Mirza v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 November 2022 |
| Neutral Citation | [2022] UKUT 291 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 291 (TCC)
Judge Jonathan Richards, Judge Andrew Scott
Upper Tribunal (Tax and Chancery Chamber)
Procedure – VAT – Whether procedural irregularity in FTT hearing led to a witness not being called – No – Appeal dismissed – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 2.
In Mirza v R & C Commrs [2022] BTC 532, the Upper Tribunal (UT) upheld the decision of the First-tier Tribunal (FTT) in Mirza. The procedural defects in the FTT’s handling of the hearing had not resulted in procedural irregularity and any error of law would not have affected the outcome of the appeal.
HMRC imposed a default surcharge on the appellant (Mr Mirza) for the late payment of VAT, which Mr Mirza appealed. In Mirza, the FTT dismissed the appeal. As part of that decision the FTT rejected Mr Mirza’s submission that he had a reasonable excuse because he believed that he was able to pay his VAT liability by setting it off against either or both, cash seized by HMRC or claims he had made for repayment of input tax. The FTT decided that it could not make any findings as to whether the excuse was ‘genuine’ as Mr Mirza had not given evidence. It also found that even if his then accountant had advised him that set off was available that did not provide Mr Mirza with a reasonable excuse.
Mr Mirza was granted permission to appeal to the UT, but only on the grounds that:
- the FTT erred by proceeding with the hearing without hearing oral evidence from Mr Mirza; and
- the FTT erred by assuming that Mr Mirza could not have a reasonable excuse if his accountant had provided incorrect advice without considering the separate question of whether it would be reasonable for a taxpayer with Mr Mirza’s attributes to rely on that advice even if incorrect.
On ground (1), the UT concluded that the fact that the FTT’s decision was reached without hearing Mr Mirza’s first-hand witness evidence involved no procedural irregularity. It was regrettable that the FTT had not issued directions relating to witness evidence, and while this could have resulted in a procedural irregularity, it did not, as Mr Mirza had been professionally represented and, based on (disputed) HMRC’s evidence, a week before the hearing the representative had said that Mr Mirza would not be giving evidence. The UT did however find defects in the procedures, such as that the FTT judge should not have interrupted while Mr Mirza’s representative was developing his submissions on reasonable excuse.
On ground (2), the UT concluded that even if the FTT had made an error of law as asserted, that could not affect the outcome since any correct application of the law would lead to the conclusion that the evidence before the FTT was insufficient to establish that Mr Mirza had a reasonable excuse.
The UT accordingly dismissed the appeal.
While the UT rejected the taxpayer’s appeal, it acknowledged that the FTT may have followed a flawed approach when considering the application of R & C Commrs v Katib. Any suggestion that Katib is authority for a proposition that all defaults of an adviser are to be attributed to the client so that reliance on incorrect advice is incapable of constituting a reasonable excuse, was incorrect. Reliance on incorrect advice is capable of being a reasonable excuse. Although for this to be the case the taxpayer will need to show that the advice was relied on and that reliance on the incorrect advice was reasonable.
Comment by Meg Wilson, Lead Direct Tax Writer, Croner-i Ltd.
Taher Nawaz of T Nawaz & Co Ltd appeared for the appellant
Sarah Black, Counsel, instructed by General Counsel and Solicitor for HM Revenue & Customs appeared for the respondents
[1] The appellant, Mr Mirza, appeals against a decision (the “Decision”) of Judge Anne Scott (the “FTT Judge”), sitting in the First-tier Tribunal (Tax Chamber) (the “FTT”) released on 9 November 2020 under reference TC/2019/05125. By the Decision the FTT dismissed Mr Mirza's appeal against a default surcharge of £3,701.55 imposed for what HMRC considered to be late payment of VAT due for the 02/19 VAT period.
[2] References in the remainder of this decision to numbers in square brackets are to paragraphs of the Decision unless we specify otherwise.
