As contractors often understandably ask, what is a Judicial Review?

Busy contractors may not have noticed, but HMRC is being given more and more powers to use without taxpayers having a right of appeal to the tax tribunals. 

This is why the UK is increasingly seeing decisions from the tax authority being challenged by Judicial Review, writes Tom Wallace, head of tax investigations at WTT Group.

What is a Judicial Review?

But what exactly is a Judicial Review, what does filing a Judicial Review mean, and how does the Judicial Review process work?

Well, all public bodies should be expected to perform their duties efficiently and reach decisions that are fair.

When bodies are perceived not to have achieved this ‘fairness’ standard, Judicial Review (“JR”) is the court procedure by which the Administrative Court or Upper Tribunal can be asked to review a decision, and decide if it has been made lawfully, fairly, and with proper reasoning. 

Simple enough so far. But…

What is a ‘decision’?

Well, ‘decision’ is a wide concept that encapsulates many things, and need not be one that is made under statute. Implementation of policies, guidance, inaction and delay, are all matters that can be challenged by JR. 

However, there must be some discretion being exercised to be challenged, so the starting point is always to look at the power that has been granted to the public body, and check if it expressly limits the discretion that can be afforded.  Yet, even where the power appears to be unlimited, there are a number of implied factors to consider if it has been lawfully exercised.

These factors are derived from case law which has established that any exercise of a given power must be reasonable (for the purpose it was given), and take into account relevant factors, and conversely not take into account irrelevant factors.

Defining ‘reasonable’ and ‘unreasonable’

The courts acknowledge that is a range of lawful conclusions within any discretion, and that two reasonable people when faced with the same facts can each reach a different conclusion.  For the court to interfere with a decision, it must be so unreasonable, that no ‘reasonable’ person could have come to it. This is termed ‘Wednesbury unreasonableness’, named after the case that established this principle. 

The courts however have developed their approach to this over the years, calibrating the standard of reasonableness required with the context of the case. 

Before launching a JR, remember for a public body’s decision to be lawful…

What's massively important is for a decision to be lawful, it must have taken into account all relevant factors.

This means not making assumptions which are not evidenced when reaching the decision, or drawing the wrong conclusions from the information that is available. 

This part is obviously key for many tax decisions that require JR intervention.

Can anyone challenge a public body's decision?

As you might expect, a decision can only be challenged by someone with a sufficient interest. 

In simple terms, the decision must affect them directly and not simply be something they find disagreeable.

However, groups of people may have standing if they represent the interests of persons directly affected. 

I’m a contractor and want to start a Judicial Review; what now?

As you might expect, it is not as simple as turning up at the court to shout your outrage at the judge! 

The first thing to be aware of is that there are strict time limits for taking action, and steps that must be taken before a JR can be applied for. 

Once the decision is conveyed, anyone considering taking action should issue a Pre-Action Protocol letter.

What is a PAP letter, or Pre-Action Protocol Letter?

The PAP letter should set out the issue in dispute; the act or omission being challenged, and a summary of the facts. 

This PAP should be responded to by the public body within 14 days. Either side not adhering to this process may face adverse costs even if successful in their claim.

On the assumption that the response maintains the decision, a claim for JR should be lodged with the courts as soon as possible, but certainly within three months of the decision. A judge will consider the claim on the papers lodged, and will either refuse permission to hear the case, or grant permission for a full hearing in front of a judge. 

What if permission for a full hearing is refused?

Should the judge refuse permission, as long as they have not certified the claim as completely without merit, the application can be renewed in front of a judge at an oral hearing, where the arguments can be presented again (although new arguments will not normally be entertained). 

If permission is granted, then a substantive hearing will take place in the designated court.

How long before the case is heard will depend on the urgency of the matter. For instance, many JRs into decisions by the NHS are time-critical (such as those in relation to patient care), so these will be heard with the upmost urgency -- sometimes within hours. 

Either party to the decision can appeal to the Court of Appeal, and subsequently The Supreme Court where the matter is considered to be an important point of principle.

Judicial Review, not for the faint-hearted -- but nonetheless vital

Judicial Review may seem like a daunting process, but it is a critical one to ensure public body decisions do not go unchecked. While JR is not an easy route to take, we must ensure that the tentacles of HMRC – and other taxpayer-funded departments – with their expanding powers do not reach further than they should.

Wednesday 8th May 2024
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Written by Thomas Wallace

Tom is a former HMRC Senior Inspector of Taxes who has worked in and led teams in all taxpayer segments dealing with large multinationals to small businesses.  Tom was appointed Director of Tax Investigations at WTT Consulting in 2020, where he is currently responsible for developing strategies for dealing with HMRC enquiries and client litigation.
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