Overview Of Appeal To The Tax Tribunal Out Of Time
In the case of Barrett v The Commissioner for His Majesty’s Revenue and Customs [2022] UKFTT 423 (TC) the taxpayer failed in his bid in appealing to the Tax Tribunal out of time.
The taxpayer relied on the advice of a law firm whose relevant partner held himself out as a tax expert and was in legal directories to that effect.
On 22 March 2019, HMRC issued to the Appellant an HMRC tax discovery assessment under Section 29 of the Taxes Management Act 1970 (“TMA 1970”) in relation to the tax year ending 5 April 2015 (“the Discovery Assessment”). The Discovery Assessment was in the amount of £2,117,221.61.
Taxpayer Appealed Out Of Time Having Relied On His Lawyer
The taxpayer told the Tax Tribunal that he was advised on asking about appealing:
told not to worry about it and that the best course was to “delay as much as possible” as this was a “tactic” that would assist in achieving a settlement.
The taxpayer then complained that his adviser did not advise him correctly. However, the position as seen in the recent article Reliance On Tax Agent Defence For Late Appeal To Tax Tribunal is that except if the adviser were to mislead the taxpayer (which did not happen) a failure by the adviser amounts to a failure by the taxpayer following the decision in HMRC v M H Katib [2019] UKUT 189:
It cannot be the case that a greater degree of adviser incompetence improves one’s chances of an appeal, either by enabling the client to distance himself from the activity or otherwise.
As is the general rule in these types of cases, the taxpayer appealed out of time and the Tax Tribunal applied the Martland test which is explained in the article How To Appeal Late To The Tax Tribunal.
Tax Tribunal Rejected The Appeal Out Of Time
The Tax Tribunal rejected the out of time appeal and had this to say:
46. I agree with the parties that I should apply the 3-stage approach in Martland.
47. As to the first stage: the appeal to the Tribunal was filed 4 months and 7 days late (and 38 days after the 3 month “extension” period in which HMRC stated that would not oppose late appeals). I agree with the parties that such a delay is serious and significant.
48. As to the second stage: I agree with HMRC’s submissions on this point. The “reasons” for the delay are as set out in the Notice of Appeal namely Mr Y, who was not a litigation specialist, was “pre-occupied” with another case and “assumed that it was open to HMRC to agree an extension” and that HMRC would do so. I further find, on the basis of the Appellant’s evidence, that another reason for the appeal not being filed on time was that Mr Y considered that there was a tactical advantage to not filing an appeal. That the Appellant relied on Mr Y is not a “reason” for the delay but should, of course, be taken into account at the third stage.
49. As to the third stage:
(1) The reasons for the delay (as set out above) are not “good” ones.
(2) I should, and do, give particular regard to the importance of statutory time limits being respected such as to mean that the starting point is that a late appeal will not be admitted unless I am satisfied on the facts that, in all the circumstances, a late appeal should be permitted.
(3) I accept that the Appellant relied on Mr Y whom he understood to have appropriate expertise. However, that as may be, I do not consider that this is a factor to which I should give particular weight given:
(a) Katib (and the cases cited therein) make clear that the “general rule” is that failures by a taxpayer’s adviser should be treated as if they were failures by the taxpayer and a failure of an adviser to submit a timely appeal on behalf of a taxpayer is unlikely to provide the taxpayer with a good reason for the deadline having been missed.
(b) Whilst there are exceptions to the general rule, I do not consider that there is anything about the facts of this case to justify the application of an exception given:
(i) The Appellant’s complaint about Mr Y is that he did not do his job properly. As stated at paragraph 58 of Katib, this is not as uncommon as it should be.
(ii) To the extent the Appellant says he was “misled” that was simply the consequence of the poor advice. This was not, for example, a case where the advisor said the appeal had been filed (when in fact it had not been). In many (if not all) cases of poor advice, the client will have been “misled” as to the correct position but that cannot mean that in all such cases an exception to the general rule should be applied.
(iii) Nor do I consider that the fact that Mr Y held himself out as having appropriate expertise (and was listed in the legal directories) alters the position. The fact remains that Mr Y agreed to advise and represent the Appellant and fell short in so doing – there is nothing about that to make it exceptional.
(iv) There were “warning signs” that the Appellant should have picked up on such as to mean that the Appellant is not himself without some blame in this matter. In particular, the Appellant was copied into correspondence (see paragraphs 9-17 above) from which he should properly have understood that there was a statutory deadline for filing the appeal with the Tribunal, that HMRC would not object to a late appeal if it was filed within 3 months and 30 days of the decision and, once that extended period had ended, it was not (regardless of what Mr Y was saying) a given that HMRC would consent to a late appeal being filed, in particular:
(A) On 12 July 2021, Mr Sked asked:
“Has the appeal of the discovery assessment yet been notified to the Tribunal? If it has not, then is it intended that it will be notified soon or is your client accepting HMRC’s position on this matter? I would be grateful for your clarification.”
clearly indicating that if the Appellant was not accepting HMRC’s position then an appeal needed to be made to the Tribunal regardless of the fact that there had previously been lengthy exchanges of correspondence between the parties.
