Challenging the 45 percent tax on restitution interest | KPMG | UK

Challenging the 45 percent tax on restitution interest: Update

Challenging the 45 percent tax on restitution interest

The Administrative Court has released a decision concerning a claim for judicial review challenging the legislation imposing a 45 percent tax on restitution interest.


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This decision of Whipple J follows the hearing reported in Weekly Tax Matters on 5 February 2016. The Administrative Court has stayed the claim for judicial review (JR) pending the outcome of existing appeal proceedings in the First tier Tribunal (FTT) brought by other taxpayers against a withholding already made by HMRC. The decision is significant in that the Administrative Court considers the correct route for challenging the legislation contained at Part 8C of CTA 2010 is by way of an appeal to the FTT. 

The Administrative Court’s decision echoes that of the High Court on 2 February 2016 when Henderson J refused a taxpayer’s application to amend their existing High Court claim in order to challenge the lawfulness of the new legislation. The High Court also considered that the FTT was the appropriate forum. Together these decisions have provided taxpayers with an early steer on where and when a challenge may be brought.

Whipple J made no order in respect of permission on the JR claim and dismissed applications for expedition and interim relief on the basis that those taxpayers who brought the JR claim had not (yet) suffered any withholding or assessment pursuant to Part 8C CTA 2010.

Reasons set out in the Administrative Court’s decision include:

  • The FTT appeal is procedurally further progressed;
  • The pleadings in the FTT appeal are almost identical to the grounds of the JR and relate to the same issues of law. The two cases are materially similar. The fact different remedies are available is not material;
  • The FTT appeal has the advantage of being an appeal against an actual withholding. Evidence and arguments can be tailored to this, rather than a hypothetical case by way of JR;
  • The FTT is a specialist tax tribunal with knowledge of the background issues giving rise to the appeal;
  • A legal challenge to the provisions is just one aspect of the JR claim, but other issues including prematurity of the claim, remedies and jurisdiction would need to be tackled and may take time to resolve;
  • If the JR claim did proceed, what would happen to the FTT appeal? The taxpayers bringing the FTT appeal may wish to continue their appeal given the withholding has already made by HMRC; and
  • The FTT appeal includes technical arguments on the validity of a raised notice may be considered alongside substantive issues of legality.

The FTT appeal has a case management hearing listed for March 2016.

The above information will be relevant to all taxpayers with restitutionary claims against HMRC seeking the recovery of compound interest (whether direct tax or VAT).

For further information please contact :

Richard Doran

Maria Nolan

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