Garrod v Revenue & Customs (VAT)

Factual and Procedural Background

The Appellant is a barrister required to submit VAT returns. He failed to submit an electronic VAT return by the due date for the VAT quarter 06/12, submitting instead a paper return. Despite correspondence with HMRC and a review of the penalty imposed on 16 July 2013 for failing to make an online return in period 03/13, the Appellant continued to refuse online filing due to the requirement to tick a box confirming he had read HMRC's terms and conditions for online filing. The penalty was upheld on review, and the Appellant appealed the decision dated 6 January 2014. The appeal was initially lodged late but admitted at the hearing with no objection from HMRC.

Legal Issues Presented

1. Whether the Tribunal had jurisdiction to consider the lawfulness of HMRC imposing the obligation to tick a box stating the taxpayer had read HMRC's terms and conditions before filing VAT returns online.
2. Whether the imposition of the tick box pre-condition was lawful under the relevant statutory provisions and regulations.
3. Whether the Appellant had a reasonable excuse for failing to submit an electronic return due to the alleged unlawfulness of the tick box requirement.

Arguments of the Parties

Appellant's Arguments

• The Appellant was willing to file VAT returns online but refused to tick the box confirming he had read HMRC's terms and conditions, objecting to the imposition of any terms and conditions and their compulsory nature.
• He contended that HMRC had no power to require taxpayers to read or agree to these terms and conditions as a pre-condition for online filing, rendering the penalty unlawful.
• The Appellant argued that the tick box requirement effectively exempted him from the obligation to file online and that paper filing should have been permitted without penalty.
• He asserted a reasonable excuse defense based on the unlawfulness of the tick box pre-condition and the nature of HMRC's conduct.

Respondents' Arguments (HMRC)

• HMRC maintained that the terms and conditions did not impose additional obligations beyond summarizing applicable law and procedural matters, and that taxpayers were only required to confirm they had read them.
• HMRC argued that the tick box requirement was lawful, relying primarily on Regulation 25A(8) of the VAT Regulations 1995 and section 135 of the Finance Act 2002 as statutory authority.
• They contended that the Tribunal lacked jurisdiction to consider public law challenges to the validity of the regulations or the imposition of the tick box requirement.
• HMRC denied that the Appellant had a reasonable excuse and asserted that refusal to tick the box was unreasonable given the innocuous nature of the terms and conditions.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal found that the Appellant’s refusal to file online was solely due to his refusal to tick the box confirming he had read HMRC’s terms and conditions, which was compulsory for online filing. The terms and conditions extended beyond mere summaries of law, imposing some obligations and granting HMRC rights such as communication via a secure mailbox and limiting HMRC’s liability.

The Tribunal held that ticking the box did not create a contractually binding agreement due to lack of clear consent, absence of consideration, and the duress imposed by the compulsory nature of the requirement on taxpayers legally obliged to file online.

Regarding jurisdiction, the Tribunal concluded it had jurisdiction to consider public law issues where liability depends on a prior unlawful act of a public authority, rejecting obiter comments to the contrary. It held it could consider the legality of secondary and tertiary legislation underpinning the tick box requirement.

On the substantive legality, the Tribunal found no published specific or general direction by HMRC as required by Regulation 25A(8) that authorized the tick box pre-condition. It further found that the tick box did not relate to the form of the electronic VAT return itself but was a pre-condition to accessing the Government Gateway, which was not authorized by statute.

The Tribunal analyzed section 135 of the Finance Act 2002 and concluded that the statutory power to make regulations did not extend to permitting HMRC to sub-delegate the power to impose conditions such as the tick box requirement by tertiary legislation or directions. The form of the VAT online return and any pre-conditions must be set out in regulations laid before Parliament, which was not done.

Accordingly, the imposition of the tick box pre-condition was unlawful. Since this unlawful pre-condition caused the Appellant’s failure to file online, the penalty imposed was not lawfully imposed and had to be discharged.

On the reasonable excuse defense, the Tribunal observed that while it was unnecessary to decide given the findings, objectively the Appellant’s refusal to comply with an unlawful requirement was reasonable. The Tribunal rejected HMRC’s submission that public law issues were irrelevant to reasonable excuse and held that public law matters are relevant and properly considered by the Tribunal in penalty cases.

Holding and Implications

APPEAL ALLOWED

The Tribunal held that HMRC had no lawful authority to impose the compulsory requirement to tick a box confirming the reading of terms and conditions as a pre-condition to online VAT filing. Consequently, the penalty imposed for failure to file online was unlawfully imposed and was discharged.

The direct effect is that the Appellant is relieved from the penalty. No broader precedent was established beyond the specific statutory interpretation and jurisdictional conclusions in this case.