We have commented many times in this brief about the fundamental importance of confidentiality in the UK tax system. The view has always been taken that unless taxpayers had confidence that any information they provided to HMRC would remain confidential they would be less likely to make a full and complete disclosure. By and large this principle works well.
But there is another very important legal principle – that justice must not only be done but must be seen to be done. What happens when a dispute between HMRC and a taxpayer cannot be resolved without recourse to an independent tax tribunal? What happens then to the balance between confidentiality and open justice?
The default position is that all hearings of the first tier tax tribunal are heard in public and the decisions are reported, naming the taxpayers. The tribunal does have the power to direct that a case is heard in private and/or that a judgment is anonymised before publication. Not surprisingly perhaps people have tried to persuade the tribunal to use these powers to avoid details of their tax affairs coming into the public domain. One argument is that knowledge that they have been involved in a tax dispute, however minor, could harm their professional reputation: the tribunals have rejected that several times.
There are then a number of cases, including two recent ones, where people in the public eye have attempted to have their cases heard privately and sought to have decisions anonymised. This may be because they would not want it known that they had taken part in an avoidance scheme, or perhaps because they didn’t want details of their financial or domestic arrangement becoming public. At one time there was some limited sympathy for this view from the tribunals but now the view has hardened and it is extremely unlikely that somebody will be granted anonymity simply because of the potential embarrassment that publication may cause them. As one judge recently put it ‘it may be that hearing the appeal of such a person in private would give rise to the suspicion, if no more, that riches or fame can buy anonymity, and protection from the scrutiny which others cannot avoid. That plainly cannot be right’.
So when will a tribunal grant anonymity? In some cases the identity of the taxpayer and details of his/her affairs are simply irrelevant to the judgment because the point at issue is a purely technical one. Sometime a tribunal will agree to anonymity – so you do get cases reported with the name of the taxpayer purely as ‘a businessman’.
A more recent example was a case where the judge anonymised the decision on compassionate grounds. The taxpayer (an ‘ordinary’ individual with no celebrity status) had let her tax affairs get into a chaotic state because of mental health issues. The judge, while finding in favour of HMRC, decided that the interest of justice would not be served by naming the individual. That seemed to me to be an absolutely proper use of the tribunal’s powers.
A taxpayer who wants to escalate a dispute with HMRC to a tribunal knows that he or she is almost certain to face a public hearing and publication of the judgment. Not surprisingly taxpayers, even those with a good case, are often reluctant to put their heads above the parapet. HMRC know this and do use the publicity angle as leverage in trying to dissuade some taxpayers from continuing with their disputes, particularly in avoidance cases.
Is the balance right? I can understand why people might feel it appropriate that they could take a dispute to the courts without compromising their confidentiality and I have some sympathy for the view that the tribunal should use its powers more widely that it currently does. But on balance I think that the tribunal’s reluctance on this issue is right. Settling legal disputes behind closed doors is simply not appropriate in a modern society.
For more information please get in touch with Andrew Hubbard, or your usual RSM contact.