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

This decision concerns the proper disposal of a judicial review claim in relation to the decision of a public authority (HMRC) in circumstances where the Defendants, HMRC, have committed to make a new decision and sought to withdraw their defence to the original claim but where a dispute remains over whether such withdrawal and the prospect of a new decision means the original judicial review claim is academic and over what, if any, public law remedies it is appropriate for the Upper Tribunal to order.

On 22 September 2023, UBS AG (“UBS”) obtained permission to bring a judicial review in relation to HMRC’s failure in its decision letter of 3 November 2022 (“the November 2022 decision”) to exercise its discretion under s684(7A)(b) Income Tax (Earnings and Pensions) Act 2003 (“ITEPA” and “the 7A discretion”) to relieve UBS from its obligation to comply with the PAYE Regulations in respect of the employment income of the Interested Party, Jonathan Wood, a former senior employee of the Claimant. The amount of the tax liability in respect of the particular remuneration arrangements that were entered into depended on predictions, at a given date, of the future performance of the equity investment team led by Mr Wood. UBS’s claim is brought on the grounds that HMRC’s decision frustrated the relevant statutory purposes in breach of the principles in Padfield, contained misdirections of law, and was Wednesbury irrational. UBS argues that for various reasons HMRC ought to have considered it appropriate to exercise the discretion to relieve UBS of the liability to account for PAYE on the relevant income. In particular, UBS argues it would be more efficient to litigate the tax liability in an appeal by Mr Wood against a closure notice into his self-assessment return rather than proceed against UBS: the tax liability ultimately fell on Mr Wood as employee and in the particular circumstances of this case he was best placed to address the relevant valuation question which would determine the amount of the tax liability. Mr Wood supports UBS’s position that HMRC should exercise the 7A discretion.

The substantive hearing of the judicial review was listed for late May 2024. On 21 March 2024 HMRC sought the Upper Tribunal’s consent to withdraw from the case and later also sought a stay of proceedings on the basis a new HMRC officer would make a new decision on whether to exercise the 7A discretion. HMRC argue that meant UBS’s existing claim for judicial review became academic. By contrast, UBS argues a live issue remains in respect of which the Upper Tribunal should now grant the public law orders they seek of declaring HMRC’s decision not to exercise the 7A discretion unlawful, mandating that HMRC exercise the discretion in its favour and quashing the PAYE determinations HMRC had made in respect of UBS’s PAYE liability. For the reasons we explain below, we consider the existing claim is not academic and that it does therefore need to be resolved. However, with the exception of some limited relief we disagree with UBS that the public law remedies sought should be ordered.