Social Security Case Law - Spring 2024

Headnote

Tax Credit case.  Section 38 (1A) of the Tax Credit Act 2002 that prevent appeals are ultra vires the enabling legislation.

Background

The appeal concerns legislation which provides for a review of HMRC decisions about tax credits in advance of an appeal to the FfT.  HMRC submit that the effect of the legislation is to make the carrying out of a review mandatory before any such appeal may be made, and further that if a review is not requested within the time limit provided and HMRC refuse to extend time then the right to appeal is lost, subject only to a JR of HMRC’s decision.

Mr Arrbab had an award of tax credits and changed his employer.  He informed HMRC about the change in employer but was mistakenly recorded by HMRC as being self employed.  This led to a change in his tax credit award.  Mr Arrbab requested a review of the decision to change his tax credit award, but this was rejected by HMRC who decided that the request for a review was submitted too late.  Mr Arrbab appealed to the FfT which struck out the appeal on the basis that it had no jurisdiction under the mandatory reconsideration provision of Section 38 (1A) of the Tax Credits Act 2002.

Mr Arrbab successfully appealed to the Upper Tribunal.  The Upper Tribunal found that the legislation under the Tax Credit Act 2002 did not exclude a right of appeal where HMRC has decided under Section 21B that the period to apply for a mandatory review should not be extended.  The Upper Tribunal relied on R(CJ) and SG v Secretary of State for Work and Pension (ESA) [2017] UKUT 324 (AAC), [2018] AACR 5.  The Upper Tribunal set aside the FfT decision and remitted the appeal to the FfT to consider whether to extend time to permit an appeal and to deal with the merits of Mr Arrbab’s case.

HMRC was granted permission to appeal to the Court of Appeal but accepted that the decision to refuse Mr Arrbab’s request for a review was unsatisfactory.  HMRC paid Mr Arrbab the amount of monies that Mr Arrbab was entitled to, but for HMRC’s error.

This rendered the appeal academic, but Court of Appeal decided to hear the appeal on two grounds:

(1) the ‘construction issue’ – whether the UP erred in law by concluding that the provision of Subsections 21A (review of decisions), 21B (late application for a review) and 38 (appeals) of the Tax Credit Act 2002 permit an appeal to be brought in a case where HMRC have decided that the period to apply for a review should not be extended.

(2) the ‘ultra vires’ issue – whether the Tax Credits, Child Benefit and Guardian’s Allowance Reviews and Appeals Order 2014 which introduced the above provisions into the Tax Credits Act 2002 was ultra vires to the extent that it sought to amend Section 38 of the Tax Credits Act 2002 to make the review process mandatory.

Legal Issue

Whether the provision of Subsections 21A (review of decisions), 21B (late application for a review) and 38 (appeals) of the Tax Credit Act 2002 permit an appeal to be brought in a case where HMRC have decided that the period to apply for a review should not be extended.  Whether the regulations introducing the above provisions are ultra vires.

Decision

The Court of Appeal held: (1) that the UT made an error of law on the construction issue (2) Section 38 (1A) of the Tax Credits Act 2002 is ultra vires the enabling legislation.

• The construction issue.

The Court of Appeal found that the UT made an error of law.  The Court of Appeal stated that the decision in CJ which the Upper Tribunal relied on is based on legislation which is different to that of Section 38 (1A) of the Tax Credits 2002 Act.  The Court of Appeal stated at paragraph 36:

‘…I consider section 38(1A) to be clear and to leave no scope for the sort of approach adopted in CJ.  It expressly requires both a) that a review ‘has been carried out’ under section 21A and b) that ‘notice of the conclusion on the review’ has been provided under section 21A(3).  Section 21A(3) in terms applies only when a review has in fact been carried out.  If a late request is made and time is not extended under Section 21B then the result is that there has been neither a review nor notice of a conclusion of any review.’

• The ultra vires issue:

The Court of Appeal found that section 38 (1A) and the cross reference to it in Section 38(1) should be treated as struck out as ultra vires.

The Court stated:

‘unlike the changes made to the social security regime made pursuant to the 2012 Act, Parliament did not pass primary legislation to enable the new procedure to be adopted for tax credits.  Rather, the enabling legislation that the Treasury sought to use was Section 124 of the Finance Act 2008 which had been enacted some four years before Parliament even considered the topic of mandatory reconsideration in the different context of social security reforms.’

The Court of Appeal reviewed parliamentary materials which were published along with the 2008 Finance Act and case law.  The Court found that the changes introduced by the 2014 Order were ultra vires:

• • The purpose of s.124 FA 2008…..was to facilitate the transition to the new tribunal system and allow the introduction of a right to a formal review. That is very different from a mandatory review on terms that excludes the FTT’s ability to determine whether to entertain a late challenge. There is nothing in s.124 FA 2008 that makes clear that it authorises a provision which has the effect of making the decision maker the effective gatekeeper of appeals to the FTT in the event of a late challenge, subject only to the possibility of judicial review. Although s.124(2)(a)(ii) permits provision about the “circumstances in which” an appeal may be made, that is insufficiently clear to permit HMRC to become the gatekeeper. (paragraph 61)
  • Case law authorities….’Saleem and UNISON both emphasise the importance of unimpeded access to courts and tribunals and the need to adopt a strict approach in determining whether a restriction on access has been authorised by Parliament. As Lord Reed explained in UNISON, the right of access may only be curtailed if it is clearly authorised by primary legislation, and only to the extent that is “reasonably necessary to fulfil the objective of the provision in question”. (Paragraph 59).
  • the effect of s.38(1A) is not simply to mandate a review to be conducted first as a condition of bringing an appeal. Rather, its effect is to exclude the possibility of a late challenge where HMRC do not agree to extend time. In essence, it excludes the jurisdiction of the FTT to determine whether to entertain a late appeal. (Paragraph 65).

The Court of Appeal held that the decision should be remade by allowing the appeal against the FfT decision, reflecting that the appeal should not have been struck out for want of jurisdiction.

HMRC provided an update via the Tax Credit Consultation Forum on 25/01/24 stating that it was not their intention to appeal the judgement:

‘In response to the Court of Appeal judgment of 19 February (HMRC versus Arrbab), we are not appealing the ruling and will abide by the Court’s decision. The judgment means that claimants now have a direct right to appeal a relevant tax credits decision to an independent tribunal, without first having to engage the mandatory reconsideration process. We are working quickly to refresh messages in claimant notices and factsheets to ensure clarity in respect of their appeal rights going forward.’