R (Khan) v SSHD (Dishonesty, Tax Return, Paragraph 322(5))  UKUT 384 (IAC) (3 May 2018)
Migrants in the defunct Tier 1 (General) category used to be a viable source of highly skilled workers for the UK. Since the route was susceptible to abuse the Home Office abolished it altogether. However, that was not enough to please the government and unusually decision-makers began to employ paragraph 322(5) of the Immigration Rules to indiscriminately target to thousands of highly skilled migrants whose only fault perhaps was to contribute positively to the UK's economy and society. In these judicial review proceedings, Martin Spencer J imparted much needed guidance on paragraph 322(5) and quashed two refusals to grant ILR to Mr Shahbaz Khan who entered the UK on 4 July 2009 as a Tier 1 (General) migrant with his wife and two sons A1 and A2. After an application made in January 2012, him and his dependants were granted leave to remain on the same basis until 16 February 2014. In this application, he claimed that he had earned £36,000 during May 2011 to December 2011 from salaried employment as a director but later in 2012 his tax return only declared a sum of £7,650 for the tax year from April 2011 to April 2012. Then a further application resulted in an extension of leave until 6 February 2017. In July 2016, Khan applied for ILR and a few days prior to that application his accountants reported an error to HMRC for the tax return for 2011/2012.
Malfunctioning software was to blame for the error and later, correcting a discrepancy of £14,719.13 in underpaid tax, an amended tax return was filed. Mr Shahbaz Khan's first application for ILR was refused on the same day on 20 July 2016. Rejecting the idea that there had been a genuine error, the decision-maker took a grim view of the tax discrepancy and considered that he had under-declared his salary and tax return with HMRC so as to reduce his tax liability or provided a high figure for salary to UKVI in order to boost his chances of points scoring on the immigration side of things. A second application for ILR was made on 22 November 2016 and upon the decision-maker's request evidence in the form of an accountant's letter clarified that the earlier reported salary of £7,650 was only for December 2011 (£4,500) and January 2012 (£3,150). The mistake was that the figures of the months from May 2011 to November 2011, the bulk of the gross annual salary of £39,150, had been omitted because of a mixture of clerical errors and software issues. The accountant's letter very apologetically explained that no ill intention was meant and that a genuine mistake had been made.
Yet the decision-maker applied paragraph 322(5) to refuse ILR and considered that an attempt to retrospectively fix the discrepancy did not absolve Shahbaz Khan of previous deceitfulness or dishonesty in his dealings with HMRC and/or UKVI. The refusal letter maintained that in order to gain leave to remain 40 points for earnings of £36,000 had been claimed and awarded in the period 16 May 2011 to 30 December 2011 whereas the returns filed with HMRC were £7,650.
Also of significance was the fact that any amendments to HMRC records were prompted by the first refusal and were not necessarily voluntary. Hence, the declaration of different amounts of income to HMRC and UKVI lead to the conclusion that in light of Shahbaz Khan's character and conduct it was undesirable to allow him to remain in the UK.
In Royal Brunei Airlines v Tan  UKPC 4 Lord Nicholls said that "carelessness is not dishonesty" and thus the refusal was arguably irrational and unlawful. The Supreme Court approved of this statement in Ivey v Genting Casino  UKSC 67.
While granting permission, UTJ Finch said that the decision was arguably contradictory and therefore irrational because it simultaneously said that the onus was on the applicant to take reasonable care to ensure that his tax returns were correctly submitted and also said that retrospectively declaring his income to the HMRC was insufficient to satisfy the decision-maker that he had not previously been deceitful or dishonest. Notably, the rule in paragraph 322(5) operates on the basis of:
the undesirability of permitting the person concerned to remain in the United Kingdom in the light of his conduct (including convictions which do not fall within paragraph 322(1C), character or associations or the fact that he represents a threat to national security.
