Distinctive Care Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 November 2016 |
| Neutral Citation | [2016] UKFTT 764 (TC) |
| Date | 15 November 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Barbara Mosedale
Mr M Firth, Counsel, appeared for the appellant
Ms S Choudhury, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Costs – Whether costs application procedurally correct – No – Whether HMRC behaved unreasonably by not withdrawing its decision before proceedings initiated – No – Whether review costs incidental – No – Application refused – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 10.
The First-tier Tribunal (FTT) refused a taxpayer company's application for costs because the schedule of costs accompanying the claim was defective, and in any event HMRC had not acted unreasonably bringing, defending or conducting proceedings.
In 2008 Distinctive Care Ltd (the appellant) participated in an SDLT avoidance scheme. HMRC discovered this close to the four year time limit, so to protect its position HMRC issued an SDLT determination. The appellant appealed against the determination. In late 2012, in Vardy Properties TAX[2012] TC 02242, the FTT found that the scheme was ineffective but that to be certain who was liable to pay the SDLT they needed to consider the transaction documentation. At that time HMRC's Central Policy team (CenPOL) advised the HMRC officer investigating the SDLT avoidance scheme that HMRC could issue an information notice where HMRC had already made a determination. Over two years later, in February 2015, relying on this advice, HMRC issued the appellant with an information notice demanding the transaction documentation. The information notice was appealed to HMRC and, following an HMRC review in which the information notice was upheld, the appellant appealed to the tribunal in July 2015. In August 2015 the officer dealing with the appellant's case learnt that CenPOL had changed its mind, so that HMRC could not issue an information notice where there was a pre-existing determination (the FTT found that this change of view occurred before the information notice was issued to the appellant). Fifteen days after the tribunal notified the appellant's appeal against the information notice to HMRC, HMRC conceded the appeal and withdraw the information notice.
The appellant submitted a claim for costs of £2,500 on the basis of unreasonable behaviour by HMRC pursuant to the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 10. The claim was accompanied by a breakdown of costs.
The FTT found that because the appellant had not sent its costs application to HMRC, but only to the tribunal, it was in breach of r. 10(3)(a) and it did not accept that this breach was entirely trivial nor that there was no prejudice to HMRC. However as the prejudice was relatively trivial the FTT would have been inclined to wave the breach, but as detailed below there was a more fundamental problem with the application.
The FTT found out during the hearing that the breakdown of costs which accompanied the costs application did not represent time spent actually working on the appellant's appeal. The breakdown of costs was instead one-thirtieth of the time spent by their advisers dealing with 30 clients in exactly the same position and recording time en bloc. The FTT concluded that underlying r. 10 and r. 10(3)(b) in particular, was the intention that the claimant would explain how it arrived at the figure of costs it wished to be awarded, so that the tribunal could undertake summary assessment. While the FTT had no reason to suppose that the adviser nor the appellant intended to mislead either the tribunal or HMRC, it found that the schedule was misleading, as its true basis was not obvious. The FTT decided that the appellant should have taken more care to ensure that the basis of how it calculated its costs claim was made clear in its application to the tribunal and to HMRC and this failure was certainly a breach of the spirit of r. 10(3)(b), and it also considered it to be an actual breach because the breakdown of costs was not a schedule of what was actually claimed. As it was the tribunal's discretion whether to award costs the failure to explain with the application how the costs were actually calculated meant that it did not exercise its discretion in the appellant's favour. The application for costs was accordingly dismissed.
Although this was enough to dispose of the application, in case the matter went further, the FTT also found that the application for costs would have failed because:
1) It was not satisfied that the law was so clear that it was unreasonable for HMRC to issue the information notice.
2) While it was unreasonable for CenPOL not to have informed the HMRC officer dealing with the case of their change of view, because the FTT did not consider either viewpoint unreasonable, it did not find HMRC as a body acted unreasonably in issuing, and later upholding, the information notice.
3) Even if it had been unreasonable for HMRC to issue the information notice, because they did nothing after the appeal was lodged, but promptly withdraw the information notice, there were no unreasonable omissions or actions after the notice of appeal was notified to them, so HMRC did not behave unreasonably in conducting or defending the appeal.
