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BPP Holdings v HMRC

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In BPP Holdings v HMRC [2017] UKSC 55 (26 July 2017), the Supreme Court found that the FTT’s decision to debar HMRC from taking further part in proceedings had been justified.

Following a group restructuring, BPP Learning Media supplied books, and another group company, BPP University College supplied education. BPP took the view that there were two separate supplies by separate companies: one standard rated supply of education; and one zero rated supply of books. However, HMRC contended that BPP’s analysis was flawed; or, in the alternative, that the changes made in 2006 represented an abuse. It therefore issued two VAT assessments, against which BPP appealed. BPP made a request for information on 11 November 2013 and, after some correspondence between the parties, it applied to the FTT for an order that HMRC supply the information within 14 days of the order. HMRC offered to supply the information by 31 January 2014 but because it would not agree to the sanction for non-compliance, a hearing was held. Following the hearing, the FTT’s order provided that if HMRC failed to supply the information by the deadline, it could be barred from taking further part in the proceedings.

HMRC did serve a response to BPP’s request on 31 January but BPP applied for an order barring it from the proceedings, on the ground that it had not replied to all of the questions identified in BPP’s request for information. On 24 April 2014, HMRC informed BPP that it was withdrawing the two assessments and therefore conceding two of BPP’s three appeals; however, as it was not withdrawing the decision, the third appeal proceeded. Meanwhile, HMRC supplied a defective disclosure statement and list of documents some eight days late on 8 May, and did not apply for an extension of time in that connection until four weeks later.

In July 2014, the FTT granted BPP’s application and made a debarring order. The UT allowed HMRC’s appeal and the court of appeal subsequently restored the FTT’s order.

The issue was whether the FTT had been entitled to make the debarring order. The Supreme Court rejected the contention that the FTT’s decision was vitiated because it relied on Mitchell [2014] 1 WLR 795, which had been cut down by Denton [2014] 1 WLR 3926. It observed that the FTT had not relied on a detailed analysis of Mitchell; and that in Denton, the Court of Appeal had described the approached in Mitchell as ‘remaining substantially sound’.

Read the decision.

Why it matters: The Supreme Court observed that the FTT had been faced with ‘a binary question, involving two unpalatable choices’: making the debarring order, which was ‘draconian’; or not making the order, which, ‘to use the vernacular, would have meant that HMRC effectively would have got away with it’. It added: ‘There may be force in the notion that the tribunal rules should provide for the possibility of more nuanced sanctions, such as a fine or even the imposition of some procedural advantage. Experience suggests that such ideas, while attractive in theory, can often be difficult to formulate or to apply satisfactorily in practice, so I mention the point with some diffidence.’ HMRC’s handling of the case was highly unsatisfactory and it did not ‘get away with it’. This case may be a useful reference where HMRC is unreasonably dilatory.

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