Ezy Solutions Ltd (in liquidation) v The Commissioners for HMRC

26. There was no dispute between the parties that the Tribunal has a wide discretion in its case management powers. Rule 2 and 5 of the FTT Rules provide: Overriding objective and parties’ obligation to co-operate with the Tribunal

2. —(1) The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly. (2) Dealing with a case fairly and justly includes— (a)dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties; (b)avoiding unnecessary formality and seeking flexibility in the proceedings; (c)ensuring, so far as practicable, that the parties are able to participate fully in the proceedings; (d)using any special expertise of the Tribunal effectively; and (e)avoiding delay, so far as compatible with proper consideration of the issues. (3) The Tribunal must seek to give effect to the overriding objective when it— (a)exercises any power under these Rules; or (b)interprets any rule or practice direction. (4) Parties must— (a)help the Tribunal to further the overriding objective; and (b)co-operate with the Tribunal generally. Case management powers

5. —(1) Subject to the provisions of the 2007 Act and any other enactment, the Tribunal may regulate its own procedure. (2) The Tribunal may give a direction in relation to the conduct or disposal of proceedings at any time, including a direction amending, suspending or setting aside an earlier direction. (3) In particular, and without restricting the general powers in paragraphs (1) and (2), the Tribunal may by direction— (a)extend or shorten the time for complying with any rule, practice direction or direction, unless such extension or shortening would conflict with a provision of another enactment setting down a time limit; (b)consolidate or hear together two or more sets of proceedings or parts of proceedings raising common issues, or treat a case as a lead case (whether in accordance with rule 18 (lead cases) or otherwise); (c)permit or require a party to amend a document; (d)permit or require a party or another person to provide documents, information or submissions to the Tribunal or a party; (e)deal with an issue in the proceedings as a preliminary issue; (f)hold a hearing to consider any matter, including a case management hearing; (g)decide the form of any hearing; (h)adjourn or postpone a hearing; (i)require a party to produce a bundle for a hearing; (j)stay (or, in Scotland, sist) proceedings; (k)transfer proceedings to another tribunal if that other tribunal has jurisdiction in relation to the proceedings and, because of a change of circumstances since the proceedings were started— (i)the Tribunal no longer has jurisdiction in relation to the proceedings; or (ii)the Tribunal considers that the other tribunal is a more appropriate forum for the determination of the case; (l)suspend the effect of its own decision pending the determination by the Tribunal or the Upper Tribunal, as the case may be, of an application for permission to appeal, a review or an appeal.

27. This case is clearly substantial both in the amounts involved and complexity. In reaching my decision I have considered how any legal or factual challenge to issues of tax loss and connection to fraud can best be addressed in accordance with the overriding objective to deal with cases fairly and justly which, as set out above, includes dealing with the case in a proportionate manner.

28. I am grateful to the parties for providing written submissions following the hearing on a case management decision of Judge Berner which was not included in the bundle, and which was not reported, but which was referred to in Megantic Services Ltd v Revenue & Customs [2015] UKFTT 120 (TC) (see [11] above) and which, although not binding on me, I considered may have some relevance as it addressed the issues of sampling and general case management in cases involving substantial documentation; Megantic Services Ltd v The Commissioners for HM Revenue and Customs (16 February 2011) (“ Megantic ”).

29. Ms Goldring highlighted the distinction with Megantic on the basis that HMRC in this case are not in possession of underlying documents such as invoices and purchase orders between the VAT MUCs and Milo. It intends to prove the tax loss by means of a VAT MUC schedule and the underlying evidence for a sample of 50 of those transactions using the type of documents referred to at [11] above. The MUC Schedule is akin to the deal sheets served in MTIC Kittel cases.

30. HMRC highlighted that Megantic supports the proposition that sampling is not unlawful, and any concerns of unfairness is addressed by the Appellant’s involvement in ensuring that representative samples are used. Ms Goldring accepts that it appears that some evidence underlying the deal chains in Megantic was served in advance of the sampling decision but argues that it is by no means clear from the decision that all evidence was served (relying on [6] and [17] of the decision).

31. Mr Bedenham submitted that the clear indication from Judge Berner’s decision is that the underlying evidence was served by HMRC on Megantic prior to a decision in relation to sampling being taken by the Tribunal (see [6], [9], [10], [11] and [13]).

