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HMRC hit for costs in the Tax Tribunal: The Unusual Order follows from the case of Essex Trading Ltd v Revenue & Customs [2024] UKFTT 69 (TC). The taxpayer was Essex Trading Ltd (“ETL”).

The usual order for costs was not dished out. An unusual one was instead. 

HMRC is now nursing an adverse costs order of £3461.50 following the tribunal’s finding that: 

… HMRC acted unreasonably in opposing ETL’s application for disclosure on grounds of confidentiality and irrelevance

HMRC Hit For Costs In The Tax Tribunal

Unusual Order For Costs

The usual order for costs was not dished out. Instead, an unusual order was with an order for costs accordingly.

Here the order was unusual as Regulation 10 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 does NOT permit orders for costs except:

  • Wasted costs arising from improper, unreasonable or negligent acts or omissions.
  • Unreasonable conduct in bringing, defending or conducting proceedings.
  • Complex case allocation or procedural failure of notice by the taxpayer to request costs of such a case be excluded from potential liability.

The taxpayer, ETL, said HMRC had acted unreasonably in opposing its application for specific disclosure.

What Is Unreasonable Conduct?

Helpfully the meaning of what constitutes unreasonable conduct was fleshed out by the tribunal and clarified as follows:

There is no definition of “unreasonable conduct”.

Here the tribunal highlighted the relevant point being that of persisting with an argument or line of conduct when the contrary position is simply unbeatable.


What constitutes “unreasonable conduct” for the purposes of Rule 10 was considered by the Upper Tribunal in Distinctive Care Ltd v HMRC [2018] UKUT 155 (TCC), and upheld on appeal by the Court of Appeal ([2019] EWCA Civ 1010). In its decision, the Upper Tribunal set out at [44] to [46] the basis on which conduct is to be assessed:

44. In Market & Opinion Research International Limited v HMRC [2015] UKUT 12 (TCC) (“MORI”) at [22] and [23], the Upper Tribunal endorsed the approach set out by the FTT in that case to the question of whether a party had acted unreasonably. That approach could be summarised as follows:

(1) the threshold implied by the words “acted unreasonably” is lower than the threshold of acting “wholly unreasonably” which had previously applied in relation to proceedings before the Special Commissioners;

(2) it is possible for a single piece of conduct to amount to acting unreasonably;

(3) actions include omissions;

(4) a failure to undertake a rigorous review of the subject matter of the appeal when proceedings are commenced can amount to unreasonable conduct;

(5) there is no single way of acting reasonably, there may well be a range of reasonable conduct;

(6) the focus should be on the standard of handling the case (which we understand to refer to the proceedings before the FTT rather than to the wider dispute between the parties) rather than the quality of the original decision;

(7) the fact that an argument fails before the FTT does not necessarily mean that the party running that argument was acting unreasonably in doing so; to reach that threshold, the party must generally persist in an argument in the face of an unbeatable argument to the contrary; and

(8) the power to award costs under Rule 10 should not become a “backdoor method of costs shifting”.

45. We would wish to add one small gloss to the above summary, namely that (as suggested by the FTT in Invicta Foods Limited v HMRC [2014] UKFTT 456 (TC) at [13]), questions of reasonableness should be assessed by reference to the facts and circumstances at the time or times of the acts (or omissions) in question, and not with the benefit of hindsight.

46. In assessing whether a party has acted unreasonably, this Tribunal in MORI went on to say this (at [49]):

“It would not, we think, be helpful for us to attempt to provide a compendious test of reasonableness for this purpose. The application of an objective test of that nature is familiar to tribunals, particularly in the Tax Chamber. It involves a value judgment which will depend upon the particular facts and circumstances of each case. It requires the tribunal to consider what a reasonable person in the position of the party concerned would reasonably have done, or not done. That is an imprecise standard, but it is the standard set by the statutory framework 16 under which the tribunal operates. It would not be right for this Tribunal to seek to apply any more precise test or to attempt to provide a judicial gloss on the plain words of the FTT rules.”

ETL purchased the stock of Hi Line Wines Limited (“Hi”). However Hi was the subject of a winding up petition at the time and the transaction was void by virtue of Section 127 of the Insolvency Act 1986 having occurred after Hi was presented with the petition.

The tribunal said as the application was for specific disclosure, it was exceptional and HMRC opposing it was not unreasonable.

Matters Of Confidentiality

What did, however, make ETL’s position unbeatable (from the vantage point of the tax tribunal (First Tier) was HMRC’s grounds for resisting the disclosure predicated on confidentiality. 

HMRC said under Section 19 of the Commissioners for Revenue and Customs Act 2005 it has a duty not to made a disclosure where the same related to the tax affairs of another.

Section 18(2)(c) of the Commissioner for Revenue and Customs Act 2005 says that the duty not to disclose does not apply to a dislosure:

which is made for the purposes of civil proceedings (whether or not within the United Kingdom) relating to a matter in respect of which the Revenue and Customs have functions…


  1.         HMRC assert that their objection to disclosure on the grounds of confidentiality was well founded, and could only be overruled by an order of the Tribunal. Reference was made in the notice of objection to Good Law Project. In that case, HMRC had submitted that in order to avoid any suggestion that HMRC may have committed an offence under s19 CRCA, they made an application to the court for disclosure under s18(2)(e), rather than simply relying in s18(2)(c). The court held at [44] that:

  1. […]. It was not in my view necessary for this application to be made. Section 18(2)(c) is rendered pointless if an application is made under (e) because HMRC are not prepared themselves to make the decision under (c). However, having said that, I can see why on the facts of this case HMRC decided it was best to be sure of the position by making the application, and I do not criticise them for doing so. But in future, they should make the decision themselves as to whether (c) applied. If they wish to give the taxpayer a chance to challenge such a decision they can always give advance notice, so that the taxpayer could apply for an order prohibiting disclosure if so advised.

