Market & Opinion Research International Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 January 2015 |
| Neutral Citation | [2015] UKUT 12 (TCC) |
| Date | 15 January 2015 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Judge Roger Berner, Judge Judith Powell
Tarlochan Lall, instructed by UHY Hacker Young LLP, Chartered Accountants, appeared for the Appellant
Jonathan Bremner, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax – Costs – Withdrawal of case by HMRC before FTT – Claim for costs by appellant on basis that HMRC had acted unreasonably in defending or conducting the proceedings – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 10(1)(b) – Whether FTT applied the correct legal test – Whether the reasons for HMRC were not properly disclosed and FTT was led into error.
The Upper Tribunal (UT) considered an appeal by Market & Opinion Research International Ltd (MORI) against a decision of the First-tier Tribunal (FTT) to refuse a claim for costs by the company following HMRC's concession part way through the hearing of the substantive appeal. That appeal concerned HMRC's refusal to allow a “Fleming” input tax claim by MORI. The UT dismissed MORI's contentions that the FTT had erred in law in failing to apply the correct legal test and that HMRC had failed to disclose their true reason for abandoning the case. The appeal was duly dismissed.
The UT heard that the substantive appeal before the FTT had been settled on the second day of the hearing when HMRC withdrew their case and MORI abandoned a small element of its claim. MORI made an application for costs under Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 10(1)(b) on the basis that HMRC had acted unreasonably in defending or conducting the proceedings in the substantive appeal in that they had not settled the appeal prior to the tribunal hearing. The FTT refused the costs application, finding that it was not unreasonable for HMRC to not have settled the case any sooner than they did.
The substantive appeal before the FTT had concerned a claim by MORI for recovery of input tax for the period 1 January 1986 to 30 April 1997 in respect of the fuel element of mileage allowances reimbursed to its researchers. The sole issue in the substantive appeal was whether MORI could discharge the burden of proving, in relation to the claim period, that it was more likely than not to have not already deducted the input tax in question. On the second day of the hearing, HMRC agreed to meet MORI's claim having gained a “better and full understanding” of the company's case.
There was no argument before the UT that the FTT had failed to adopt the correct approach to the enquiry it had to make. Rather, the issue was the way the FTT had approached the question of whether it was unreasonable for HMRC not to have withdrawn at an earlier stage. The UT held that the reasonableness or otherwise of a party's actions fell to be tested by reference to a reasonable person in the circumstances of the party in question. In its judgment, viewed overall, the approach of the FTT was impeccable. It properly instructed itself in the relevant law. It set out the proper approach to be adopted and applied that approach. The FTT's references to matters not being obvious were nothing more than constituent parts of the FTT's exercise of a value judgment, applying the correct legal principles and having regard to all relevant circumstances and no irrelevant ones. The UT could discern no error of law in the FTT's approach and could find no reason to interfere with its decision in this respect.
The UT rejected the contention that, in connection with the costs hearing, there had been a material non-disclosure by HMRC of their true reason for abandoning the case, this being that they had misunderstood the difference between business mileage and mileage allowances and that, consequently, the FTT had been led into error. The UT did not consider that MORI had disclosed an arguable case. It refused the company permission to appeal.
This case emphasises the importance of establishing the precise facts at an early stage in the appeal process. The appellant was forced to incur substantial costs as a result of what it considered to be HMRC's failure to understand the issues in dispute. However, the UT could find no fault with the approach of the FTT to the way it dealt with the appellant's application.
[1] This is the appeal of Market & Opinion Research International Limited (“MORI”) against the decision of the First-tier Tribunal (“FTT”) (Judge Raghavan) refusing to award costs to MORI in respect of an appeal to the FTT by MORI against a decision of HMRC to refuse a Fleming claim for VAT input tax (“the substantive appeal”).
