Derrin Brothers Properties Ltd & Ors, R (on the application of) v A Judge of the First Tier Tribunal (Tax Chamber) & Ors

Schedule 36 to the Finance Act 2008 creates a judicial monitoring, rather than adversarial, procedure for approval of third-party tax-information notices. It deliberately gives different protections to the taxpayer, the recipient third party and a non-taxpayer entity whose information may be held by the third party.

A taxpayer is entitled to a summary of reasons, but not to make representations as of right. A third party may make representations about compliance, but need not receive confidential reasons for the investigation. A non-taxpayer entity has neither entitlement. Section 3 of the Human Rights Act 1998 cannot be used to impose a contrary scheme.

On the facts, judicial monitoring and judicial review provided proportionate access to a court compatible with Articles 6 and 8.

HMRC sought approval from the First-tier Tribunal under Schedule 36 to the Finance Act 2008 to issue notices to banks and an accountancy firm. The notices required information and documents in response to an Australian request for tax information under the UK/Australia Double Taxation Convention.

Twenty-four companies sought judicial review of the tribunal approvals and notices. Three were treated by HMRC as taxpayers and received summaries of reasons. The remaining companies were treated as non-taxpayer entities. The First-tier Tribunal approved the notices at private ex parte hearings.

Simler J dismissed the judicial review applications on 15 April 2014. The companies appealed, contending that Schedule 36 required fuller and earlier disclosure and an opportunity for all affected entities to make representations, and that the procedure infringed Article 6 read with Article 8 of the Convention.

1. Appeal dismissed unanimously. The statutory requirements for approval and issue of the third-party notices were met. Their application did not infringe the appellants’ Convention rights.

2. Schedule 36 establishes a judicial monitoring scheme intended to enable investigation of suspected tax avoidance and evasion without adversarial procedures that could delay or frustrate it. Parliament deliberately distinguished between the taxpayer, the recipient third party and a non-taxpayer entity. A taxpayer receives a summary of reasons, not an entitlement to make representations. A third party may make representations to HMRC about compliance, but is not entitled to confidential reasons for the investigation or to appear before the tribunal. A non-taxpayer entity need receive neither reasons nor an opportunity to make representations.

3. The summary required by paragraph 3(3)(e) serves to guard against arbitrary executive action and to give context to the tribunal’s approval function. It is not intended to facilitate representations by the taxpayer. The construction urged by the appellants was inconsistent with both the language and the central design of Schedule 36. Section 3 of the Human Rights Act 1998 could not require that result, particularly where the appellants did not contend that the Schedule itself was incompatible with the Convention.

4. It was for HMRC to decide whose tax position the notices were directly intended to check. The fact that documents relating to other entities might also bear on their tax affairs did not make those entities taxpayers for paragraphs 2 and 3. HMRC had consciously and justifiably treated only the three companies beneficially owned by the principal subject of the Australian enquiry as taxpayers.

5. The summaries sent to those companies adequately stated the potential tax liabilities under investigation. Paragraph 3(3)(e) did not require identification of the particular documents sought. Four clear working days’ notice was sufficient on these facts.

6. The combination of independent tribunal monitoring and judicial review afforded proportionate access to a court for any arguable Article 8 complaint. The procedures considered in Ravon v France and Tsfayo v United Kingdom did not provide a relevant comparison. Judicial review could review compliance with Schedule 36’s statutory preconditions in law and fact.

• Court of Appeal (Civil Division): appeal dismissed: [2016] EWCA Civ 15.
• Administrative Court: Simler J dismissed the appellants’ applications for judicial review on 15 April 2014.
• First-tier Tribunal (Tax Chamber): Judge Berner approved HMRC’s proposed third-party notices at private ex parte hearings on 23 November 2012 and 9 January 2013.