JurisdictionUK Non-devolved
CourtFirst Tier Tribunal (Tax Chamber)
Judgment Date09 March 2018
Neutral Citation[2018] UKFTT 123 (TC)
Date09 March 2018

[2018] UKFTT 0123 (TC)

Judge Barbara Mosedale


Ms L Frawley, Counsel, appeared for the appellant

Mr Vallis, HMRC officer, appeared for the respondents

Procedure – Relief from sanctions – BPP Holdings Ltd v R & C Commrs [2016] BVC 9 applied – Applications dismissed.


[1] On 10 June 2014 a Mr Horler, acting on behalf Mr Anthony Clarke, lodged an appeal against 4 assessments to (allegedly) underpaid income tax for years 2000/01–20003/04 amounting to approximately £80,000. It was allocated reference TC/14/3349. The ground of appeal stated was that the assessments were out of time because Mr Clarke did not deliberately (said the notice of appeal) omit to pay the tax so HMRC could not apply the extended time limit necessary to make the assessments. The notice of appeal stated that the quantum of the assessments was agreed. Indeed, the quantum of the assessments was based on a disclosure report prepared by an adviser acting on behalf of the appellant.

[2] On the same day, Mr Horler lodged an appeal against penalties imposed on Mr Clarke in respect of other years amounting to just over £2000. The grounds of appeal were, as above, that Mr Clarke's behaviour was not “deliberate” but also that it was wrong for HMRC to withdraw and then re-issue penalty assessments. That appeal was allocated ref TC/14/3351. It was later consolidated with the 3349 appeal and therefore both appeals are now under reference TC/14/3349.

[3] On 2 August 2014, Mr Horler lodged an appeal against a VAT assessment for approximately £859,000 on Mr Clarke. The grounds of appeal were that it was out of time because (said the notice of appeal) HMRC knew enough to assess more than 12 months earlier. While it did not state the quantum of assessment had been agreed, it did not suggest that it considered it wrong. The appeal was allocated reference TC/2014/4187.

[4] On the same day, Mr Horler lodged an appeal against a VAT civil evasion penalty on Mr Clarke of approximately £171,000. The grounds of appeal appeared to merely be that the VAT assessment was wrong. It was allocated reference TC/14/4185 and later consolidated with the above appeal under reference TC/14/4185.

[5] For reasons which do not matter now, these appeals were stayed for some time. HMRC delivered their statement of case on TC/14/4185 (the VAT appeal) in March 2015 and on TC/14/3349 (the income tax appeal) on 24 August 2015. Case management directions to prepare the cases for hearing were issued respectively on 11 and 25 September 2015.

[6] The directions in the VAT appeals, and in particular the directions to deliver a list of documents by 25 September 2015 and witness statements by 23 October 2015, were not complied with by the appellant. An “unless” order was issued on 12 November 2015. It required the appellant to notify by 19 November 2015 an intent to pursue the appeal and stated that if he failed to do so the appeal “may” be struck out. The “unless” order was not complied with and the VAT appeal was struck out on 8 December 2015.

[7] The direction in the income tax appeal to deliver a list of documents by 6 November 2015 was not complied with (there was no direction for witness statements in this appeal: that was probably an error by the Tribunal but is not relevant). On 30 November 2015, the Tribunal wrote a letter reminding the appellant of the need to comply with the income tax directions. In the absence of any reply or compliance, an “unless” order was issued on 18 December 2015 requiring the appellant to notify an intent to pursue the income tax appeal and to comply with the direction for a list of documents no later than 4 January 2016. It stated that if he failed to do so the appeal “may” be struck out. The unless order was not complied with and the appeal was struck out on 19 January 2016.

[8] All correspondence on the appeals was sent to Mr Horler. None of it was sent direct to the appellant (apart from the notice of hearing of the reinstatement application). As Mr Horler had been appointed by Mr Clarke as his representative in these appeals, that was in accordance with the Tribunal's rules, in particular rule (4)(a) which provides that the Tribunal must provide the appellant's representative with anything required to be given to the appellant, and need not provide it to the appellant.

[9] On 25 January 2016, Mr Horler applied for reinstatement of the income tax appeals. His letter made no mention of the VAT appeals. HMRC objected to the reinstatement. In that letter they suggested the Tribunal consider the VAT appeals at the same time but it appears this suggestion was not acted on or ever referred to.

