Ian Austick v The Commissioners for HMRC

Where a taxpayer’s challenge to HMRC’s handling of a tax claim concerns public law issues rather than private rights, the proper route is judicial review. The taxpayer cannot avoid that route by bringing an ordinary civil claim merely because HMRC has threatened or begun enforcement action. The exception recognised in HMRC v Cotter applies where HMRC themselves bring enforcement proceedings and the taxpayer raises the absence of a tax liability as a defence. A consequential partner notice may create an enforceable liability where, read in context, it disallows losses, rejects the carry-back claim and states the tax now due. A letter seeking repayment of carry-back relief does not amend the earlier year’s self-assessment unless it expressly or implicitly recalculates that assessment.

The claimant sought declarations concerning tax repayments made after he claimed trading losses arising in a film partnership. HMRC later settled the partnership enquiry, reducing the losses, and sought recovery of part of the repayment with interest.

HMRC applied to strike out the Part 8 claim as an abuse of process, arguing that the challenge should have been brought by judicial review. The claimant relied on the enforcement action, the form of his tax returns, the absence of a proved partner notice, and the alleged ineffectiveness of that notice. The court therefore considered both the procedural issue and, after the rolled-up hearing, the underlying merits.

1. Procedure. The claim was struck out under CPR 3.4(2)(b) as an abuse of process. Its substance was a challenge to HMRC’s statutory procedure and the legal consequences of its decisions. It therefore concerned public law issues rather than private rights and should have been brought by judicial review. The fact that HMRC had issued an enforcement notice or threatened proceedings did not alter that conclusion. The approach in Knibbs v HMRC and Barklem v HMRC was preferred to the contrary obiter observations in R (Derry) v HMRC [2015].
2. The exception recognised in HMRC v Cotter was confined to a taxpayer raising the absence of a tax liability as a defence to enforcement proceedings brought by HMRC. It did not permit a taxpayer who elected to commence proceedings to use an ordinary civil claim instead of judicial review.
3. Partner notice. On the balance of probabilities, HMRC had sent the claimant, or his agent, a notice under section 28 B(4) of the Taxes Management Act 1970 on or around 4 November 2011. The contemporaneous self-assessment records and correspondence supported that inference.
4. Carry-back claims. The April 2001 letter made a stand-alone claim under Schedule 1A. It did not amend the claimant’s self-assessment for the year ended 5 April 2000 because it did not expressly or implicitly recalculate the liability for that year. The claimant’s later return for the year ended 5 April 2001 did contain a valid Schedule 1B claim, recording the losses, the carry-back claim and the relief already received.
5. Effect of notice. The partner notice was effective to create an enforceable liability for the year ended 5 April 2001. It was unnecessary for the notice to identify a precise increase in taxable income. Read as a whole, its disallowance of the losses, rejection of the carry-back claim and demand for the resulting tax amounted in substance to an adjustment of the amount chargeable.
6. The court declined to declare the precise amount currently due because the evidence did not establish the subsequent movements on the claimant’s self-assessment account. The claim was therefore struck out and, alternatively, would have been dismissed.