached it.
Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223
Judicial review principles: Courts should not hear academic disputes; however, a claim is not academic if the defendant has not given the claimant what it sought.
R v Secretary of State for the Home Department Ex p Salem [1999] 1 AC 450; R (Raja and another) v Redbridge London Borough Council [2020] EWHC 1456 (Admin)
Scope of s684(7A)(b) ITEPA 2003: HMRC has broad discretion to relieve payers from PAYE obligations if deemed unnecessary or inappropriate.
Stephen Hoey & Others v HMRC [2022] EWCA Civ 656
Outcomes
HMRC's application to withdraw its defense was granted.
The Tribunal found the application to be of no significance and that consent to withdraw did not automatically mean UBS's case succeeded.
HMRC's application to stay proceedings was refused.
The Tribunal rejected HMRC's argument that the claim was academic.
UBS's claim succeeded partially.
The Tribunal found misdirections of law in HMRC's decision regarding the prematurity of considering the 7A discretion and the relevance of NICs to UBS's efficiency argument. However, UBS failed to show that HMRC was bound to exercise the 7A discretion in its favour.
Declaratory order: HMRC's November 2022 decision was unlawful in the identified respects.
The misdirections of law identified invalidated aspects of the decision.
Mandatory order: HMRC must make a new decision on the 7A discretion within two months, considering the misdirections.
The misdirections necessitate a fresh consideration of the 7A discretion. While HMRC had already committed to a new decision, the mandatory order ensures the new decision considers the Tribunal's findings.
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