Morris & Anor v Revenue & Customs [2014] UKFTT 993 (TC)
[19]The power of HMRC to enter into contract settlements was confirmed by the Court of Appeal in IRC v Nuttall [1990] STC 194 . At p203h Ralph Gibson LJ accepted the submission of counsel to the Crown that where a sum is agreed to be paid under a contract of compromise, the commissioners are bound by that contract and cannot in respect of the year or years covered by the contract pursue any claims to tax, interest or penalties. The sum payable under the contract can only be recovered by proceedings at law for debt. 20. It is implicit that a contract settlement takes effect outside the statutory regime of assessments and appeals to the FTT. In so far as HMRC wish to enforce a contract settlement they must do so by proceedings in debt. In so far as a taxpayer wishes to challenge the enforceability of such a contract he or she must do so in defending such proceedings. 21. In the present case, where the tax has been paid, it seems to me that the executors’ only remedy, if any, would be to commence proceedings against HMRC for recovery of sums paid under a mistake of fact and/or law. The mistake alleged would be that they wrongly believed there was a contractual obligation to make the payment. I should emphasise that I am not saying anything about the merits of such proceedings nor am I encouraging Mrs Morris and Mrs Gregson to commence such proceedings. The only reason I identify it as a possible remedy is to highlight that the absence of a remedy via the FTT does not mean that they are without remedy. 22. Mr Ryder accepted that HMRC’s correspondence had misled Mrs Morris and Mrs Gregson into believing that they may have a remedy in the FTT. For the reasons given above I am satisfied that their remedy, if any, does not lie in this tribunal. The FTT has no jurisdiction in relation to the existence of a contractual settlement in these circumstances. 23. Following the oral hearing, Mr Ryder very helpfully referred in correspondence to what HMRC describe as “overpayment relief”. The HMRC Enquiry Manual at EM 6413 deals with “post settlement issues” and re-opening a settlement. It states as follows: “ Where a taxpayer has entered into a legal contract which is binding, we are not obliged to make any adjustments to the underlying figures. It would however be incorrect to apply this in a way that places a cooperative taxpayer at a disadvantage over an un-cooperative one. For example, we may have to settle an enquiry into the return of an un-cooperated taxpayer using formal action at every stage. Because we have settled by assessment, they are entitled, within the relevant time limits, to all the relieving provisions in the Taxes Acts. This is in contrast to a cooperative taxpayer who has settled by contract. We must therefore make sure that a taxpayer who has settled by contract is not disadvantaged and has the benefit of any adjustment that they could have claimed if the liability had been dealt with by assessment. In these circumstances you must consider re-opening the settlement. The most common claims of this type are to loss relief (especially under ITA07/S72) and CTA10/S458 relief. You may also get claims to relief that were previously overlooked, or for FA09/Sch 52 overpayment relief adjustments. ” 24. Overpayment relief is relief available to a taxpayer where tax has been paid which was not due. It arises under section 33 and Schedule 1AB TMA 1970 and Mr Ryder suggested that it might be available in the present circumstances, together with a right of appeal if it is refused. However IRC v Nuttall is authority for the proposition that a taxpayer who has entered into a contract settlement has no scope to make a claim under section 33, at least as section 33 was then worded. At 205c Bingham LJ stated: “ Such informal compromise deprives the taxpayer of the locus poenitentiae provided by section 54(2), and the right to re-open assessments under section 33, but it protects him against exercise of the Revenue's more draconian enforcement powers (e.g. under sections 61 and 65) and often, as here, against further liability for penalties and default interest . ” 25. Whilst I have not heard full argument on the point it does not seem to me that the FTT would have any jurisdiction in relation to a decision by HMRC pursuant to a claim under EM 6413 for the same reasons that it has no jurisdiction over the contract settlement. It is outside the statutory scheme of assessment and appeals. If I am wrong in that view then if HMRC were to refuse overpayment relief it would be necessary for the executors to make a further appeal to the FTT. 26. Mr Ryder indicated that HMRC was prepared to allow further time for Mrs Gregson to consider whether to make a claim for overpayment relief pursuant to EM 6413. It seems to me that in the circumstances that is a helpful suggestion and may avoid the necessity for separate proceedings by Mrs Gregson. Conclusion 27. In all the circumstances I am satisfied that the FTT has no jurisdiction in relation to the contract settlement. I must therefore strike out the appeal. 28. It is most unfortunate that Mrs Morris and Mrs Gregson have been led down the path of a Tribunal appeal only to find that the tribunal does not have jurisdiction. However there is no basis on which I can assume a jurisdiction which the FTT does not have. By way of summary and for the benefit of Mrs Morris and Mrs Gregson it seems to me that they now have the following options:(1) To seek overpayment relief or the equivalent of overpayment relief pursuant to HMRC’s practice described at EM 6413. I have already indicated my provisional view that the FTT would not have jurisdiction if HMRC decided to refuse relief.(2) To commence proceedings in the County Court seeking recovery from HMRC of the sums paid on the basis that the contract settlement was not enforceable. Nothing I have said should be taken as encouraging such a course of action. 29. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. JONATHAN CANNAN TRIBUNAL JUDGE RELEASE DATE: 27 October 14