Still better late than never?

 

Various changes, some unintentional others deliberate, have made it more difficult to bring an appeal against a tax credits decision outside the time limit. Following on from Martin Williams article in Bulletin 234, Mike Spencer looks at the issues and discusses potential legal challenges.

In JI v HMRC (TC) [2013] UKUT 199 (AAC), Judge Rowland decided that, as an unintended consequence of amendments to legislation, there was no longer a power to extend the statutory 30-day appeal time limit in tax credits cases. The case is summarised in ‘Better late than never?’, Bulletin 234 (June 2013).

To recap: when the Tribunals Service was set up in 2008 the legislation permitting an extension of the 30-day time limit was repealed, presumably because the drafters believed that time could now be extended under the new Tribunal Procedure Rules.1 Tribunal Procedure (First-tier Tribunal) (Social Entitlement Chamber) Rules 2008 No.2685 However, Judge Rowland found that the procedure rules could not extend a time limit in primary legislation ‘unless there is a specific enabling provision in primary legislation permitting such a rule’. The basis for this was the case of Mucelli v Government of Albania [2009] UKHL2, where the House of Lords found that the statutory 14-day time limit for appeals in extradition cases could not be extended under the Civil Procedure Rules. Applying Mucelli to the tax credits context, Judge Rowland found that (outside of Northern Ireland) neither the First-tier Tribunal (from 2008) nor HMRC (from April 2009) had any power to extend the time limit beyond 30 days.

In Bulletin 234, we questioned whether JI was correctly decided, or at least whether the result complied with Article 6 of the European Convention, a point not argued before or considered by Judge Rowland.2 We also suggested that Judge Jacob’s finding on time limits was obiter dicta (ie, non-binding), but on further thought we no longer consider this point to be arguable. The basic point is that Article 6 guarantees a right of access to a tribunal, any interference with which must be a proportionate means of achieving a legitimate aim.3 Stubbings v UK [1996] 23 EHRR 213 The repeal of the power to extend the time limit in tax credits appeals cannot pursue such an aim because it was unintentional. So, under section 3 of the Human Rights Act 1998, the legislation should be read as continuing to allow for a power to extend time.

Authority for this approach can be found in the Supreme Court’s decision in Pomiechowski v Poland [2012] UKSC 20, another extradition case. The Court relaxed its previous ruling in Mucelli, finding that notwithstanding the strict statutory time limit for extradition appeals, Article 6 required the Court ‘to permit and hear an out of time appeal which a litigant personally has done all he can to bring and notify timeously’. Applying this to the tax credits context would suggest that the tribunal either retains its former power to extend the time limit in the interests of justice, or at least has a residual power to extend the time limit in exceptional cases to avoid a breach of Article 6.

One could go further than this and question whether the main premise behind JI v HMRC was misconceived. Central to Judge Rowland’s reasoning in JI was that, applying Mucelli, procedure rules cannot permit an extension of a time limit laid down in primary legislation, in the absence of an express statutory power to do so. However, in the tax credits context, there is such an enabling power – Schedule 5, paragraph 4 of the Tribunals, Courts and Enforcement Act 2007. This says the procedure rules can ‘make provision for time limits as respect initiating... proceedings’. It’s hard to see how the power could be any clearer or more specific than that. Mucelli can be distinguished, because in the extradition context there was no equivalent enabling power, not to mention the different policy considerations that apply.

Once you accept that the tribunal rules can permit an extension to the time limit for initiating an appeal, the next question is whether the rules actually do permit such extension. This is easy where HMRC does not object to the filing of a late appeal. Rule 23(4) provides that such appeals ‘will be treated as having been made in time’, provided they are not more than 12 months late under rule 23(5). Indeed, the tribunal has no discretion but to admit such appeals.

