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The view from the Tax Bar in 2021

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In 2021, it was disappointing to see the rush back to face-to-face litigation after the success of virtual hearings that were developed under the covid pandemic lockdowns. Now that the technology works, it is hoped that the option of online hearings at all levels will be retained and that more ADR mediations will be conducted virtually. This year also saw some important substantive developments, including the decisions in Tooth (staleness and deliberate conduct), Zemen (legitimate expectation), Balhousie Holdings (VAT on sale and leaseback), Sheiling Properties (APNs and PAYE), and FII GLO (liability and quantification of claims).

With fully remote working thrust upon us 18 months ago, 2021 saw those initial software gremlins largely banished. Virtual hearings in particular started running smoothly with few (if any) interruptions. It seemed, however, that no sooner had we reached this point than the courts unlocked and since the summer most hearings have reverted to in-person.

What follows are my thoughts on remote justice, along with some case highlights from 2021.

Justice, virtually actually

I have been disheartened by the rush back to face-to-face litigation. Online court has real advantages and it feels as if we are not capitalising on our new-found virtual skills. To paraphrase Prof Richard Susskind (one of the foremost experts in online litigation): ‘People don’t want courts, they want the outcomes that courts bring’. Yes, the ‘advocacy experience’ is different. But virtual presentation is its own skill and, when done well, not only are those outcomes equally available online but remote hearings have significant advantages:

  • The lack of commute really makes a difference in multi-day hearings, as does the time saved in not having to move to have private discussions during short adjournments.
  • It’s far quicker navigating a PDF bundle than 96 lever-arch files (my personal record). Where speaking time is at a premium in higher courts, this is of significant benefit.
  • Speaking of 96 bundles, the printing costs saved are substantial – and the flexibility offered by a PDF bundle is unparalleled.
  • Communications within your team are far more efficient (no more illegible post-it notes or not so sotte voce comments).
  • Online resources, books and the ability to print are all at your and your clients’ fingertips without being at the mercy of patchy courtroom WiFi.
  • There is a more measured dynamic with multi-judge panels (so no more simultaneous judicial interventions).

Of course, there are new practicalities to master. For instance, if acting for a multinational, you are more likely to have witnesses giving evidence from abroad, rather than flying into the UK. It is critical to follow the process for ensuring that the foreign jurisdiction from which your witness will be giving their evidence remotely has no objection. This is something that the courts and tribunals take very seriously (see, for example, Interdigital Technology Corporation and others v Lenovo Group Ltd and others [2021] EWHC 255 (Pat)). But overall, when this all becomes second nature tax litigation (in particular, appellate advocacy) is perfectly suited to being conducted online. Even virtual cross-examination is not actually problematic. Now that the technology works, I do hope greater consideration will be given to retaining at least the option of online hearings at all levels.

I have been similarly impressed by virtual ADR. HMRC’s internal facilitators were already used to telephone mediation (typical in SME tax disputes). Swapping the telephone for Teams is an obvious improvement. For ‘large business’ ADR, the principle is identical to in-person mediation except rooms become Teams links: one for each party, one for just the mediators (if you have co-facilitators) and one ‘joint room’. A small amount of care on the mediators’ part ensures the right people have the right links so there is no risk of someone ending up in the wrong ‘room’ and over-hearing something they shouldn’t. While it makes for a more intense day as a mediator (you feel obliged to shorten your breaks when no one actually needs to nip out for a sandwich), from a client’s perspective the lack of travelling and the ability to do other work when the mediators and other side are occupied are obvious benefits. I can see virtual mediation gaining popularity.

Substantive developments

2021 has also seen some important substantive developments.

Enquiries and investigations

Three significant cases concerning HMRC’s powers were considered by the Supreme Court. In Tooth [2021] UKSC 17, the concept that a discovery assessment could go ‘stale’ was finally rejected at the highest level. While the taxpayer succeeded overall (with the Supreme Court overturning the Court of Appeal’s reasoning on ‘deliberate inaccuracy’), Lord Briggs and Lord Sales intonated that ‘deliberate’ conduct might extend to recklessness – and this has subsequently been adopted by the lower tribunals. Haworth [2021] UKSC 25 is an important case for taxpayers wishing to challenge HMRC’s draconian follower notice powers since HMRC’s appeal against the quashing of the notice was dismissed. The court considered that HMRC had overstated the conclusion in Smallwood on which the follower notice was based, and it remains to be seen whether this ruling does real damage to HMRC’s ability to issue follower notices in highly fact-dependent schemes. However, the taxpayer’s luck ran out in Tinkler [2021] UKSC 39, where the Supreme Court allowed HMRC’s appeal and held that the taxpayer was estopped from challenging the validity of HMRC’s enquiry into their tax return.