[2] The circumstances of MORI's application for costs of the substantive appeal were that the appeal had been settled during the second day of the substantive hearing of the appeal in June 2012 (“the June 2012 hearing”), when HMRC had withdrawn their case, and MORI had abandoned a small element of its claim. As the appeal was categorised as standard, MORI had made its application for costs under rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the FTT Rules”), on the basis, it was submitted, that HMRC had acted unreasonably in defending or conducting the proceedings of the substantive appeal, in that HMRC had acted unreasonably in not settling the substantive appeal before the June 2012 hearing.
[3] The FTT considered the application at an oral hearing on 15 April 2013 and refused it for the reasons given in its decision released on 13 September 2013. The FTT decided that HMRC had not acted unreasonably. Having examined the history of the proceedings, it found that it was not unreasonable for HMRC not to have settled the case any sooner than they had. It is from that decision that MORI now appeals.
[4] MORI is a well-known market opinion research organisation. The substantive appeal concerned a claim by MORI, made on 27 March 2009, for recovery of input tax for the period 1 January 1986 to 30 April 1997 (“the claim period”) in respect of the fuel element of mileage allowances reimbursed to researchers engaged by MORI. HMRC had accepted in respect of a separate claim by MORI for a later period that MORI had not already claimed input tax in that later period. The sole issue on the substantive appeal was whether MORI could discharge the burden of proof in relation to the claim period that it was more likely than not that MORI had not already claimed input tax in the claim period.
[5] MORI did not have any direct evidence in respect of the claim period. It relied on witness evidence of two directors in certain respects, and copies of Handbook guides, initially for 2005 and 2007, and subsequently for 1995. There was a dispute about the meaning to be attached to excerpts of visit reports complied by HMRC officers following visits to MORI, in particular on 18 October 1990.
[6] The hearing of the substantive appeal was listed for three days. The first day was taken up with certain questions of jurisdiction. The FTT permitted HMRC to amend their statement of case to raise the jurisdiction issue, but decided the issue against HMRC. The jurisdiction issue was also the subject of a separate costs application by MORI, which is included in this appeal.
[7] On the second day of the hearing, and after hearing submissions by Mr Lall (who appeared for MORI both before the FTT and on this appeal), HMRC agreed to meet MORI's claim subject to some small adjustments.
[8] The reasons for HMRC abandoning substantially the whole of their defence to MORI's claim form part of the issues in this appeal. We were shown a note of the hearing taken by an HMRC officer present at the hearing. This shows that lunch on the second day of the hearing was taken at 1pm. On resumption at 2pm, the note records that Mr Shea, the HMRC officer representing HMRC before the FTT, requested permission to address the tribunal in relation to HMRC having gained a “better and full understanding” of MORI's case and “the distinctions between mileage claims”. He informed the FTT that there had been a discussion with MORI over the lunch adjournment and it had been agreed that MORI would withdraw its claim for 1986 to 1988 and HMRC would accept the remainder of the claim.
[9] The FTT then adjourned for the parties to agree a form of words for a consent order. On reconvening, as the note records,
Mr Shea presented a copy of the following draft of words to the Tribunal:
The Commissioners have listened to the presentation this morning and reached a better understanding of the Appellant's case. Only today has it been pointed out that the appellant could not have claimed (input tax) in 1986 to 1988. So it has not been claimed for the first period.
It has been explained (sic) the difference between mileage allowances and business mileage to support a claim and the Commissioners are now willing to accept the claim.
Having discussed the claim with Mr Egerton [the relevant HMRC officer], normally authority would be required to authorise acceptance of the quantum – but in view of the fact that we are before the Tribunal, we are agreeing on behalf of the Commissioners that we are willing to accept the computations.
[10] It seems clear that, contrary to what the note suggests, these words of Mr Shea were merely spoken orally to the judge, and that the judge was not handed a written statement to this effect. What was handed to the judge was what had been agreed as the form of the consent order.
[11] Before us, the form of words used by Mr Shea was referred to as “the Statement”. We prefer to adopt the description “Hearing Statement”, which we think serves to distinguish it more clearly from what was referred to as “the Impugned Statement”; we shall come to describe the Impugned Statement a little later.
[12] Before the...
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