PML Accounting Ltd, R (On the Application Of) v The Commissioners for HMRC

By majority, an appeal concerning an HMRC information notice under the Finance Act 2008 was dismissed. The statutory scheme provides a single appeal against the notice. The majority held that all validity issues must be raised there before any penalty is assessed. A settlement under section 54 of the Taxes Management Act 1970 varying the compliance period has the like consequences of a tribunal determination and concluded the validity issues. The penalty appeal therefore could not reopen validity. Henderson LJ disagreed on that construction, considering validity challengeable in penalty proceedings. All judges agreed that relief requiring deletion of derivative work product was discretionary. Relevant factors included the claimant’s conduct, failure to appeal promptly, satellite litigation and the practical burden of reviewing files.

PML Accounting Ltd, a managed service company provider, supplied documents under a taxpayer information notice issued by HMRC under paragraph 1 of Schedule 36 to the Finance Act 2008. HMRC later returned the documents and copies after the First-tier Tribunal held that the notice was invalid and that penalties were unenforceable.

PML then sought judicial review requiring HMRC to delete analysis and other work product derived from the documents and to undertake not to use it. The High Court dismissed the claim on the illegality ground. The Court of Appeal considered the effect of the correspondence extending time for compliance, the jurisdiction of the tribunal on a penalty appeal, the possibility of a late appeal, issue estoppel, the tribunal’s comments about work product and the discretionary refusal of relief.

1. Disposition. The appeal was dismissed. The outcome was unanimous, although Henderson LJ disagreed with the majority on the construction of the statutory appeal scheme.
2. Information-notice appeal. By a majority, Longmore LJ and Peter Jackson LJ held that paragraph 29 of Schedule 36 contemplated one appeal against an information notice. That appeal had to encompass complaints about the notice and its requirements. A section 54 agreement varying the compliance date had the like consequences of a tribunal determination and conclusively determined the notice’s validity. The majority therefore held that the First-tier Tribunal lacked jurisdiction to reopen validity on the later penalty appeal. Paragraph 46 also showed that validity had to be resolved before any penalty was assessed or appealed.
3. Dissenting analysis. Henderson LJ considered that paragraph 47 permitted a taxpayer to argue, in penalty proceedings, that the underlying notice was invalid. The penal character of the proceedings, the burden on HMRC and the absence of clear exclusionary language were important. He agreed that the section 54 agreement finally determined only the time-for-compliance issue.
4. Issue estoppel and relief. HMRC were entitled to argue the jurisdictional points in the judicial review. The proceedings were materially different, the parties were not identical in the relevant public-law sense, and the tribunal could not become a court of competent jurisdiction by wrongly assuming jurisdiction. This was consistent with the approach approved in R v Customs and Excise Commissioners ex parte Kay & Co Ltd [1996] STC 1500.
5. Even assuming that the notice was invalid, an order requiring deletion of derivative work product was discretionary. The judge was entitled to consider PML’s non-cooperation, its failure to appeal validity promptly, the risk of satellite litigation and the practical difficulty of reviewing thousands of files. R (Chatwani) v National Crime Agency [2015] EWHC 2254 (Admin) was distinguishable because it concerned serious abuse of search-warrant powers and no prior opportunity to challenge the warrant.

• High Court, Administrative Court: Sir Ross Cranston dismissed PML’s judicial review claim on 7 April 2017. No citation for that judgment was stated.
• Court of Appeal (Civil Division): The court dismissed the appeal on 17 October 2018: [2018] EWCA Civ 2231.