Cartref Care Home Ltd & Ors, R (on the application of) v HM Revenue and Customs

Factual and Procedural Background

The First Appellant, Company A, brought judicial review proceedings challenging the imposition of a tax charge under Schedule 11 to the Finance (No. 2) Act 2017, known as the Loan Charge. This legislation targeted tax avoidance schemes involving "disguised remuneration" loans, which HMRC deemed taxable income if outstanding as at 5 April 2019. The legislation applied retrospectively to arrangements dating back to 6 April 1999, affecting employer/employee relationships, independent contractors, and close company directors.

The judicial review was initiated on 20 February 2019 by multiple claimants including Company A. The decision under review included a letter dated 16 November 2018 imposing the Loan Charge on Company A or alternatively on the Second Appellant, an individual associated with Company A, relating to a loan arrangement from 2010. The claim sought to quash follower notices and to obtain a declaration that the legislation was incompatible with the claimants' rights under Article 1 of Protocol 1 (A1P1) of the European Convention on Human Rights (ECHR), although the Article 6 claim was not pursued.

The High Court judge refused permission for judicial review to all claimants except Company A, which was granted permission. The claim was dismissed on 13 December 2019, holding that the retrospective legislation was within the legislature's margin of appreciation. Costs were awarded to HMRC. Company A sought permission to appeal this dismissal, which was refused by the High Court. Company A then applied to the appellate court for permission to appeal, which is the subject of this ruling.

Subsequent to the original proceedings, the Government commissioned an independent review of the Loan Charge legislation, resulting in substantial amendments enacted in the Finance Act 2020. These amendments reduced the retrospective reach of the legislation, introduced spreading of tax payments, and excluded certain earlier loans from the charge. HMRC contended that these changes rendered the appeal academic, a position contested by Company A, particularly regarding costs and unamended elements of the legislation.

The appellate court directed an oral hearing to clarify whether the appeal remained live in light of legislative amendments. The court now concludes that the appeal lacks merit and that the retrospective issue is academic.

Legal Issues Presented

1. Whether the retrospective imposition of the Loan Charge legislation constituted a disproportionate interference with rights under Article 1 of Protocol 1 of the ECHR, justifying a declaration of incompatibility under the Human Rights Act 1998.
2. Whether the amendments introduced by the Finance Act 2020 rendered the appeal academic or otherwise affected the viability of the claim.
3. Whether the High Court judge erred in excluding certain evidence, including parliamentary reports, from consideration.
4. Whether the claimants provided sufficient evidence of hardship caused by the legislation to support their challenge.
5. Whether the purpose of the legislation was improper because it aimed to circumvent closed tax years.
6. Whether the High Court judge’s order on costs should be reconsidered in light of subsequent legislative changes.

Arguments of the Parties

Appellant's Arguments

• The High Court judge applied a conclusion rather than the correct legal test when rejecting the claim for incompatibility, failing to consider the cumulative effect of all relevant factors.
• The retrospective application of the Loan Charge to arrangements dating back to 1999 (later reduced to 2010) was disproportionate and exceeded the legislature’s margin of appreciation.
• Certain provisions of the legislation unamended by the 2020 Finance Act, including interactions with inheritance tax and accelerated payment notices, could cause double taxation and were not properly challenged below.
• The exclusion of the All Party Parliamentary Group report from evidence was an error of law, as such parliamentary materials should be considered in compatibility assessments under the Human Rights Act.
• The claimants were not required to provide detailed evidence of hardship since they challenged the legislation itself rather than individual tax assessments.
• The purpose of the legislation was improper, aiming to overcome closed tax years, which should render it unlawful.
• The costs order should be reconsidered because the Government was aware of impending legislative amendments that substantially reduced the retrospective application of the Loan Charge.

Respondent's Arguments

• The retrospective element of the legislation was within the legislature’s margin of appreciation and was rationally connected to the legitimate aim of combating tax avoidance.
• The amendments in the Finance Act 2020 rendered the appeal academic because they substantially curtailed the retrospective reach and provided relief to many affected taxpayers.
• The new grounds raised by the Appellant post-judgment constitute fresh claims not suitable for first-time consideration on appeal.
• The exclusion of parliamentary reports was correct because such material was not admissible as evidence of fact or opinion in judicial review proceedings.
• The claimants failed to adduce sufficient evidence of hardship to support their challenge.
• The purpose of primary legislation is not open to judicial inquiry as improper.
• The costs order should stand because the Appellants remain liable under the amended legislation and have not succeeded in their claim.
• The appeal should not proceed as it fails the criteria for hearing academic appeals, including lack of general importance and respondent consent.

Table of Precedents Cited

Court's Reasoning and Analysis

The court examined the grounds of appeal in the context of the legislative purpose and the margin of appreciation afforded to Parliament in tax matters. The retrospective nature of the Loan Charge was acknowledged as controversial but not unlawful, as retrospective taxation is permissible if proportionate and fairly balanced, consistent with the precedent set in MA & others v Finland.

The court found that the High Court judge correctly applied the legal test for incompatibility, considering the relevant factors and rejecting the claim due to insufficient evidence of disproportionate hardship and the rational connection of the legislation to its objective. The judge’s approach was not flawed by selective consideration.

The legislative amendments enacted after the initial judgment significantly reduced the retrospective reach of the Loan Charge, thereby rendering the core retrospective challenge academic. The court rejected attempts to raise fresh claims or new grounds on appeal, emphasizing procedural propriety and the disapproval of "rolling" judicial reviews as per Dolan.

The court also rejected the argument that parliamentary reports should have been admitted as evidence, finding no error in the judge’s limited treatment of such material. The absence of evidence on hardship was held to be a valid basis for dismissal, as claimants bear the burden of proof when alleging disproportionate interference.

Regarding costs, the court found no basis to revisit the order, noting that the appellants remain liable under the amended legislation and have not succeeded in their claims.

Finally, the court applied established criteria for hearing academic appeals and concluded that the appeal did not meet these requirements, particularly lacking a point of general importance and respondent consent.

Holding and Implications

The court REFUSED PERMISSION TO APPEAL on all grounds raised by the appellants.

The direct effect is that the dismissal of the judicial review claim stands, the Loan Charge legislation (as amended) remains operative against the appellants, and the costs order in favour of HMRC is upheld. No new precedent was established, and the court emphasized the importance of procedural discipline in judicial review appeals, particularly in the context of legislative amendments affecting the issues in dispute.