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HMRC internal manual

Debt Management and Banking Manual

From
HM Revenue & Customs
Updated
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Enforcement action: country court proceedings: the defendant’s response to the claim: finality principles

Most claims that you will make in the county courts are very favourably placed when it comes to dealing with a defence. The Taxes Management Act 1970 governs the assessment and collection of most direct taxes and other duties that are collected as if they were tax (such as Class 4 NIC, or Regulation 80 determinations). It provides the customer with rights to appeal to the First-tier Tribunal to resolve objections or issues in connection with tax liabilities. The customer is given rights to exercise in relation to his or her taxation affairs and they are set before them at each stage in the process. Most customers exercise their rights, but if they do not, then the tax or other charge becomes final.

These principles have been established in cases that have been decided by the higher courts and are often referred to as the ‘finality principles’. Their effect is that if the customer has rights to appeal to the First-tier Tribunal about their tax or NIC liabilities, they cannot raise them in the county court.

The principles can be summarised as follows and it is essential that you familiarise yourself with them before attending court:

  • the taxpayer must either make a self-assessment [TMA1970/S9] or be served with a notice of assessment [TMA1970/S30A(3)]
  • the taxpayer has a right to appeal against an assessment or an amendment to a self-assessment [TMA70/S31] (but not against their own self-assessment; an SA or COTAX determination; or employers’ liabilities)
  • if the taxpayer does not appeal, the debt is held to be absolute (Inland Revenue v Pearlberg)
  • if the taxpayer does appeal and the case is either:

    • heard and determined by the tribunal [TMA70/S50] or
    • determined by agreement [TMA70/S54] (Inland Revenue v Aken)

then the debt is final and conclusive [TMA70/S46 (2)]

  • the taxpayer may appeal to the Upper Tribunal or relevant appellate court, but the tax remains payable in accordance with the determination of the court or tribunal on the initial appeal anyway [TMA70/S56 (2)].

Inland Revenue v Pearlberg

The case of Inland Revenue v Pearlberg (1953) 1 All ER 388 supports these principles. As Lord Denning put it, “… all issues on the merits of these cases, as to fact or law, should have been determined on appeal to the Commissioners and cannot be raised at this stage”. Although the Pearlberg judgment related to assessments that had not been appealed against, the principle applies where an appeal has been made and determined, when the statute itself [TMA70/S46 (2)] makes the determination final and conclusive.

The reference in the quote from Lord Denning to “the Commissioners” is to the body which used to hear appeals prior to the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 coming into force on 1 April 2009.

Inland Revenue v Aken

In the case of CIR v Aken (TL3241) before the Court of Appeal, Fox LJ decided that Section 54 agreements were final and conclusive and provided an enforceable agreement.