21 October 2019
Tax credits case law
A recent case from the Upper Tribunal CTC/2494/2018 looks at the self-employment test in working tax credits and how HMRC applied that test and the effect of an appeal against a decision made under s16 of the Tax Credits Act 2002 (TCA) where decisions made under s18 of the TCA have subsequently been made.
Judge Hemingway found that actual profitability and a certain level of regular financial transactions are not essential to the definition of “self-employed” for the purposes of entitlement to working tax credit.
The appeal was brought against decision made by HMRC under s16 of the TCA 2002 but because that decision had been followed by a decision made by HMRC under s18 of the same Act, the Judge also reflected on the findings of 2 previous cases, LS and RS v HMRC (Three-Judge Panel) and CSTC/283/2018, and concluded that, whilst the tribunal’s decision involved an error of law, the decision was not set aside because the appeal against the s16 decision was effectively replaced by the following s18 decisions and the claimant would derive no practical benefit from it. ‘He must seek to challenge the decision or decisions under section 18 if he is to give himself a chance of obtaining any tangible benefit from the appeals process. It now matters not what any tribunal might decide about the section 16 decision because it has effectively been replaced notwithstanding what anybody might or might not think about the merits of that decision itself or of the tribunal’s decision on the appeal’
This case reinforces the importance of understanding the interaction between the different decisions made about tax credit awards and which decision is being appealed. From experience, in many cases, where there is an outstanding appeal against a decision made under s16 of the TCA 2002, HMRC can – and often do - delay making their entitlement decision under s18. But in cases where that doesn’t happen, the appeal against a s16 decision – regardless of the merits of the arguments – can prove to be fruitless if a decision has been made under s18 of the TCA 2002 which replaces the s16 decision. If HMRC cannot be persuaded to delay making their decision under s18 where there is an outstanding appeal in process, a virtually duplicate appeal against the s18 decision would appear to be the course of action in such circumstances.
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