JR can be a dangerous weapon

Settlements with HMRC should be fully documented to guard against the chance of judicial reviews

Angela Savin
Angela Savin, partner, Norton Rose

Five years ago the suggestion a campaign group could subject a confidential settlement between a taxpayer and HMRC to judicial review (JR) would have been met with scepticism. What standing could one taxpayer have to challenge the tax treatment of another?

But the world has moved on, both in the development of the concept of standing in public law and in the public’s attitude to the tax affairs of big business, since the point was last considered – and rejected – in the 1982 ‘Fleet Street casuals’ case.

Much of what UK Uncut has achieved is publicity. Its action has helped keep the tax avoidance debate on the front pages. HMRC’s settlement with Goldman Sachs was never really at risk; although UK Uncut sought an order quashing the settlement it failed to obtain permission and was left seeking a declaration.

Lesson? Not a glorious episode in the history of HMRC but the High Court considered, as did the National Audit Office, that settlement offered good value for the taxpayer and was within the terms of HMRC’s litigation and settlement strategy. The judge noted that HMRC had already responded to the problems behind this and other settlements so a High Court declaration was unnecessary – HMRC had already learned the ‘error of its ways’.

For activists, UK Uncut’s pioneering action shows JR can be used as a weapon. Further, had UK Uncut called HMRC’s key decision-maker on the Goldman Sachs settlement, David Hartnett, to give oral evidence (an unusual step on a JR) it might have made more progress.

For taxpayers, although it is highly unlikely there will now be a swathe of such cases, this case should be taken seriously.

Although to succeed in a JR is a high hurdle indeed – the applicant has to establish that HMRC has abused its powers – the publicity and any declaration of the court could have a serious reputational impact.

UK Uncut was unable to pursue a quashing order. Enforcement of National Insurance contributions takes place in the County Court and the judge at the permission stage considered the Administrative Court did not have the power to order the quashing of the order of another (albeit inferior) court. For settlements relating to other taxes this feature would not be present, so there remains a possibility that a settlement could be quashed on a JR.

From a practical perspective, taxpayers should take comfort from HMRC’s governance procedures. Although the length of time and apparent opacity of the process may seem frustrating, that HMRC complies with its governance is the best protection a taxpayer can get that a settlement will not be vulnerable to challenge. Taxpayers may want reassurance from HMRC that governance has been complied with.

Settlements should always be fully documented and not closed on a handshake. The rationale behind the settlement should be recorded, as should the arguments that have been considered and how they were resolved, as part of the terms of the settlement.