Jan Garioch CA discusses the Upper Tribunal case Hampton George Hewitt v HMRC
Jan Garioch CA discusses the case of Hampton George Hewitt v HMRC where the appellant seeks to make a late appeal against HMRC’s decision to remove his entitlement to use the agricultural flat rate scheme.
Hampton George Hewitt v HMRC relates to a decision by HMRC to cancel the appellant’s certificate as a flat rate farmer for VAT purposes. The impact of the agricultural flat rate allows farmers to charge and retain a flat rate percentage (currently 4%) on qualifying goods and services sold to VAT registered customers. In the case of Mr Hewitt, HMRC decided to cancel his certificate as a flat rate farmer. His certificate was originally granted back in 2004, but by 2012 HMRC considered that the flat rate scheme provided Mr Hewitt with substantially more compensation than the amount of input VAT he would have been able to recover if he had been VAT registered. HMRC has regulatory powers to cancel a certificate where they consider it necessary for the protection of the revenue, and that is what they did with effect from 31 October 2012. HMRC’s decision informed Mr Hewitt that he was entitled to appeal and set out the applicable time limits.
Hopes raised by an ECJ decision
Mr Hewitt initially accepted that decision, but changed his mind following the case of Shields & Sons Partnership v HMRC. Shields also had its flat rate certificate withdrawn, but it appealed and ultimately its case was referred to the ECJ to answer the question of whether “farmers who are found to be recovering substantially more as members of the common flat-rate scheme for farmers than they would if they were subject to the normal VAT arrangements could constitute a category of farmers which could legitimately be excluded”. The ECJ held that Article 296(2) of the Principal VAT Directive must be interpreted as laying down exhaustively the reasons for exclusion from the flat rate scheme and it does not include recovering substantially more than if the farmer were part of normal VAT arrangements.
The route to the Upper Tribunal
Following the ECJ’s judgement on Shields in December 2017, Mr Hewitt wrote to HMRC claiming they were wrong to have removed him from the flat rate scheme and requested a refund of over £65,000. HMRC refused to reinstate him and offered either a review of the decision to refuse the application to join the AFRS from “a current date” or, alternatively, the opportunity to appeal to the First Tier Tribunal (FTT) against that decision. As Mr Hewitt was outside the time limit to appeal the original decision to remove his flat rate certificate, he sought permission from the FTT to bring a late appeal. The FTT refused permission but Mr Hewitt was granted leave to appeal to the Upper Tribunal (UT). The UT consented to hear the case and decide whether the FTT had erred in law by refusing the appeal and therefore failing to give full effect to the EU law principle of effectiveness and thus denying Mr Hewitt an effective remedy to enforce his EU law rights. (It was common ground that the principle of effectiveness was a retained general principle of EU law.)
The outline arguments
Mr Hewitt’s case was that the appeal time limit expired at a point when he could not be aware that he had an enforceable right. Indeed, it was not until the decision in the Shields case was produced that he could be aware of his enforceable right. The position for HMRC was that Mr Hewitt had an effective right of appeal before the Shields judgement. There is no requirement that time cannot run for the purposes of a time limit prior to a taxpayer being aware of their rights.
The Upper Tribunal’s view
The UT proceeded on the basis that at the time it was done, the cancellation of Mr Hewitt’s flat rate certificate was a breach of a directly effective right under EU law to participate in the flat rate scheme. Therefore, the UT defined the question arising in the appeal to be whether an effective remedy exists for the breach of the taxpayer’s EU rights. Both the ECJ and UK courts have found it is not incompatible with the principle of effectiveness to impose a reasonable time limit on claims provided that does not make it excessively difficult or impossible to enforce EU rights. Reflecting on that, the UT found it was reasonable to allow the period of 30 days to appeal against the withdrawal of the flat rate scheme certificate. In the UT’s view, the cancellation of the certificate had an immediate effect, so this was not a circumstance where the taxpayer did not know that circumstances had arisen which he might want to challenge. The UT felt it was important that issues regarding cancellation of certificates were identified and resolved promptly. Mr Hewitt could have exerted his right to appeal, but he chose not to. By contrast, Shields exerted that right and in due course was successful. Therefore, the UT decided the appeal in favour of HMRC.