Ocean Developments Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 February 2018 |
| Neutral Citation | [2018] UKFTT 90 (TC) |
| Date | 20 February 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0090 (TC)
Judge Richard Thomas
Mr Michael Firth of counsel, instructed by Morgan, Rose appeared for the appellant
Mr Brian Horton, of HMRC Solicitor's Office and Legal Services, appeared for the respondents
Corporation tax – Application for permission to appeal late – Granted – TMA 1970, s. 49 – Application for exclusion of without prejudice material – Withdrawn – Application for reclassification of case from complex to standard – Refused – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 23(4).
The First-tier Tribunal (FTT) granted a taxpayer company's application for permission to appeal late. Using the 3 stage approach in Denton, the FTT decided that: although the 3 month delay was serious and significant it was not exorbitant; there were reasons for the delay; and the appeal had merit.
Ocean Developments Ltd (the appellant) had acquired land, carried out remediation work over several years and sold the land. The appellant's accounting records had been destroyed. The appellant prepared accounts and tax returns based on estimated figures including calculations of the land remediation costs based on estimated figures given by a government specialist adviser on brownfield sites. For tax purposes the costs of land remediation were multiplied by 50% to give relief in accordance with the land remediation relief (LRR) legislation which at the time was in FA 2001, Sch. 22 (and by the time of the hearing was in CTA 2009, Pt. 14). After protracted dialogue with HMRC, the appellant withdrew the LRR claims. Following the withdrawal HMRC wrote to the appellant's accountant saying that other changes needed to be made to the returns which would result in £8.7m profits becoming chargeable. The letter went on to say that HMRC saw 2 options to conclude the matter, the first being that returns be unconditionally formally withdrawn and the second option, based on withdrawal of the LRR claim was that on the basis of the lack of evidence to support the returns submitted for all years that a no profit/no loss position be agreed. HMRC subsequently issued closure notices amending the appellant's corporation tax returns, saying they were based on the submitted returns excluding the withdrawn LRR. The appellant maintained that these were sent to its accountant, but not to it. A couple of months later the appellant received a warning of winding up procedures unless the outstanding sum was paid, saying that the demand was in accordance with the tax returns made by the company. Four months after the closure notices were issued the appellant's accountant provided the appellant with copies of the submitted returns and when it realised that the tax debts were not based on the returns as submitted it lodged appeals with a request that they be admitted late under TMA 1970, s. 49.
The FTT followed the 3 stage approach in Denton v TH White Ltd [2014] EWCA Civ 906 and decided that:
- A delay of 3 months was serious and significant.
- If it was correct that the appellant did not receive the closure notice then there was a good reason for the delay, and the appellant's evidence and conduct pointed to that being the case. The appellant's belief that withdrawal of the LRR claim would lead to a no profit/no loss position was well founded given HMRC's extremely confusing letter, saying that on the one hand without a complete withdrawal of the returns profits of £8.7m would become chargeable but on the other clearly saying that the other option, withdrawal of the LRR claim, would lead to no profit/no loss.
- It did not agree with HMRC's assertion that the appellant's case was very weak, because:a Court of Appeal decision concerning the director of the appellant and the VAT liability of another company did not have the weight HMRC suggested; andit did not understand HMRC's conclusion that by the withdrawal of the LRR claim the appellant gave up any right to a deduction of the remediation costs, instead it seemed that it was strongly arguable that the effect of the withdrawal of a claim for LRR was that the amount of qualifying land remediation expenditure was 100% of the amount instead of 150%.
The FTT agreed with the appellant that the prejudice to it if permission to appeal late was not granted was not just that it would have to pay the tax or more likely be wound up, but the real prejudice was that the tax on the basis of which HMRC had sought to wind up the appellant was strongly arguable to be “to a substantial extent, if not entirely, illusory”.
Taking all the circumstances into account, including the prejudice to both parties if the decision went against them, the not exorbitant delay and the reasons for the delay, and (without much investigation) the merits, the FTT granted permission to appeal late to HMRC.
During the hearing HMRC withdrew their application to exclude all without prejudice material from the proceedings.
HMRC's application for the case to be reclassified from being a complex to a standard case was denied. The FTT found that the case met the 3 requirements in the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 23(4) for the case to be allocated as complex.
The company had claimed land remediation relief in connection with the estimated cost of remediation work on land it had acquired. Following protacted dialogue with HMRC the company withdrew the claims, but rather than HMRC allowing 100% of the qualifying land remediation expenditure (instead of the 150% originally claimed), it disallowed all the remediation costs. By the FTT permitting the company's application for permission to appeal late the company will be able to argue before the tribunal the correct treatment of the remediation expenditure.
[1] This was a case management hearing to decide on three applications.
[2] The first was an application by Ocean Developments Ltd (“the appellant”) for permission to make its appeal against closure notices amending its corporation tax (“CT”) assessments for the accounting periods ending 30 September 2001 to 2007 inclusive. At the end of the hearing I informed the parties that I would give permission and would give my reasons in writing.
[3] The second was an application by the respondent (“HMRC”) to exclude all without prejudice material from the proceedings. By this I took them to mean in any appeal proceedings. Such material was extensively referred to in the permission application without objection, and after I had given my decision on that Mr Horton said that HMRC were no longer pursuing this application. I will touch on this application again later.
[4] The third was an application for the case to be reclassified from being a complex to a standard case. My reasons for denying this application are set out below.
[5] I had a witness statement with several bundles of exhibits from Mr Philip Bowles, a director of the appellant. Mr Bowles' statement was taken as his evidence in chief and he was cross-examined by Mr Horton. I am satisfied that Mr Bowles was a witnesses of truth and I accept his evidence.
[6] I had a witness statement from Mr Derek Nimmo, an officer of HMRC and the investigator in this case. After a few questions from Mr Horton Mr Nimmo was cross-examined by Mr Firth. I am also satisfied that Mr Nimmo was a witness of truth and I accept his evidence, with one caveat which is not material to my decision.
[7] I bear in mind that this is not a hearing of the appeal, at which many of the exhibits to the evidence would be relevant and extensively discussed. But I was urged by HMRC to find that the grounds of appeal are “very weak”, and told by Mr Firth in his skeleton that “the appeal is unequivocally a strong one”. I have therefore considered the testimony of the witnesses and the documents they referred to in their evidence as to the apparent merits and demerits of that appeal as part of my consideration of all the circumstances of the case, but without conducting the mini-trial that so many cases warn against.
[8] These then are the basic facts relating to the appeals and the matters that led up to them.
[9] The appellant was incorporated by Mr Bowles in 1991 as a property developer. In about 1991/2 it acquired land known as the Taff Island site in Cardiff for £200,000 with a view to selling it for residential use (the use it has today).
[10] Between 1993 and 1998 the old river bed was reclaimed and filled with inert material. The appellant instructed Ove Arup & Partners to investigate the feasibility of developing the site for residential use, but it became apparent that the site was seriously contaminated and that the old river bed would need to be dug out and remediated before any development could take place.
[11] The remediation work started in 1998 and involved other land which was purchased in 2001/2. The quotations for contracts were in the tens of millions. The appellant decided to do the job itself, hiring Arup as project manager and engaging subcontractors. Once the work was done Arup signed a remediation certificate.
[12] A sale of part of the site was negotiated with Wimpey in 2003 but on 10 June 2003 an administrative receiver was appointed over the...
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