The Good Law Project (‘GLP’) has legally attacked Uber from several perspectives. First, Uber was sued for a VAT invoice. Second, Jolyon Maugham QC submitted a claim to HMRC to deduct input VAT on an Uber journey. Third, the GLP started a judicial review case against HMRC claiming that HMRC acted unlawfully by failing to raise a VAT assessment against Uber. The particular assessment that the GLP argues ought to have been raised is what has come to be known as a ‘protective assessment’. It is not actually a legal term, but simply relates to HMRC making an ordinary assessment against a taxpayer but suspending the collection until litigation relevant to the assessment has come to an end. If HMRC is unsuccessful in the litigation, the assessment is withdrawn. The advantage of a protective assessment from HMRC’s perspective is that it avoids problems in respect of time limits, which would otherwise stop HMRC from issuing an assessment. For instance, section 73(6) provides that for a VAT assessment, the time limit is ‘(a) 2 years after the end of the prescribed accounting period; or (b)one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge’. In the event of such ‘evidence of facts’ arising, the time limit is extended to 4 years from the accounting period (section 77(1)(a)) and can be extended to 20 years in the case of deliberate non-compliance (section 77(4)).
On 19 November 2019, Mrs Justice Lieven handed down judgment in respect of a matter arising in relation to the judicial review (rather than on the substantive issues in the judicial review itself). This was whether HMRC could disclose to the GLP whether a protective assessment had been issued against Uber. Interestingly, it was HMRC that had applied for the order – fearing that information inappropriately disclosed would place HMRC in breach of its duty of confidentiality (enshrined in section 18 of the Commissioners for Revenue and Customs Act 2005) which could result in HMRC officials being imprisoned (under section 19).
Lieven J found that to disclose this information would not result in a breach of HMRC’s duty of confidentiality. The judgment itself stands immediately for a narrow proposition: that HMRC will not be held to have breached its duty of confidentiality in a situation where it discloses information to an opposing party during litigation. There are 5 points in particular which are of note in relation to the judgment.
First, the judgment did not concern standing [para 3]. If it did, it should be noted that standing for third parties is inextricably linked to the merits of the underlying case (see R v Secretary of State for Foreign and Commonwealth Affairs, ex parte World Development Movement Ltd). Thus whether there is a strong case or not that HMRC has acted unlawfully will be critical to determining the standing issue. Denying standing however would not stop the court from actually assessing the merits of the case against HMRC (as occurred in the Fleet Street Casuals case).
Second, the outcome – that the information would be shared only with the Good Law Project for the purposes of the ongoing litigation – in the case related to a specific order. That is why the argument of Uber that the case concerned a fishing expedition did not succeed – as HMRC indicated, by virtue of applying for an order, that it would answer the specific question [para 40].
Third, the case was decided on the basis of section 18(2)(c). This was different from Ingenious Media which related to section 18(2)(a). Interestingly, whilst section 18(2)(a) per the Ingenious judgment must be interpreted narrowly, section 18(2)(c) should be interpreted as meaning that disclosure is permitted in civil proceedings regardless of whether the proceedings relate to an appeal or a judicial review. To be honest, I had assumed that the provision was supposed to deal with the former rather than the latter as in the case of the former, the taxpayer concerned, by challenging HMRC, could be said to have impliedly waived their right to have their tax affairs kept private. It is probably worth noting that the Explanatory Notes to the legislation appear to support this assumption in so far as the examples used to highlight the scope of the provision are for the most part proceedings in respect of tax appeals and co-operation with other tax authorities [para 98 of the Explanatory Notes]). In any event, Lieven J further found that there is an element of discretion inherent in section 18(2)(c) in that HMRC may make a disclosure not just where to do so is ‘necessary’ for the purposes of the civil proceedings, but also where it is deemed by HMRC to be expedient to do so [para 36]
Fourth, the judgment of Lieven J placed great importance on the principle of open justice, against the background of which section 18(2)(c) ought to be read [paras 18-21, 35 and 39].
Fifth, the impact on the taxpayer in terms of the information that HMRC was asking for permission to disclose would be minimal [para 39]. Lieven J highlighted that a keen observer would be able to infer whether an assessment has been issued and in any event, the information only related to whether such an assessment had been issued:
‘The only information which at this stage HMRC want to disclose is whether or not they have made a protective assessment. If they have not, then that is the position as it stood in 2017 and was known to the public. If there is now a protective assessment, then that fact alone has a limited impact on taxpayer confidentiality, and is in any event a possibility which Uber have contemplated both in their contingent liabilities in the accounts, and in responses to the US Securities and Exchange Commission’ [para 42]
Beyond this judgment, it is worth considering how likely it is that the GLP will be successful in the substantive judicial review case (assuming that HMRC has not actually issued a protective assessment). For my own part, I think it unlikely the GLP would succeed in demonstrating that HMRC has acted unlawfully. In the absence of clear evidence of impropriety on the part of HMRC, for instance that HMRC was not taking action for political or economic reasons, GLP will have to resort to challenging the exercise of judgement by HMRC.
But in respect of judgement about how to go about assessing taxpayers, the courts defer to HMRC. Indeed, the requirement to defer in this instance is indicated by the wording of section 73 which provides that HMRC should only issue an assessment if ‘to the best of their judgment’ VAT is due. That deference is required is confirmed by Woolf J in Van Boekel v C&E whereby he explains that ‘the very use of the word judgement makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them‘. Accordingly, the decision is one for HMRC to make and the courts will not interrogate too strongly the reasons given by HMRC for (not) issuing a protective assessment. And in this respect HMRC’s Jim Harra has actually gone on record explaining why (at least in 2017, Q91) an assessment had not been issued against Uber:
‘I appreciate that there are time limits. We do not have absolute discretion to raise assessments. The law says we can only raise them if our best judgment is that the tax is due. We have been taking advice on these cases and, as Jon says, we have now fought and lost a significant number. Our advice is that the law in this area is reasonably clear unless and until it is changed, for example by one of the cases that you have mentioned. We raise assessments where we think we can, but we cannot just raise them we want to.’
When pressed on whether HMRC could take any action on the basis of the ongoing Aslam case (which concerns the employment law status of Uber drivers), Harra responded as follows:
‘The employment tribunal decision—which is under appeal, so we will see where that goes—relates to the status of the drivers and whether they are self-employed, workers or employees. I believe that tribunal has ruled that they are workers for the purposes of workers’ rights. I am not aware that the tribunal made any ruling regarding principal and agent, which is what is critical to VAT law, not the workers’ rights. Given that there is a Supreme Court decision, an employment tribunal would not be able to overturn that precedent anyway. We would have to see that go through the courts.’
Further, in response to the GLP’s pre-action protocol letter, HMRC explained its view that it could only issue a protective assessment when it had a firm view that tax was in fact due as a matter of law.
Given the requirement for deference, the task of the court on judicial review would merely be to consider whether these reasons logically led to the conclusion reached. An observer need not be convinced that HMRC’s approach is the best way of doing things, but simply that it had made a reasoned assessment and it is difficult to argue that HMRC has failed to do so on this occasion.
To their credit, the GLP seeks to deal head on with these issues in its claim against HMRC, which merits reading in full (though see in particular pages 28 to 35, available here). The GLP has sought to explain that Harra’s reasons are insufficient to lead to the conclusion reached because there are compelling reasons for issuing a protective assessment: the amount of tax potentially due and the Court of Appeal judgment in Aslam suggesting that in a VAT context Uber is a provide of transportation services. For the GLP, the issuance of a protective assessment requires only evidence suggesting tax is due which is far less stringent than HMRC’s interpretation that a firm view would be required.