LS & Anor v Commissioners for HMRC

A final tax-credit decision under section 18 of the Tax Credits Act 2002 is conclusive for the relevant tax year. It retrospectively removes all operative effect from an earlier section 16 decision for that year. An appeal against that earlier decision consequently lapses, and the First-tier Tribunal has no jurisdiction to determine it.

The First-tier Tribunal must strike out such proceedings under rule 8(2)(a), after allowing the claimant an opportunity to make representations. The Upper Tribunal, however, appeals from the First-tier Tribunal’s decision and retains jurisdiction even where the First-tier Tribunal lacked it. It may decline to set aside an erroneous decision where the issue has become academic.

Two claimants appealed against First-tier Tribunal decisions concerning tax-credit decisions said to have been made under section 16 of the Tax Credits Act 2002.

In LS’s case, HMRC had made a section 18 decision before the First-tier Tribunal decided the section 16 appeal, although neither the claimant nor the tribunal was aware of it. In RS’s case, the First-tier Tribunal had decided the appeal before HMRC made its section 18 decision. The latter section 16 decision had also been made after the relevant tax year ended.

A three-judge panel was convened following conflicting Upper Tribunal decisions about the effect of a section 18 decision on a pending section 16 appeal. The central issues were whether the earlier decision ceased to have operative effect, whether the appeal lapsed, and how the tribunals should dispose of proceedings.

1. The appeals were not set aside. In each case the Upper Tribunal found that the First-tier Tribunal’s decision either may have involved, or did involve, an error of law. It nevertheless exercised its power under section 12(2)(a) of the Tribunals, Courts and Enforcement Act 2007 not to set aside that decision.

2. A First-tier Tribunal tax-credit appeal has as its subject matter the decision challenged. Under section 38 of the Tax Credits Act 2002, an appeal against a section 16 decision cannot continue once that decision has lost all operative effect. Jurisdiction is statutory and cannot be retained because a tribunal considers it useful or pragmatic to determine an academic issue.

3. A section 18 decision is conclusive as to entitlement and amount for the whole tax year by section 18(11). It retrospectively deprives a section 16 decision for that year of operative effect. The section 16 appeal therefore lapses, whether the section 18 decision was made before or after the appeal was lodged. The First-tier Tribunal then lacks jurisdiction.

4. Rule 8(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Social Entitlement Chamber) Rules 2008 requires the First-tier Tribunal to strike out proceedings outside its jurisdiction. It has no discretion to dismiss the appeal or record it as lapsed instead. Before strike-out, rule 8(4) requires an opportunity for representations.

5. The Upper Tribunal appeals from the First-tier Tribunal’s decision, not directly from the section 16 decision. It therefore retains jurisdiction despite the section 18 decision and may decide whether an error of law should be corrected. It may decline to set aside the decision where no useful purpose would be served, or substitute a strike-out decision where appropriate.

6. In RS’s case, the purported section 16 decision was invalid because it was made after the award period ended. However, it remained effective unless and until changed or set aside. The subsequent section 18 decision made it inappropriate to set aside the First-tier Tribunal’s decision.

• Upper Tribunal (Administrative Appeals Chamber): In [2017] UKUT 257 (AAC), the tribunal did not set aside either First-tier Tribunal decision.
• First-tier Tribunal: LS’s appeal was dismissed at Birmingham on 28 August 2015, reference SC024/14/03767. RS’s appeal was determined at Wolverhampton on 21 January 2016, reference SC024/15/02828.