The situation is trickier where HMRC objects. Rule 5(3)(a) allows the tribunal to extend the time limit ‘for complying with any rule, direction or practice direction’. The time limits are laid down in rule 23(2) and Schedule 1, but for tax credits this merely cross-refers to the time limit ‘as set out in the Tax Credits Act 2002’. Judge Rowland concluded that because rule 5(3)(a) only covers ‘rules’ it could not be used to extend the time limit in the Tax Credits Act. It is arguable, however, that the 30-day time limit is contained in the rules themselves and the fact that Schedule 1 cross-refers to the Tax Credits Act is merely a shorthand way for the drafters to describe the 30-day limit. We would argue that the clear legislative intention both in the 2007 Act and in the rules was that (a) the time limits for initiating appeals should be contained in the rules, and that (b) the tribunal should have the power to extend the time limit for initiating an appeal. At least if there is any ambiguity, the words should be read in a way that is compatible with Article 6.

CPAG is currently arguing the above points in an appeal before the Upper Tribunal (VK v HMRC, CTC/5461/2014). See our test case page for updates.

Following JI, HMRC accepted that the changes were unintentional and promised to rectify the problem so that claimants were not ‘adversely affected’.4 SI 2014 No.885 which inserts a new section 39A into the Tax Credits Act 2002.

Despite this promise, the Order fails to rectify the problem caused by JI in three respects. First, under the Order the power to extend time rests with HMRC, not the First-tier Tribunal (although arguably it rests with the tribunal too, as it stands in the shoes of the decision maker). Second, the criteria HMRC can apply are extremely restrictive. Late appeals may only be accepted ‘in special circumstances’, specified as appellant or partner’s death or serious illness, not resident in the UK, postal disruption or some other special circumstances which are wholly exceptional and relevant. Third, the Order only has retrospective effect from 1 April 2013, so does not cover late appeals made before that date. Combine this with anecdotal reports that HMRC is aggressively relying on JI to have appeals struck out and the Order is of limited use.

From 6 April 2014, the position for claimants took a step forward with the introduction of direct lodgement of appeals, only to leap backwards again with mandatory reconsideration.

First, the good news. The 30-day time limit contained in section 31(1) of the Tax Credits Act 2002 has been repealed. Appeals can now be lodged directly with the First-tier Tribunal under rule 22. The time limit for doing so is set out in the rules themselves (ie, one month under rule 22(2)(d)(i)) and can be extended under rule 5(3)(a) to a maximum of 12 months. This brings the situation in line with that in social security cases.

Sadly, the benefits of direct lodgement are more than offset by the perils of mandatory reconsideration. New section 38(1A) provides that the right to appeal can only be exercised if a review of the decision has been ‘concluded’ and notice of the conclusion of the review has been given. The time limit for making a review request (a ‘mandatory reconsideration request’) is 30 days. This time limit can be extended by HMRC, but crucially not by the tribunal, if narrowly defined ‘special circumstances’ apply. If HMRC does not accept the reasons for lateness, then its usual practice is to issue a notice stating no review has been carried out. This makes it difficult because unless a review has been ‘concluded’ and notice of the result has been given, there is no right of appeal. Further, there is the procedural hurdle that under rule 22 the tribunal will reject an appeal unless it is accompanied by a mandatory reconsideration notice. The only remedy for a refusal to accept a late request, therefore, appears to be judicial review.

This creates a highly objectionable state of affairs whereby the decision as to whether or not the first stage of a dispute may be accepted out of time rests entirely with one party to the dispute and on very tightly defined grounds. Given HMRC’s past conduct, there are serious questions about whether this power will be, or is being, exercised fairly. It is arguable that such a regime does not comply with Article 6. Whether the time limit should be extended is a question of fact and law which should properly be decided by an independent and impartial tribunal, and judicial review is not an adequate remedy where the Court needs to make findings of fact.5 Tsfayo v United Kingdom [2009] 48 EHRR Another approach may be to argue that the notice refusing to review a decision because the request is out of time is itself the ‘conclusion’ of a review, giving rise to a right of appeal under section 38(1A). These arguments remain to be tested.

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