PML Accounting Ltd v Revenue And Customs

An appeal against a penalty for failure to comply with an information notice does not permit the First-tier Tribunal to determine the notice’s validity. That issue must be raised under the separate statutory appeal procedure for information notices and within its applicable time limits. A tribunal determination made without jurisdiction does not create res judicata or issue estoppel in subsequent judicial review proceedings. Retention of derivative work product does not automatically require its destruction merely because source documents obtained under an invalid notice have been returned. Article 8 does not require deletion where retention is justified by continuing civil and criminal investigations. Relief may also be refused where an adequate statutory appeal was not used, the claimant acquiesced in processing the material, and the requested order would create serious practical and satellite-litigation difficulties.

HMRC issued PML Accounting Ltd with an information notice under Schedule 36 to the Finance Act 2008 during an investigation into managed service company legislation. PML supplied documents and information but failed to comply fully, and HMRC imposed penalties. In the penalty appeal, the First-tier Tribunal held that the notice was invalid because it related to the tax positions of PML’s clients rather than PML itself. HMRC returned the supplied material and undertook not to rely on it, but retained analysis and other work product derived from it.

PML sought judicial review, requiring HMRC to destroy or delete the derivative material and undertake not to use it. The issues included the Tribunal’s jurisdiction, the effect of its findings, Article 8 rights, standing to rely on clients’ rights, and discretionary relief.

1. The claim was dismissed. The First-tier Tribunal had no jurisdiction in the penalty appeal to determine the validity of the information notice.

2. The compromise of PML’s earlier appeal concerning the time for compliance was final under section 54 of the Taxes Management Act 1970. There had been no appeal against the validity of the notice. The Tribunal therefore reopened a final decision when it considered validity on its own initiative. No proper application for an out-of-time appeal had been made under section 49.

3. The statutory jurisdiction in a penalty appeal is narrow. Under paragraphs 47 and 48 of Schedule 36 to the Finance Act 2008, the Tribunal decides whether the statutory conditions for liability to the penalty have been met and may confirm or cancel the penalty. It does not determine the validity of the underlying information notice. The reasoning in Birkett v Commissioners for Her Majesty’s Revenue and Customs [2017] UKUT 89 (TCC) correctly identified that limitation.

4. A determination by an inferior tribunal made without jurisdiction cannot create res judicata or issue estoppel on the relevant issue. The principles in Taylor v Lawrence [2002] EWCA Civ 90 and Thrasyvoulou v Secretary of State for the Environment [1990] 2 AC 273 did not assist where jurisdiction was absent. In tax cases, those doctrines also do not apply with their ordinary force, as recognised in Caffoor and Others, the Trustees of the Abdul Gaffoor Trust v Commissioner of Income Tax, Colombo [1961] AC 584.

5. HMRC had returned the documents and copies and had stated that it would not rely on them. There was no legal basis requiring destruction of derivative work product. Retention was in any event justified under Article 8(2) of the Convention by the continuing civil and criminal investigations. R (GC) v Commissioner of Police of the Metropolis [2011] UKSC 21 concerned no derivative material and did not apply. PML lacked standing to assert its clients’ Article 8 rights.

6. Even if a ground of challenge had been established, the discretionary relief sought would have been refused. PML had not used the statutory appeal against the notice, had acquiesced in the processing of the material, and had an alternative remedy. The requested orders would also create disputes about the origin of evidence and substantial practical difficulties in tracing material drawn from multiple sources.

The judgment was a first-instance judicial review decision. The First-tier Tribunal’s penalty decision dated 10 September 2015 was considered, but the Tribunal’s determination of the information notice’s validity was held to have been made without jurisdiction.