The Home Office argued, in the absence of resistance by the applicant, that it is not a defence for a person who has been refused ILR under paragraph 322(5) on the basis of matters concerning his tax return to say that his accountant or agent was responsible for the discrepancies because a person is personally responsible for his tax matters and dealings with HMRC. In quashing the decision, the Upper Tribunal held as follows.
Mr Justice Martin Spencer
The Tribunal noted that in response to the applicant's reliance on the decision in Sagar Arun Samant  UKAITUR JR65462016 (discussed here), the Home Office produced a list of cases where applicants had "jumped on the band wagon" but the Tribunal had rejected any evidence blaming the accountants. Very clear examples of this point were found in Kamal  UKAITUR JR114172016, Parveen and Saleem  UKAITUR JR94402016 and other cases.
Spencer J observed that it was argued that the refusal decision in the present case was not irrational or unlawful because the guidance allowed decision-makers to use any evidence of questionable character and/or conduct and/or associations to refuse leave to remain or enter on the basis of undesirability.
The alternative argument was made that judicial reviews should be refused pursuant to section 31 of the Senior Courts Act 1981 whereby the High Court – and the Tribunal under section 16(3C) of the Tribunals, Courts and Enforcement Act 2007 – must refuse to grant relief on an application for judicial review "if it appears to the court to be highly likely that the outcome for the Applicant would not have been substantially different if the conduct complained of had not occurred."
For example, all the excuses were vague and no details were provided about the alleged IT "problem" and it was unclear which software was being used and why it was "not working properly". The clerical errors contended for were incredible and the mistake also went unnoticed for too long for the error to be considered genuine. Overall, rejecting the above, Spencer J imparted the following guidance:
(i) Where there has been a significant difference between the income claimed in a previous application for leave to remain and the income declared to HMRC, the Secretary of State is entitled to draw an inference that the Applicant has been deceitful or dishonest and therefore he should be refused ILR within paragraph 322(5) of the Immigration Rules. Such an inference could be expected where there is no plausible explanation for the discrepancy.
(ii) Where an Applicant has presented evidence to show that, despite the prima facie inference, he was not in fact dishonest but only careless, then the Secretary of State must decide whether the explanation and evidence is sufficient, in her view, to displace the prima facie inference of deceit/dishonesty.
(iii) In approaching that fact-finding task, the Secretary of State should remind herself that, although the standard of proof is the "balance of probability", a finding that a person has been deceitful and dishonest in relation to his tax affairs with the consequence that he is denied settlement in this country is a very serious finding with serious consequences.
(iv) For an Applicant simply to blame his or her accountant for an "error" in relation to the historical tax return will not be the end of the matter, given that the accountant will or should have asked the tax payer to confirm that the return was accurate and to have signed the tax return. Furthermore the Applicant will have known of his or her earnings and will have expected to pay tax thereon. If the Applicant does not take steps within a reasonable time to remedy the situation, the Secretary of State may be entitled to conclude that this failure justifies a conclusion that there has been deceit or dishonesty.
(v) When considering whether or not the Applicant is dishonest or merely careless the Secretary of State should consider the following matters, inter alia, as well as the extent to which they are evidenced (as opposed to asserted):
i. Whether the explanation for the error by the accountant is plausible;
ii. Whether the documentation which can be assumed to exist (for example, correspondence between the Applicant and his accountant at the time of the tax return) has been disclosed or there is a plausible explanation for why it is missing;
iii. Why the Applicant did not realise that an error had been made because his liability to pay tax was less than he should have expected;
iv. Whether, at any stage, the Applicant has taken steps to remedy the situation and, if so, when those steps were taken and the explanation for any significant delay.
Despite the fact that no resistance was offered to the government's point that it is not a defence to a paragraph 322(5) refusal to hold an accountant or an agent responsible for any discrepancies, the Upper Tribunal reasoned that the point went "too far" and was "too broad or extreme a proposition". It was important to discern whether the mistake was genuinely made or whether it was an attempt to "pull the wool" over the decision-maker's eyes.
