The impact of the Human Rights Act 1998 on UK tax law
Our pick of this week's cases
InI Fessal v HMRC[2016] UKFTT 285 (26 April 2016), the FTT found that TMA 1970 s 29 should be applied consistently with the European Convention on Human Rights (ECHR), so as to avoid a double charge to tax.
Mr Fessal was a barrister and was in the ‘transitional regime’ applicable to barristers moving from the cash to the true and fair basis of recognising profits under FA 1998 s 42 for the three tax years 2005/06, 2006/07 and 2007/08.
The FTT had already heard part of the case ([2015] UKFTT 80). The issue was whether Mr Fessal was right to claim that the assessments for the tax years 2005/06 and 2007/08 should be reduced by reference to the tax which he had paid in respect of the tax year 2006/07, to the extent that there would otherwise be a double charge to tax in respect of the same profits. Mr Fessal relied on the ECHR Art 1 Protocol 1 (A1P1).
The FTT observed that the intention of Parliament in enacting the Human Rights Act 1998 s 3 was that a court could modify the meaning and effect of legislation to render it compliant with the ECHR, as long as this meaning was not inconsistent with a fundamental feature of the legislation. The FTT therefore interpreted the power conferred on HMRC by TMA 1970 s 29 as being to issue an assessment which made good the loss of tax; however, this applied only where assessing that amount did not breach the taxpayer’s rights under A1P1, to the extent that giving effect to those rights did not go against the ‘grain of the legislation’.
The FTT found that Mr Fessal had established that the tax which was the subject of the assessments was a ‘possession’; and that the failure of s 29 to take his overpaid tax into account when calculating the extent of his underpayments was in breach of A1P1. Furthermore, to apply s 29 so that such netting off took place was not inconsistent with the legislation. The FTT concluded that the tax overpaid in respect of 2006/07 should be applied in reducing the tax payable in respect of 2005/06; however, because the entire effective tax credit in respect of 2006/07 was to be used in reducing the tax overpaid in respect of 2005/06, no adjustment should be made to the assessment for 2007/08 and any related penalties were upheld in relation to 2007/08.
Why it matters: The extent to which the Human Rights Act 1998 brings the ECHR into UK domestic law is often difficult to delineate. This case provides a useful and exhaustive review of the applicable principles.
Also reported this week:
M Stolkin v HMRC Interaction between EIS relief and taper relief
The impact of the Human Rights Act 1998 on UK tax law
Our pick of this week's cases
InI Fessal v HMRC[2016] UKFTT 285 (26 April 2016), the FTT found that TMA 1970 s 29 should be applied consistently with the European Convention on Human Rights (ECHR), so as to avoid a double charge to tax.
Mr Fessal was a barrister and was in the ‘transitional regime’ applicable to barristers moving from the cash to the true and fair basis of recognising profits under FA 1998 s 42 for the three tax years 2005/06, 2006/07 and 2007/08.
The FTT had already heard part of the case ([2015] UKFTT 80). The issue was whether Mr Fessal was right to claim that the assessments for the tax years 2005/06 and 2007/08 should be reduced by reference to the tax which he had paid in respect of the tax year 2006/07, to the extent that there would otherwise be a double charge to tax in respect of the same profits. Mr Fessal relied on the ECHR Art 1 Protocol 1 (A1P1).
The FTT observed that the intention of Parliament in enacting the Human Rights Act 1998 s 3 was that a court could modify the meaning and effect of legislation to render it compliant with the ECHR, as long as this meaning was not inconsistent with a fundamental feature of the legislation. The FTT therefore interpreted the power conferred on HMRC by TMA 1970 s 29 as being to issue an assessment which made good the loss of tax; however, this applied only where assessing that amount did not breach the taxpayer’s rights under A1P1, to the extent that giving effect to those rights did not go against the ‘grain of the legislation’.
The FTT found that Mr Fessal had established that the tax which was the subject of the assessments was a ‘possession’; and that the failure of s 29 to take his overpaid tax into account when calculating the extent of his underpayments was in breach of A1P1. Furthermore, to apply s 29 so that such netting off took place was not inconsistent with the legislation. The FTT concluded that the tax overpaid in respect of 2006/07 should be applied in reducing the tax payable in respect of 2005/06; however, because the entire effective tax credit in respect of 2006/07 was to be used in reducing the tax overpaid in respect of 2005/06, no adjustment should be made to the assessment for 2007/08 and any related penalties were upheld in relation to 2007/08.
Why it matters: The extent to which the Human Rights Act 1998 brings the ECHR into UK domestic law is often difficult to delineate. This case provides a useful and exhaustive review of the applicable principles.
Also reported this week:
M Stolkin v HMRC Interaction between EIS relief and taper relief
