1. Introduction

The case of Knibbs & Ors v. Revenue And Customs ([2019] EWCA Civ 1719) presents a pivotal moment in the interpretation and enforcement of statutory appeal mechanisms within the realm of UK tax law. Heard by the Court of Appeal in the Civil Division on October 17, 2019, this case addresses the procedural intricacies faced by taxpayers attempting to challenge HM Revenue and Customs' (HMRC) decisions through non-statutory civil proceedings. The appellants, represented by Knibbs and other claimants, engaged in tax avoidance schemes primarily involving film investments, which purportedly resulted in substantial trading losses. These losses were intended to be carried back to offset previous taxable incomes, thereby seeking to either reclaim overpaid taxes or contest tax liabilities imposed by HMRC.

The core issues revolved around whether the claimants' use of civil proceedings to contest HMRC's refusal to acknowledge their loss relief claims constituted an abuse of court process, given the existence of exclusive statutory appeal routes such as the First-tier Tribunal (FTT) and applications for judicial review. The claimants sought declarations and orders for payment based on arguments that HMRC failed to conduct requisite inquiries within specified timeframes.

2. Summary of the Judgment

After a comprehensive four-day hearing, the Court of Appeal delivered a unanimous judgment affirming previous decisions that struck out the claimants' Part 7 proceedings as an abuse of court process. The judgment underscored that taxpayers must adhere strictly to the statutory appeal processes outlined within tax legislation, and that attempting to circumvent these procedures through civil litigation is impermissible.

The court dismissed the appellants' arguments, which posited that the enactment of the Income Tax Act 2007 (ITA) might alter the application of Schedule 1B to carry-back loss claims made post-2007. The court rejected these claims, reiterating that the statutory framework governing such tax matters remained binding and that the Supreme Court's decision in De Silva effectively precluded the validity of the appellants' arguments.

Consequently, the appeal against Sir Nicholas Warren's order striking out the Part 7 proceedings was dismissed. Furthermore, permission was granted to appeal against Ouseley J's refusal to permit judicial review proceedings, but ultimately, such applications were dismissed based on the same substantive tax issues.

3. Analysis

3.1 Precedents Cited

The judgment extensively references several pivotal cases that have shaped the current understanding of procedural propriety in tax law appeals:

• Autologic Holdings plc v Inland Revenue Commissioners [2005] UKHL 54: Established the principle that if Parliament has provided an exclusive statutory appeal route, the courts must respect this exclusivity and deem civil litigation attempting to bypass it as an abuse of process.
• The Queen (on the application of De Silva) v Revenue and Customs Commissioners [2017] UKSC 74: Confirmed that carry-back loss claims must be addressed through the mechanisms provided under the Taxes Management Act 1970 (TMA) and cannot be contested via High Court proceedings.
• Revenue and Customs Commissioners v Cotter [2013] UKSC 69: Clarified the interpretation of "returns" in the context of carry-back claims, reinforcing that such claims must be included within the relevant tax return and are subject to inquiry under Section 9A of TMA.
• The Queen (on the application of Derry) v Revenue and Customs Commissioners [2019] UKSC 19: Although differing in subject matter, it addressed the application of schedule provisions in a tax context, emphasizing the importance of consolidation statutes being interpreted as coherent bodies of law.

3.2 Legal Reasoning

The Court of Appeal's reasoning hinged upon the reaffirmation of statutory supremacy in tax appeals. The court held that:

• Exclusivity of Statutory Routes: Taxpayers must utilize the procedures explicitly provided for in tax legislation (e.g., appeals to the FTT or judicial reviews), and diverting to civil proceedings is inherently an abuse of the judicial process.
• Binding Nature of Supreme Court Decisions: The recent Supreme Court rulings in De Silva, Cotter, and Derry set authoritative precedents that the appellate courts must follow, especially concerning the interpretation of statutory provisions related to tax relief claims.
• Interpretation of Legislative Intent: The court emphasized that the Income Tax Act 2007 (ITA), as a consolidation statute, must be interpreted as a unified piece of legislation without deference to previous legislative structures, aligning with the principles established in the Tax Law Rewrite Project.
• Abuse of Process Doctrine: Pursuing tax claims through High Court proceedings, when statutory appeal mechanisms are available, undermines the legislative intent and the specialized expertise of tax tribunals, justifying the striking out of such claims.

The court also addressed the appellants' attempt to distinguish between pre-2007 and post-2007 claims based on the ITA's provisions. The ruling dismissed this distinction, asserting that the statutory linkages within the ITA to Schedule 1B ensure a consistent application of the law across different tax years.

3.3 Impact

This judgment has profound implications for both taxpayers and HMRC:

• Reinforcement of Statutory Mechanisms: The decision fortifies the necessity for taxpayers to engage with the established statutory review processes, discouraging attempts to circumvent these channels through general civil litigation.
• Clarification of Tax Relief Claims: By upholding the necessity to include carry-back claims within specific return forms and subjecting them to inquiry under TMA sections, the ruling provides clarity on procedural expectations for future tax claims.
• Guidance for Legal Practitioners: The judgment serves as a critical reference point for solicitors and legal advisors in navigating the complexities of tax law appeal procedures, emphasizing adherence to legislative stipulations.
• Precedential Authority: The affirmation of past Supreme Court decisions ensures a stable and predictable legal environment, reducing the likelihood of divergent interpretations in lower courts.

Furthermore, the decision signals HMRC's strengthened position in enforcing compliance with statutory appeal routes, potentially streamlining tax dispute resolutions and reducing judicial caseloads burdened by non-compliant civil claims.

4. Complex Concepts Simplified

5. Conclusion

The judgment in Knibbs & Ors v Revenue And Customs serves as a robust affirmation of the legal principle that taxpayers must adhere strictly to the statutory appeal mechanisms established within tax legislation. By dismissing the appellants' attempts to circumvent these procedures through civil litigation, the Court of Appeal reinforced the sanctity of legislative intent and procedural propriety.

This decision not only upholds the hierarchy of law but also emphasizes the importance of specialized tribunals in handling complex tax disputes. The comprehensive analysis and reliance on established precedents fortify the judiciary's role in maintaining a fair and orderly tax dispute resolution system.

For legal practitioners and taxpayers alike, this case underscores the imperative to engage with procedural routes as delineated by law, rather than seeking alternative and unauthorized avenues. The clear delineation between statutory and civil processes ensures a more efficient and predictable legal landscape, ultimately fostering compliance and reducing unnecessary litigation.

In the broader legal context, Knibbs & Ors v Revenue And Customs exemplifies the judiciary's commitment to upholding legislative frameworks, ensuring that statutory provisions are interpreted cohesively and applied uniformly. As tax law continues to evolve, such landmark rulings provide essential guidance, shaping the interplay between taxpayers and tax authorities within the bounds of established legal protocols.