  1.         The decision of the Administrative Court in Good Law Project is supported by the decision of the Court of Appeal in Mitchell which held:

[42] I reach a similar conclusion in relation to section 18(2)(c). That permits HMRC to make disclosure for the purposes of civil proceedings. The term “civil proceedings” is not defined in the CRCA but Mr Puzey submits that the term extends to FTT appeals, a proposition with which no one takes issue, and which I do not doubt. Section 18(2)(c) seems particularly apt on the facts of this appeal, where civil proceedings are extant and where HMRC wishes to make disclosure to assist one of the parties to those proceedings. Mr Hickey maintains his submission that this provision too is subject to an implied condition that the documents which HMRC proposes to disclose must be relevant to the issues pleaded by the parties in the course of the civil proceedings; for reasons similar to those I have already articulated in the context of section 18(2)(a), I disagree. The language does not suggest the existence of such a condition and the scheme and purpose of section 18 does not warrant such a condition being read in. Indeed, the apparent purpose of the provision, to enable HMRC to make disclosure of confidential documents in fulfilment of their statutory functions, would be thwarted if such a condition was read in. In the context of civil proceedings, the example of HMRC wishing to disclose potentially exculpatory material is even stronger. It shows that section 18(2)(c) can operate as a safeguard where the procedural code of the tribunal (or other litigation forum) contains a narrow disclosure rule – for example, in the FTT, where the basic rule under Rule 27(2) is limited to disclosure of documents on which a party intends to rely – but HMRC is in possession of documents on which HMRC do not wish to rely but which would assist another party to that appeal. I conclude that section 18(2)(c) would apply, at least in principle, if HMRC wished to make disclosure of the Disputed Documents to Mr Bell.

35. I therefore agree with ETL that HMRC’s objection to giving disclosure on the grounds that they owed a duty of confidentiality to Hi Line was misplaced. As these are civil proceedings, they had discretion to give disclosure under s18(2)(c) without the need for an order for disclosure – and if they were concerned about their duty to Hi Line, they could have given notice to Hi Line to give them an opportunity to object. Nonetheless, if there were any residual concerns about the duty of confidentiality owed under s19 CRCA, HMRC could – as suggested by ETL – have taken a neutral stance on the issue, drawing the attention of the Tribunal to the issues and the relevant statute and cases, and leaving the point to be determined by the Tribunal. I find that, in the light of the case law, HMRC’s argument that they were bound by a duty of confidentiality was unsustainable, and that in actively opposing disclosure on this ground, they acted unreasonably.

Matters Of Relevance Were More Serious

The tribunal was unimpressed, to say the least with HMRC’s stance suggesting that the information sought was not relevant:

 I find HMRC’s objection to disclosure on grounds of relevance to raise more serious issues. I find that ETL’s application for specific disclosure was not speculative. The correspondence between Farleys and ETL that was included in the hearing bundle clearly raised the question of whether Hi Line had claimed ownership of, and sought restoration of, all of the alcohol seized by HMRC. This issue is then brought into sharper focus by the letter of 18 February 2020 from Farleys to HMRC, to which were attached HMRC’s tally sheets, and which were disclosed pursuant to my direction for additional disclosures. This supports ETL’s submission that Hi Line had claimed ownership, and restoration, of all of the goods that had been seized by HMRC. This is clearly relevant to ETL’s case, and it was misleading for HMRC to have submitted at the hearing and in their notice of objection that the correspondence with Hi Line and its representatives was irrelevant. HMRC must have been aware at the time that ETL made its application for disclosure that there was (to put it at its mildest) an issue as to who owned the “excess alcohol”, and that this was relevant to ETL’s liability to duty and penalties. I find that HMRC’s argument that its correspondence with Hi Line and its representatives were irrelevant to ETL’s case was unsustainable, and that HMRC acted unreasonably in opposing ETL’s application for disclosure.

Oliver Elliot Comment

Oliver Elliot Comment !

The Court does not seem to readily welcome being deployed as bomb shelter.

HMRC confidentiality obligations sprouted as an issue in the case Good Law Project Ltd v HM Revenue and Customs & Anor [2019] EWHC 3125 (Admin) and the guidance issued there was that going forward HMRC should make its own decision on the matter. For HMRC to then seek to deploy that case as a submission to support its position against ETL would seem a little optimistic perhaps.

The job of HMRC is to collect taxes; it is not the job of HMRC even in an adversarial process such as a contest at the tax tribunal to win at all costs and take issue with every point. It appears from reading the judgment that there was no obvious need for HMRC to adopt what would appear a partisan approach to the confidentiality of Hi; it could have left Hi to fight for its own confidentiality, instead of in effect picking up the baton for Hi.

HMRC has a duty under its Charter to do the right thing and act fairly. In the tax tribunal here handing out the unusual order for costs it seems, as the tribunal of first instance, it thought HMRC had fallen somewhat short of the standards expected of it.


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Author: Elliot Green
Last Updated: May 20, 2024

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This page is not legal advice and is not to be relied upon as such. This article HMRC Hit For Costs In The Tax Tribunal: The Unusual Order is provided for information purposes only. You should take independent advice on the facts of your case. No liability is accepted for reliance upon this post.

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