32. In my view, it is clear that in Megantic the majority, if not all of evidence had been served at the time sampling was proposed. Judge Berner had previously issued directions which required, “…in respect of each deal chain, a description of the documentary evidence (if any) on which the Respondents seek to rely in proving the connection to fraud…cross-referenced to that documentary evidence…disclosed to the Appellant…” (see [6]). The decision goes on to refer to evidence served and other evidence that “will be relied upon to establish the integrity of the deal chains”. However, it seems to me that in referring (at [17]) to the evidence that would be adduced in respect of the sampling method proposed, HMRC were referring to the evidence on which they intended to rely before the Tribunal, not that which had not been served on the Appellant. The fact that the decision recognises that the Appellant challenged the connection to fraud and refers to “particular deals with respect to which the Appellant has raised an issue” see [18]) implies that the Respondents’ evidence had been disclosed to the Appellant. Similarly, the fact that the Appellant was in a position to challenge whether the samples proposed were representative further indicates to me that the Appellant was in possession of sufficient evidence to enable it to do so.

33. I note that the issue in Impact Contracting Solutions concerned expediting the hearing of the appeal; the issue of sampling was referenced only in passing and the parties’ both agreed with the proposal. There is no indication relating to the amount of evidence that had been served or would be served prior to the parties agreeing a representative sample.

34. I found Sunico of limited assistance; it was not a Kittel case, and the sampling was relevant to whether a conspiracy could be proved which was sufficient for the claim to succeed. In this case, the relevant limbs of test laid down in Kittel must be met which requires HMRC to proves a tax loss and connection to fraud (together with actual/constructive knowledge) in respect of each denied purchase.

35. Having considered the authorities to which I was referred, I consider that while it may be that sampling in this appeal is an appropriate method by which to manage the issues and evidence in due course, this application is premature.

36. In Megantic , Judge Berner’s conclusions that sampling causes no unfairness was predicated on the basis that “the sample must be representative”. I agree. However, at this stage, the Appellants are in possession of no more than the MUC schedule which, as submitted by Mr Bedenham, is no more than an assertion. As described by Judge Berner in Megantic such documents are “mere constructs of the Respondents” and “it will be the evidence itself which either established the accuracy or otherwise of a deal sheet”.

37. At present, the Appellants are unable to check the accuracy of HMRC’s assertions and I do not see how, in those circumstances, the Appellants’ representatives can be expected to carry out their profession duties to their clients. Whilst I agree that sampling is, where appropriate, an efficient method by which to keep evidence within sensible bounds, it is not a course which envisages depriving the Appellant of the evidence or knowing the case it must meet.

38. It is a fundamental principle of natural justice that a party must know the case against it. I cannot see how in circumstances where HMRC propose not to serve the evidence which formed the basis of its decisions, the Appellants could form a view as to whether any sample is representative or whether there is commonality.

39. The FTT rules recognise the importance of parties to be able to participate fully in proceedings. If HMRC’s proposal is adopted at this early stage, I consider that the Appellant would be disadvantaged and unable to do so.

40. In due course, once the underlying evidence is served, the Appellants may or may not agree the accuracy of the MUC schedule. The tax loss and/or connection to fraud may or may not be challenged. They may or may not agree that sampling is appropriate. However, as things stand, the Appellant simply does not have the underlying evidence upon which HMRC’s decisions are based to make an informed view on any issue.

41. The burden of proof in this case rests with HMRC. Many appeals which involve decisions relying on Kittel are substantial in volume. I do not consider it a sufficient reason for HMRC to argue that serving its evidence would take “an inordinate amount of time”. Given that HMRC reached its decision in 2020 the evidence must be readily available to it. No doubt the Appellants’ review of the evidence will be equally as onerous, but that is the nature of such cases. I do not accept that it is disproportionate to require the evidence upon which HMRC have raised assessments and imposed penalties amounting to approximately £50m to be served. In the context of these joined appeals I take the view that this is an unavoidable consequence of the large volume of evidence generated by case of this nature.

42. For the reasons set out above I refuse the application at this stage.

43. If required, the parties must file with the Tribunal agreed directions for the future progress of this case within 28 days. Ancillary matter

44. Following HMRC’s submissions and a brief overview of its case in relation to best judgment, Mr Bedenham made an application to amend the Appellants grounds of appeal. Having considered the decision letters and documents to which I was referred, I agree that there has been little provided to the Appellants by way of explanation in relation to the basis of the best judgment assessments. Given the early stage of proceedings I see no prejudice to HMRC in granting the application. However, I have not had the benefit of representations from HMRC and in those circumstances I direct as follows: (1) Unless any objection is received within 7 days the Appellant is granted permission to amend the grounds of appeal in the terms sought as follows: “Further, the assessments issued by HMRC were not to best judgment” (2) If HMRC object to the amendment, full particulars of the objection must be provided. Right to apply for permission to appeal

45. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice. JENNIFER DEAN TRIBUNAL JUDGE RELEASE DATE: 09 th MARCH 2023