Vieira v Revenue And Customs

At the statutory-demand stage, the bankruptcy court must not investigate the validity or merits of a tax assessment. The assessment creates a statutory debt, and challenges to it fall within the exclusive jurisdiction of the relevant tax tribunal. The court retains a limited discretion to adjourn an application to set aside the demand pending an appeal, exercised principally by reference to the status and timing of that appeal.

At the petition stage, the court’s discretion is broader where an appeal is pending. It may consider whether the appeal has a real prospect of success and may adjourn or dismiss the petition. Where appeal rights are exhausted or the taxpayer is out of time, intervention is exceptional and requires evidence of fraud, collusion or a glaring miscarriage of justice.

Mr Vieira appealed against a Deputy Registrar’s dismissal of his application to set aside a statutory demand served by HMRC. The demand claimed approximately £180,758 in income tax, VAT, surcharges, penalties and interest.

Mr Vieira disputed the assessments and had filed a late appeal to the First-tier Tribunal (Tax Chamber), which remained pending. He argued that the statutory demand was premature and that the debt was substantially disputed. The central issue was the interpretation and application of paragraph 13.3.3 of the Practice Direction – Insolvency Proceedings where a tax appeal is pending.

1. Appeal dismissed. The Deputy Registrar was correct to apply paragraph 13.3.3 of the Practice Direction – Insolvency Proceedings.
2. A tax assessment gives rise to a statutory debt. The First-tier Tribunal has exclusive jurisdiction to determine challenges to the assessment. The Bankruptcy Court cannot review the assessment or the manner in which it was made.
3. At the statutory-demand stage, the court’s jurisdiction is limited to deciding whether, in the exercise of its discretion, to adjourn an application to set aside the demand pending determination of a tax appeal. That discretion should be exercised sparingly. The principal factors are the status and timing of the appeal. An adjournment is more likely where an appeal was lodged in time and can be determined shortly, and less likely where the appeal was lodged late and permission to appeal out of time remains outstanding.
4. The statutory demand has an evidential function only. The existence of an appeal does not make paragraph 13.3.3 inapplicable and does not permit the Bankruptcy Court to inquire into the validity of the assessment.
5. At the petition stage the court has a wider discretion. Where appeal rights are exhausted, or the taxpayer is out of time, the exceptional approach in Lam v Inland Revenue and HMRC v Chamberlin applies: intervention requires sufficient evidence of fraud, collusion or another glaring miscarriage of justice. Where an appeal is pending, D & D Marketing and Changtel Solutions show that the court may consider whether the appeal has a real prospect of success and may adjourn or dismiss the petition.
6. The Deputy Registrar had no power to depart from paragraph 13.3.3. He was not at fault for failing to consider an adjournment which had not been sought. In any event, the late appeal, the absence of a decision granting permission and the substantial delay did not justify an adjournment.

The judgment describes an appeal from an order of Deputy Registrar Mullen dated 21 November 2016 dismissing the application to set aside the statutory demand. Permission to appeal was granted at the hearing before Mr Justice Arnold, and the appeal was dismissed.