Quashing both refusals, Spencer J rejected the submission that he should refuse judicial review pursuant to section 31 of the Senior Courts Act 1981. He found it "much too far" to put himself in the decision-maker's shoes and conclude that it was highly likely that the decision would have been no different if the decision-maker had directed himself properly.
Making a finding of dishonesty, and the adverse consequences that accompany it, is a serious and anxious finding. Because making such a serious finding involves very careful consideration of the evidence and arguments each way, Spencer J held that much clearer and stronger arguments and evidence were required for him to conclude that Mr Shahbaz Khan had been dishonest.
The outcome of these proceedings will help many honest people who have made a genuine mistake in their dealings with UKVI and HMRC. These critical new perspectives on the use of paragraph 322(5) offered by Spencer J deprecate an earlier genre of case law which had ruled out the possibility of relying on an accountant's explanation in aid of a discrepancy. But all this will do little to comfort those who left the UK owing to tax discrepancies, in some cases as little as £1.2 and £1.6. On the other hand, it is inevitable that some people must have acted with dishonest intentions so as to obtain leave to remain. That, however, cannot justify the collective punishment of highly skilled migrants as a class of persons.
Further perspectives on the menacing paragraph 322(5) power, which has been employed in a large number of cases, came to light with the publication of the important review of 22 November 2018 where the Home Office chose to defend its stance of refusing a total of 1,697 ILR applications from Tier 1 (General) migrants since 2015.
The Home Office acknowledges an error rate of two per cent. Almost forty per cent of the cases reviewed involved accountants' errors as the main reason for any tax discrepancies and applicants maintained that their accountants filed their tax returns on their behalf. In 585 cases, the discrepancy was greater than £10,000 and accountants' errors were cited as the source of the problem in some 32.5 per cent of applications submitted in this cohort.
Applicant error, or a lack of familiarity with the UK tax system, was to blame in a large number of cases and the review informs us that the Home Office will grant leave where (i) a plausible explanation was provided for the difference and the record was rectified in a timely way, (ii) the timescale between the amendment and the immigration application was reasonable and did not evidence abuse, (iii) there was ambiguity that the difference led to a material benefit for the applicant, and (iv) there was insufficient evidence of abuse. Since the under-reporting in the present case was greater than £14,000, it is probably fair to say that the size of the discrepancy is not determinative of whether there has been any dishonesty.
In the review the authorities expressed concern that 65 per cent of the statutory appeals, arising from the 10-year long residence/settlement provisions, to the FTT were allowed owing to wider human rights considerations or because the tribunal accepted explanations (for example around the role of the accountant) that the Home Office decision-maker had previously rejected. Conversely, the vast majority applications for permission to apply for judicial review have been refused and challenges have been upheld in less than a third of the cases that proceeded to a substantive judicial review hearing.
The numbers show that applicants have been successful in 101 cases and unsuccessful in 123 cases. There has been no outcome on a further 164 cases. Overall, a 45 per cent success rate for applicants is reported but it is said that this may be an over-estimate because of the technicalities of judicial review litigation and the realities of life. Reportedly, the Home Office has managed to successfully defend 23 claims out of 30 in substantive hearings but 16 of these cases have been appealed to the Court of Appeal.
Finally, although we are seeing fewer acknowledgments of service containing the "totally without merit" label, perhaps because GLD has taken on board the idea in K (A Child)  EWHC 1834 (Admin) that universally pleading such a point is counterproductive, it is nevertheless true that instead section 31 of the Senior Courts Act 1981 is unhelpfully being pleaded by the government to refuse judicial reviews. From that angle, the present judgment is a refreshing reminder that the judiciary is unwilling to jump into the decision-maker's shoes to refuse relief merely on the say so of the government and its lacklustre lawyers whose tactics, conduct and behaviour can often leave us all a bit speechless.