Monday, May 11, 2009



I want to return to what is becoming a recurrent theme of mine, namely how do Ministers have the nerve to complain that people who pay the tax prescribed by the tax system (rather than the tax that it would have prescribed had Ministers been bothered both to ensure that the legislation reflected their intention and been prepared to allow Parliament sufficient time to consider whether or not it did so) are being unfair when the tax system itself contains so many unfairnesses?

My thoughts have been prompted by reading the judgement of Mr Justice Warren in HMRC v Mobilx Ltd. HMRC suspected Mobilx of either being involved in a tax fraud or, more likely, not investigating their supplier and customer (and its supplier and customer and so on) so as to ensure that they were not an innocent scapegoat caught up in a tax fraud. Mobilx submitted its VAT return for the month to 30 April 2006 showing a VAT repayment due to it of £1.8m. It submitted its return for the month to 31 May 2006 showing a repayment due to it of £3.13m. The repayment never appeared in its bank account. HMRC explained that they were carrying out enquiries and the repayment would “continue to be withheld until our enquiries are complete”.

Obviously most businesses cannot afford to be £5m out of pocket for very long before they go bust! There is a perception that that is what HMRC actually want. “If we can’t prove people are crooks, why not sit on their money until they go bust because it is unlikely that a liquidator will sue us?” OK, that may be a jaundiced view. But, in the context of HMRC telling us time and time again that they want to minimise burdens on business, what other realistic views are there?

Mobilx Ltd did not wish to go bust! Accordingly it asked its accountants to lodge an appeal to the VAT and Duties Tribunal against HMRC’s refusal to repay it the money due. HMRC said, “We haven’t refused to repay you; we have merely refused to decide whether or not to repay you”. The tribunal decided to hear the appeal. Before it could do so HMRC rushed to the High Court and said, or I suspect words to this effect, “It’s ridiculous to think that Parliament believes that taxpayers ought to have some sort of general right to oppose the State. Parliament is very careful to limit the rights of the ordinary citizen. In the case of VAT it has only given the citizen a right to appeal against a decision of HMRC. If we are careful to simply delay indefinitely making a decision there is nothing that the citizen can do about it”.

Sadly, I have no doubt that they are right. Both Magna Carta and the Bill of Rights protect the rights of Parliament, not the rights of the citizen. They were both based on the theory that Parliament represents the citizens. But Parliament today does not really regard itself as representing anyone. Its role seems to be to rubberstamp what the government wants to do. That does not include giving lots of rights to citizens. Citizens’ rights are a nuisance to government and as such clearly need to be curtailed.

So Mobilx Ltd was fighting a hopeless case because it had no right to stop the State (in the guise of HMRC) forcing it into liquidation. But that is not what caught my eye. This was that Warren J complained, when the case came before him, that “Since my decision on this case may be of some significance for HMRC in a number of cases, it is unfortunate from my perspective that Mobilx did not appear to argue that Mr Johnson [i.e. the VAT Tribunal] was correct”.

Mobilx in fact wrote a very polite letter to the court explaining that between the date of the VAT tribunal decision and the date of the court hearing, HMRC had decided not to refund their £5m. They had appealed against this decision. However, being £5m short in their cash flow, they had no money to instruct lawyers to appear before Mr Justice Warren to argue that they had an entitlement to appeal even when HMRC took great care to avoid making a decision, particularly as that was now irrelevant to them as HMRC had at last done so.

Personally, I think it “unfortunate from my perspective” that Mr Justice Warren decided to consider the appeal because the issue was “of some significance to HMRC”, even though he felt that he would have liked to hear arguments from someone other than HMRC. Surely he could have simply said that in the absence of any arguments from Mobilx he would reverse the decision of the VAT tribunal without wishing to set a precedent as he had not been able to consider both sides of the argument? Or he could have said that there was no longer any issue to decide so he could not even consider the case. Or he could have appointed an amicus curie to oppose HMRC.

Personally I think it outrageous that he should have expected Mobilx to spend money on legal representation for a wholly theoretical issue when it was obvious that HMRC’s strategy appeared to be to force Mobilx into liquidation and hope that the liquidator would not think it an appropriate use of whatever funds were available to him to challenge HMRC.

I also think that his decision to decide the case, apparently on the basis that it was “of some significance to HMRC”, when he believed that he was handicapped in doing so because he could hear no opposing arguments, gives the impression that he thinks that a role of the court is to comply with the bidding of HMRC.

In the UK’s (unwritten) constitution the courts are supposed to be independent of the executive (of which HMRC is a part). In judging independence perception is everything. What saddens me most of all is that I think that in this case Mr Justice Warren has seriously undermined the perception that the courts are independent from the State.

Robert Maas


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