(B) On 4 August 2021, Mr Sked stated:
“Please can you confirm if an appeal has been notified to the Tribunal? If it has then please can you provide a copy of the T240 appeal form. If it has not, then please can you fully explain why.
The 30-day statutory appeal period has long since expired and the 3 month period in which HMRC would not object to a late appeal has also recently expired.
Please do not hesitate to contact me should you wish to discuss.”
clearly indicating that the period in which HMRC would not object to a late appeal had now passed. Despite this, the appeal was not filed for more than a month thereafter. Once this correspondence was received, a taxpayer in the position of the Appellant should reasonably have sought advice from another professional on an urgent basis, especially when Mr Y advised that he was not free for a meeting until 23 August 2021 and there was nothing to worry about (which advice could not be readily reconciled with the plain words used in HMRC’s correspondence).
(4) As to the merits of the case: I am not satisfied the Appellant has shown that HMRC have an obviously weak case. In particular:
(a) The Appellant has not satisfied me that HMRC has an obviously weak case in relation to the statutory pre-conditions for issuing a discovery assessment. Not only was this a point that is not pleaded in the grounds of appeal (and it is not a given that the Appellant will be successful in obtaining permission to amend his grounds of appeal), the Appellant did not, beyond stating that the Appellant does not accept the pre-conditions were met advance any further submissions or provide any further detail in support of this contention.
(b) The Appellant has not satisfied me that HMRC’s case (which proceeds on the basis that the Amendment Agreement was not legally effective) is obviously weak. That the Amendment Agreement was not legally effective was a position that the Appellant himself (through X LPP) argued in the course of correspondence. The Appellant now says that the Amendment Agreement was legally effective. That is something that I cannot determine on the evidence before me. It would involve, amongst other things, consideration of the law of Arizona.
(c) The Appellant referred to advice on Indiana law that he had recently obtained and which he submitted undermined HMRC’s position as to whether the Amendment Agreement was effective. That Indiana law advice was not shown to me and nor was I addressed on the relevant provisions of Indiana law. The Appellant has not, then, satisfied me that on the basis of Indiana law, HMRC’s case is obviously weak.
(d) The Appellant has not persuaded me that that HMRC’s position in relation to the operative date for the BTA has “no legal support”. That is something that I would need to hear detailed submissions on – no such submissions were made to me by either party.
(e) I am not satisfied that the fact that HMRC (1) put forward various analysis of the correct position in correspondence and (2) has issued an assessment for 2011/12 based on a different analysis, means that HMRC’s case is obviously weak. It is often the case that a party’s analysis of the correct tax position will evolve during the course of an enquiry (indeed, the Appellant’s own position was previously that the Amendment Agreement was not effective). In relation to the 2011/12 assessment, HMRC has made clear that is issued on an alternative basis and that the Discovery Assessment (2014/15) is HMRC’s primary position.
I do not, then, attach any weight to this factor in determining whether to permit a late appeal.
50. I do not accept that there is no prejudice to HMRC. Admitting this late appeal will have cost and resource implications for HMRC especially given that the Appellant now seeks to advance a case that is somewhat different to that previously advanced in correspondence and which will involve consideration of foreign law. That said, I accept that the prejudice to HMRC is relatively minimal. On the facts of this case, I consider this to be a neutral factor in determining whether to permit a late appeal.
51. I do not accept that allowing the Appellant to bring this late appeal will further the efficient and proportionate management of litigation. HMRC made clear that if this application is dismissed such that the Discovery Assessment stands, they will withdraw the 2011/12 assessment, not issue any penalties and will close the enquiry for 2013/14 (and the only change that will be made to the 2013/14 return will be to give the Appellant credit for the capital gains tax he has paid). There is not, then, any other litigation in this Tribunal in which the issues arising on the present appeal will in any event be litigated.
52. I accept that the Appellant will suffer prejudice if the late appeal is not admitted. He will lose the ability to challenge an assessment to tax that he says is not due, and that assessment is for a significant sum. However, as stated at paragraph 60 of Katib, that is a relatively common feature of late appeal applications. Nor do I consider that the Appellant may not be able to obtain a complete indemnity by way of a claim against X LLP/Mr Y (about which I am not able to reach a concluded view) materially alters the position. The case law does not suggest that a litigant is only to be bound by the acts of his lawyers to the extent he can obtain an indemnity from them. Accordingly, whilst I take prejudice to the Appellant into consideration, it is not a factor to which I give any particular weight.
53. In summary, having weighed up all of the circumstances of this case, I am not satisfied that they justify permission being given to bring a late appeal. Accordingly, permission to notify this late appeal is refused.
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