[3] Relevant aspects of the VAT default surcharge are not in dispute and the FTT correctly summarised the law at [23] and [24]. Very broadly, if a taxpayer does not submit a VAT return or make payment of VAT due by a particular date, s59 of the Value Added Tax Act 1994 provides for a surcharge to be imposed. However, s59(7)(b) provides for a defence: a taxpayer is not liable to the default surcharge if there was a “reasonable excuse” for the default.
[4] There is no appeal against the FTT's central relevant findings of fact. In his comments on the draft embargoed decision that we sent to the parties, Mr Nawaz provided, on Mr Mirza's behalf, a selection of what he described as factual inaccuracies in the Decision and areas where he considered the FTT had overlooked relevant context. We mean no discourtesy to Mr Nawaz by not reflecting all those points in the summary below whose purpose is to summarise the facts as the FTT found them, given that there is no appeal against those findings. It is sufficient to note that Mr Nawaz formally submitted that the FTT's findings do not give a full picture and, in particular, that Mr Mirza's provision of information to HMRC was much better than the Decision suggests and HMRC's dealing with his VAT affairs much less satisfactory than the Decision suggests. We are grateful to Mr Nawaz for drawing to our attention a mistake made by the FTT as to the date of a letter sent by HMRC (see paragraph 8 below).
[5] Mr Mirza was registered for VAT at material times and carried on business as a grocer ([2]). He submitted a VAT return for 02/19 showing VAT due of £24,677 ([11]). He did not make any cash payment of that sum by the VAT due date ([26]).
[6] There were some other dealings between HMRC and Mr Mirza that were of significance. Although the FTT did not make detailed factual findings on these other dealings, it found that:
- In a raid on Mr Mirza's premises on 22 October 2015, HMRC, accompanied by Police Scotland, had seized documents and certainly £550,200 (the Seized Cash) from Mr Mirza ([43]).
- Mr Mirza had made a number of claims for repayment of input tax (the Repayment Claims) which HMRC had not paid because, in HMRC's view, Mr Mirza had provided insufficient evidence to support the claims ([14]). The FTT did not give full details of the Repayment Claims, but it appears from [17] that those claims dated back to VAT period 02/12 and that Mr Mirza's position was that they resulted in HMRC owing him some £190,000 ([18]).
[7] The FTT did not make express findings on Mr Mirza's wider VAT compliance. However, it seems clear from its summary of submissions made on Mr Mirza's behalf at [39] to [41] that there was a sustained pattern of Mr Mirza not paying VAT liabilities shown on returns on the basis, it was submitted, of Mr Mirza's belief that the VAT due could be set off against the Repayment Claims.
[8] On 8 November 2018 (although the FTT wrongly found that this was dated 8 November 2019), HMRC wrote a letter (the “Letter”). The Letter referred in general terms to the scale of Mr Mirza's outstanding tax debts and recorded HMRC's belief that these tax debts were “far in excess of” the Seized Cash. HMRC suggested that Mr Mirza should contact HMRC's Debt Management department which the FTT interpreted as a suggestion that Mr Mirza might seek to agree a “time to pay” (“TTP”) arrangement.
[9] Mr Mirza gave no evidence to the FTT, whether in the form of a witness statement or orally. The reasons for that are at the heart of this appeal and we will return to that issue later in this decision.
[10] Mr Nawaz argued before the FTT that Mr Mirza was not in default, and so could not be made liable to a default surcharge, because he had in fact paid his VAT liability for 02/19 by setting it against either or both (i) his right to the return of the Seized Cash or (ii) the Repayment Claims. We do not need to set out the detail of the set-off arguments that Mr Nawaz put before the FTT because none of those arguments form the basis of the grounds on which Mr Mirza has permission to appeal to the Upper Tribunal. It is sufficient, therefore, to note that, at [33], the FTT found that there could be no set-off against the Repayment Claims and, at [46] and [47], the FTT concluded that there could be no set-off against an obligation to return the Seized Cash.
[11] It follows from what we have said in paragraph 10, that there is no appeal against the FTT's conclusion that Mr Mirza was in default and so potentially...
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