Legitimate expectation in statutory appeals

The Upper Tribunal (UT) revisited the vexed issue of the First-tier Tribunal’s (FTT) jurisdiction to consider legitimate expectation arguments in VAT appeals in KSM Henryk Zeman [2021] UKUT 182. Because the tribunal held that the taxpayer did not have a legitimate expectation on the facts, the UT’s comments on jurisdiction are only obiter. Nevertheless, they will be of interest to advisers. While it remains the case that the FTT does not have a general supervisory function, the UT considered that a taxpayer could raise public law arguments in a tax appeal unless the statutory scheme prevented such arguments, either expressly or by implication. The provision in question (VATA 1994 s 83(1)(p)) states that an appeal is permitted ‘with respect to ... an assessment ... under s.73(1) [i.e. a best judgment assessment] ... or the amount’. Since the UT also held that s 73(1) gave HMRC a discretion to assess (it was not mandatory) it concluded that a general public law defence fell squarely within the subject-matter described. However, unless the relevant right of appeal is crystal clear taxpayers would still be well-advised to issue protective judicial review claims should they wish to challenge HMRC’s decisions on public law grounds.


2021 was also an important year for VAT. In Balhousie Holdings [2021] UKSC 11, the Supreme Court held that a sale and leaseback did not amount to the disposal by the taxpayer of its ‘entire interest’. While the judges differed in their analyses, the overall outcome was unsurprising since the CJEU had recently determined a sale and leaseback should be considered a single transaction for VAT in Mydibel (Case C-201/18). In News Corp UK [2021] EWCA Civ 91, the Court of Appeal overturned the UT’s decision and held that digital news services were not liable to zero-rating. This would have been a game-changing outcome for the newspaper and e-book industry had the taxpayer prevailed. In Target [2021] EWCA Civ 1043, the Court of Appeal departed from FDR [2000] EWCA Civ 216 in favour of subsequent CJEU case law culminating in DPAS (Case C-5/17) and agreed with the UT that outsourced loan administration was not exempt. The taxpayer’s application for permission to appeal to the Supreme Court is pending. Finally, the CJEU ruling in Danske Bank (C-812/19) is of significant interest in relation to corporate groups which operate through branches in different Member States. It remains to be seen to what extent the CJEU’s ruling will impact the HSBC VAT grouping litigation heard by the UT in October 2021 (see HSBC Electronic Data Processing [2020] UKFTT 402 (TC) for the preliminary issues).

Employment matters

There were several employment tax cases this year. Sheiling Properties [2021] EWCA Civ 1425 concerned the short question of whether the APN regime could apply to PAYE liabilities the subject of a determination under reg 80 of the PAYE Regs. The short answer is ‘yes’. Also of note is the Court of Session judgment in Vermilion [2021] CSIH 45, upholding the FTT’s decision that an option granted to a director fell outside ITEPA 2003 s 471 because it was not granted ‘by reason of employment’. Of particular interest is the court’s reasoning which limits the deeming provision in ITEPA 2003 s 471(3) – the analysis on this point is worth reading as it is capable of wider application. Professional Game Match Officials [2021] EWCA Civ 2021 raised a distinct legal issue of whether a provision in a contract which enabled one or other side to terminate it before performance negated the mutuality of obligation necessary in a contract of employment. Put shortly, the court decided that a contract could be a contract of employment if it merely provided for a worker to be paid for the work that he did and remitted the case to the FTT to reconsider. This decision will be disappointing for those looking to engage self-employed workers.

Corporate and international tax

In my last category, it’s been rather a thin year for corporate and international tax cases, but three stand out. In July, the Supreme Court gave its third judgment in the long-running saga that is the FII GLO [2021] UKSC 31. HMRC will be relieved to have limited the claimants to simple interest only, but it nevertheless failed on more radical, non-enrichment arguments which would have eliminated most of the claims. Medical Defence Union Ltd [2021] UKUT 249 is the first case on mutual trading in many years. The UT agreed with the taxpayer that the sums at issue were surplus not profit and so not subject to corporation tax. Lastly, Vitol Aviation [2021] UKFTT 353 contains an interesting analysis of the interaction between diverted profits tax and corporation tax. The FTT’s conclusion on closure notices will be of limited future application, however, since – like this year’s office Christmas party – the government is now taking steps to cancel it.