UT/2021/000192 - [2024] UKUT 00242 (TCC)

The above misdirections indicate HMRC should reconsider the issue of whether to exercise the 7A discretion. However none, in our view, whether taken individually or together require that HMRC’s decision must be to exercise the 7A discretion in UBS’s favour.

The prematurity misdirection explains why HMRC were wrong to proceed on the basis that they ought not even consider exercising the discretion. The NICs liability and UBS information misdirections ought not to have detracted in the way they did from HMRC’s analysis of the positive reasons why UBS was arguing the 7A discretion should be exercised, but they were not reasons in themselves for exercising the 7A discretion.

In our judgment the positive reasons (efficiency and the Regulation 72 anomaly) advanced, while capable of sustaining an exercise of the 7A discretion do not individually or together compel its exercise in UBS’s favour. In summary going back to Padfield and Hoey we remind ourselves what this power is for. Parliament means to allow HMRC broad discretion to relieve compliance from the PAYE Regulations where an HMRC officer considers it unnecessary or inappropriate. The backdrop is the collection machinery of the employee’s tax liability. While there is no policy of always collecting from the employer, that does not rule out a starting point of collecting from the employer. The focus is on employer’s compliance. While we recognise it would be open for the officer to decide that it was appropriate in the circumstances to exercise the discretion, we are not persuaded they would be bound to exercise the discretion and that HMRC would thereby breach the principle in Padfield or be Wednesbury irrationalif they did not.

Accordingly, despite having identified various misdirections, which will necessitate a new exercise of discretion, we are not satisfied that UBS has met the burden on it to show that HMRC’s refusal was unlawful in the sense that the only decision it could lawfully have reached was to grant the discretion.

Mr Grodzinski sought to persuade us of the significance of HMRC not advancing the factors and reasons that would justify saying “no” to the 7A exercise (as a consequence of HMRC withdrawing its defence to the claim) but we do not think this changes the above analysis in circumstances where we are not satisfied UBS has met the burden on it to show HMRC were bound to grant the 7A discretion. Similarly we do not draw anything of significance from HMRC’s omission to plead in defence to the argument that the claim should fail because the outcome of any decision is highly likely to not have been substantially different (under s16(3C) onwards of the Tribunal Courts and Enforcement Act 2007 being the analogous provisions to those set out in s31(3C) Senior Courts Act 1981). That is consistent with HMRC’s view that no assumptions can be made about what the new decision-making officer will decide when the matter is reconsidered. Although we have concluded HMRC would not be bound to exercise it in UBS’s favour as a matter of public law, given our view that it would in principle be open to the decision-maker to grant the exercise of the 7A discretion, we consider HMRC are right not to suggest the new decision will inevitably be the same.

Remedies

As both parties acknowledge, the question of what remedies, if any, the tribunal should order is a matter of discretion.

We have identified misdirections of law were made in respect of prematurity and as regards the relevance of NICs to UBS’s case on litigation efficiency.

We see no reason not to declare that HMRC’s decision was unlawful in those identified respects.

As regards mandatory relief, given the misdirections, we consider HMRC ought to consider the matter afresh. Although HMRC have already committed to making a new decision we consider it is appropriate to mandate that HMRC do so, to make clear that the new decision takes account of the misdirections identified by our declaration. We therefore make a mandatory order requiring HMRC to consider whether to exercise the 7A discretion to relieve UBS from its obligation to comply with PAYE Regulations in respect of the delivery of the gilts to Mr Wood referred to. We anticipate that HMRC’s decision maker will also want to reflect on the contents of this decision and recognise that the decision is being issued in the summer leave period but consider that a deadline of two months from the release date will be ample and so order. The issue of whether to make an order mandating HMRC to grant the 7A discretion does not arise as UBS has not met the burden on it of showing that the circumstances advanced compelled a positive 7A decision under the principles of public law it relied on. Neither, for the same reason, does the issue of quashing HMRC’s Regulation 80 determination arise. That determination remains in place.Similarly although it was a matter of dispute as to whether we would in any case have had jurisdiction to mandate the exercise of 7A if UBS had been successful on its Padfield ground we do not need to and accordingly do not express a view on that issue.