Tax credits: making an appeal

Issue 223 (August 2011)

A recent decision of the Upper Tribunal may make it easier for tax credit claimants to actually get an appeal heard by a First-tier Tribunal. Edward Graham explains.

The case of SG v HMRC (TC) [2011] UKUT 199 (AAC) should offer some relief to tax credit claimants and advisers struggling to get appeals over annual renewals heard. While, unfortunately, the claimant did not succeed in the appeal herself (see p15), the judge in the case did express severe reservations about HM Revenue and Customs’ (the Revenue’s) approach to whether or not she had a right of appeal at all. Frustratingly, the facts found by the First-tier Tribunal prevented the judge from making binding rulings on a number of points, but the judge’s reasoning is strongly persuasive authority on the following points:

  • that a claimant has a right of appeal over whether or not s/he has in fact returned an annual declaration – and, arguably, over whether or not s/he has in fact made a claim compliant with the rules. This would apply whether the claimant was asserting that s/he had returned the approved form or made the declarations orally. The Revenue cannot simply terminate the award, ask for the interim payments back and assert that the claimant has no right of appeal, as no appealable decision as defined in section 38 of the Tax Credits Act 2002 has been made;
  • that claimants have a right of appeal if the Revenue does not decide that they have ‘good cause’ for late declaration under regulation 11(3) (aa) (now reg 11(3)(c)) of the Tax Credits (Claims and Notifications) Regulations 2002 if they send back an annual declaration form after the 31 July deadline but before the 31 January deadline.

Return of declaration / valid claim

There are two situations which may arise:

  • For a claimant who has been in receipt of tax credits then in the new financial year, the Revenue issues a ‘section 17 notice’, requiring the claimant to return the annual declaration by 31 July. If the claimant returns the form but the Revenue says it never received it, or if the claimant calls to make the declaration, but the Revenue asserts that either no call was made or the call was about something else, then the Revenue ‘terminates the award’ and seeks to recover the tax credits paid since April.
  • On a new claim for tax credits, the Revenue may say that the claim form has not been properly completed.

In many cases we have seen and in SG v HMRC, the Revenue’s approach was that its decision to stop tax credits (meaning that the client had not been entitled since April) was not an appealable decision. It says that as no response to the section 17 notice had been received (in the first situation), or as no claim had been made (in the second situation), then it had not made a decision on a claim (as no claim had been made) under section 14(1)(a). The Revenue then says that, as no decision has been made which carries a right of appeal under section 38 of the Tax Credits Act, then there is nothing for the claimant to appeal and the tribunal has no power to give a decision.

In SG v HMRC, the judge was troubled by the thought that claimants did not have a right of appeal on the purely factual issue as to whether an annual declaration was returned. As the Revenue was asserting that no appealable decision had been made, it would not (as it had not in this case) forward an appeal to the Tribunals Service, and so the claimant would never be able to argue before a tribunal thatshe had in fact returned the annual declaration. In his decision, the judge said:

If HMRC’s primary submission that it makes no appealable decision under s14 unless and until there is a claim were correct, I do not see how the First-tier Tribunal could ever have jurisdiction to determine whether a claim was made. Ex hypothesi, HMRC will have taken the view that there was no claim, and therefore will have made no decision one way or the other under s14.

Therefore, the judge was of the view that there was in fact a appealable decision under section 14 as:

It seems to me to be perfectly sensible to say that ‘a decision under s14’ includes a decision as whether a claim has been made and therefore whether there is a need to consider whether to make an award of tax credit. The need to provide an Article 6 compliant right of challenge to a decision by HMRC (not turning solely on an exercise of discretion) as to whether a claim was made would seem to put the matter beyond doubt.

Good cause

Another common scenario is where claimants return the annual declaration late, after 31 July, but before 31 January in the following year.

In SG v HMRC, the claimant’s representatives asked the Revenue to use the power in regulation 11(3)(aa) to treat the claim as made in time by accepting than there was good cause for a late claim. The Revenue did not respond before 31 January, and later said that there was no right of appeal by the claimant if the Revenue refuses to accept good cause.

The judge’s reasoning above applied equally to decision on good cause – that the right of appeal against section 14 decisions included those where a claim was treated as made under reg 11.

‘It is in my view well arguable that the words “in the opinion of the Board” in reg 11(3)(aa) do not prevent an appeal tribunal itself deciding whether there was just cause,’ the judge said.

Conclusion

It is to be stressed that the points made above are persuasive in authority; the judge left them expressly undecided, as on the particular facts of the case he did not have to decide them (it was beyond doubt that the claimant’s purported annual declaration could not constitute a valid declaration). It should also be noted that the judge was clear the Revenue’s discretion to accept annual declarations or renewals not on the approved form was not subject to a right of appeal. The claimant’s only remedy was judicial review.

However, despite these limitations, the judge’s comments in SG v HMRC can be used by advisers to insist that the Revenue send relevant appeals to the Tribunals Service, or it can be sent with the appeal to the Tribunals Service directly by advisers. In SG v HMRC, it was this latter tactic which eventually meant the case was heard by a First-tier Tribunal.

Finally, the judge made the point that the Revenue took five months to respond to the advice agency assisting the claimant, and only at that point said that the purported annual declaration was not valid. By this time, the 31 January deadline had passed and so the claimant lost her opportunity to resubmit a valid declaration and demonstrate good cause for its being late. The judge’s comment that if the claimant had good cause for the late return, the Revenue would, therefore, have been substantially at fault for her entitlement to tax credits ending, can no doubt also be used in complaints and requests for compensation over Revenue delays in similar cases.

 


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