[10] The reinstatement application was heard on 12 April 2016 and dismissed by written decision of Judge Clark on 16 June 2016. While it only ruled on the income tax appeals, it did mention the VAT appeals in a number of paragraphs.

[11] On 9 June 2017, the appellant by his new adviser, Ms Frawley, applied out of time for permission to appeal Judge Clark's decision refusing to reinstate the income tax appeal; on the same date he applied out of time for reinstatement of the VAT appeal.

Mr Clarke's witness statement

[12] The day before the hearing before me Mr Clarke submitted a witness statement. It ran to 8 pages and had three exhibits.

[13] HMRC objected to it being allowed in evidence as it was given on short notice, and thus would (in Mr Vallis' opinion) necessitate an adjournment to allow HMRC to consider its contents, and was (Mr Vallis said) in any event irrelevant to the matters which had to be decided in this hearing.

[14] Dealing with its relevance first, the witness statement covered Mr Clarke's business activities in respect of which the disputed assessments were made, it summarised HMRC's investigation and went into some detail about Mr Clarke's concerns with the disclosure report prepared on his behalf in 2012 by his then advisers and used by HMRC in preparing the assessments. It did not really contain any evidence about what Mr Clarke was doing about these appeals just before they were struck out, and in between their striking out and the lodging of the applications the subject of this hearing.

[15] For that reason, it appeared to me to be very largely irrelevant to what I would have to decide: in so far as Mr Clarke gave evidence in his witness statement that he believed the disclosure report was wrong, it was strictly irrelevant as I needed evidence of fact and not opinion. Ms Frawley would be able to make submissions as to the prospects of the appeals: I would not have regard to non-expert opinion evidence on this.

[16] Moreover, with regards to its lateness, it seemed to me that the witness statement and particularly the third exhibit contained statements that the disclosure report was wrong and/or based on a fundamental misunderstanding of what Mr Clarke's VAT supplies were. These were statements that HMRC would be bound to challenge as inconsistent with their assessments: if the witness statement was allowed in, the hearing would very likely be derailed as the entire half day allocated to the hearing would be swallowed up in HMRC challenging in cross examination statements that were not actually relevant to this hearing, however relevant to the substantive hearing if it were ever to take place.

[17] Had the appellant sought its admission earlier, it was possible the matter could have been agreed: HMRC would have had time to explain their objections and possibly a much shorter and relevant witness statement could have been prepared and admitted. But there was no time to do so when a witness statement was produced the day before a hearing.

[18] I refused to admit the witness statement.

[19] In the event, I do not see that it affected the case put forward by the appellant. While Mr Clarke was not called to give evidence, HMRC accepted (at least for the purpose of this hearing) that I should proceed on the basis that the reasons given by Mr Clarke's now representative for his failure to pursue the appeals in 2015–2017 should be assumed to be accurate. In any event, the witness statement did not contain them.

The hearing today

[20] As discussed at the outset of the hearing, I had up to four applications to determine, albeit one of them would be determined (if at all) ex parte (in other words, without representations from HMRC):

  • Whether to extend time for Mr Clarke to lodge his application for permission to appeal Judge Clark's decision; if granted, I would then determine the application for permission to appeal (the ex parte matter).
  • Whether to extend time for Mr Clarke to lodge his application for reinstatement of the VAT appeal; and if I did so, to determine the reinstatement application.

As I heard representations on all of them, I determined all of them, although strictly it was unnecessary to consider the permission to appeal application and the reinstatement application as I decided not to extent time to make either of these applications.

The legal test for relief from sanctions

[21] The three applications which were not ex parte were all applications for relief from sanctions. Both applications for extension of time were applications for relief from the sanction of being unable to make the underlying application because it was out of time. The application for reinstatement was an application for relief from the sanction of the appeal being struck out.

[22] The same legal test applies to all three applications for relief from sanction, although of course the outcome of each application would not necessarily be the same, as each would depend on its own individual circumstances. But I will deal only once with the legal test.

[23] The parties did not agree on the exact test for relief from sanctions, although they did appear to agree that the differences between them were more apparent then real. Ms Frawley relied on Denton v TH White Ltd [2014] EWCA Civ 906, which, as she pointed out, was...

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