Had the FTT been prepared to award the appellant costs, it would only have awarded it the costs of preparing the notice of appeal and the costs incurred since that date. Not the costs of preparing the appeal to HMRC (because the appellant chose not to lodge proceedings afterwards but to pursue the review of option) nor the costs incurred during the review process, as these were not incidental to the proceedings.
This costs application was refused because the breakdown of costs accompanying the claim did not represent time spent actually working on the taxpayer's appeal, but was instead a proportion of time spent by their advisers dealing with clients in the same position, and this had not been made clear in the application.
The decision also includes a useful summary of the law relating to what costs are incidental to proceedings.
[1] On 25 February 2015, HMRC issued the appellant with an information notice under Schedule 36 Finance Act 2008 paragraph 1. The appellant appealed this to HMRC on 26 March 2015, and following a review, to the Tribunal on 24 July 2015. The Tribunal notified HMRC of the appeal on 7 September 2015. On 22 September 2015 HMRC withdrew the information notice and notified the Tribunal it would not defend the appeal. The Tribunal allowed the appeal on 16 November 2015.
[2] On 3 December 2015 the appellant submitted to the Tribunal a claim for costs in the sum of £2,500 on the basis of unreasonable behaviour by HMRC. The appeal was categorised as basic so unless there was unreasonable behaviour, or wasted costs, the Tribunal has no jurisdiction to award costs. The appellant did not allege there were wasted costs. The application was accompanied by a breakdown of costs.
[3] Rule 10 of the Tribunal Procedure (FTT) (Tax Chamber) Rules 2009 provided, so far as relevant,:
(1) The Tribunal may only make an order in respect of costs …
(b) if the Tribunal considers that a party or their representative has acted unreasonably bringing, defending or conducting the proceedings;
(3) A person making an application for an order under paragraph (1) must–
a) send or deliver a written application to the Tribunal and to the person against whom it is proposed that the order be made; and
b) send or deliver with the application a schedule of the costs … claimed in sufficient detail to allow the Tribunal to undertake a summary assessment of such costs … if it decides to do so.
(4) an application for an order under paragraph (1) may be made at any time during the proceedings but may not be made later than 28 days after the date on which the Tribunal sends–
…
(b) notice under rule 17(2) of its receipt of a withdrawal which ends the proceedings.
[4] HMRC objected to the application and the hearing today was to resolve it. HMRC objected to the application on a number of grounds:
1) The application was (says HMRC) not properly made as it was not copied to HMRC and was not accompanied by a proper schedule;
2) HMRC had not (says HMRC) behaved unreasonably in the conduct or defence of the appeal.
3) Costs claimed were not (says HMRC) incidental to proceedings
[5] I will deal with each issue in turn.
[6] It was accepted that the appellant had not sent its costs application to HMRC. I find HMRC became aware of the application when the Tribunal copied it to them by email on 15 December 2015.
[7] The appellant did not consider that it was in breach of rule 10(3)(a). It considered that it was enough to send the application to the Tribunal within 28 days, and enough if HMRC received it at some point in time.
[8] I do not agree. I find the appellant in breach of rule 10(3)(a). That rule required an application to be made by sending or delivering it to both the Tribunal and HMRC. The appellant did not send or deliver it to HMRC. Even if the Tribunal's sending of the application to HMRC on 15 December 2015 should count as compliance with rule 3(10(a), rule 10(4) required the application to be made within 28 days. That expired on 14 December 2015 so at best HMRC received the notification late.
[9] The appellant's position was that if I found them to be in breach, the breach was trivial and did not need an explanation. It should be excused, said the appellant: it was an oversight that caused HMRC no prejudice.
[10] HMRC did not consider the breach trivial: rules of the Tribunal must be complied with unless there is a good reason; it is not enough to show HMRC was not prejudiced in order to be excused a breach of the rules.
[11] I do not accept that the breach was entirely trivial nor that there was no...
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