Tower MCashback 3 LLP
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 December 2014 |
| Neutral Citation | [2014] UKFTT 1081 (TC) |
| Date | 05 December 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 1081 (TC)
Judge Greg Sinfield
Tori Magill and Stephen Brown of Mazars LLP, accountants, appeared for the Appellant
Rebecca Murray, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Procedure - Application to reinstate appeals that had been withdrawn - Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 17 - Application refused.
The First-tier Tribunal (FTT) has refused a taxpayer's application for two appeals that had been withdrawn to be reinstated. Even though the FTT ruled that the person who made the application to reinstate had the standing to do so the application was refused because the appeals had no reasonable prospect of succeeding.
Tower MCashback 3 LLP (TM 3 LLP) claimed first-year allowances of £21m under the Capital Allowances Act 2001 (CAA 2001), Capital Allowances Act 2001 section 45s. 45 in relation to expenditure on software. HMRC opened an enquiry into the relevant return and following the Supreme Court's decision in R & C Commrs v Tower MCashback LLP1 and Tower MCashback LLP2TAX[2011] BTC 294, in which it was decided that only 25% of the amount claimed by those LLPs should be allowable as first year allowances for expenditure on software rights, and given that the facts of TM 3 LLP's case were not materially different, HMRC issued a closure notice amending the claim for first year allowances to 25% of the amount claimed.
Mr Marsden, the member of TM 3 LLP who had been dealing with the enquiry and who referred to himself as a designated member, appealed against the closure notice. HMRC proposed a settlement offer in relation to the outstanding appeals. The members of TM 3 LLP did not agree how to proceed, with two of the three designated members wanting to accept the settlement, but the other designated member, Mr Smith, not wanting to. Mr Marsden notified the FTT that TM 3 LLP had withdrawn the appeals, which another member, Mr Wright, said was done without the consent of the members of TM 3 LLP. Less than a month later Mr Smith, who at the time was still a designated member applied to reinstate the appeals on the basis that there were technical differences between this case and the Tower MCashback LLP1 and 2 Supreme Court case and to reinstate access to the alternative dispute resolution process (ADR). HMRC objected to the reinstatement of the appeals and hence this hearing.
The issues the FTT addressed were:
(2) whether Mr Marsden had standing to withdraw the appeals;
(3) whether Mr Smith had standing to apply for the appeals to be reinstated;
(4) if Mr Smith did not have standing, whether Mr Wright had such standing at the time of this hearing and, if so, whether time should be extended to allow him to apply for the appeals to be reinstated; and
(5) if the appeals were reinstated, whether they should be struck out on the ground that there wa no reasonable prospect of them succeeding.
Regarding point (1) the FTT had no doubt that the appeals were withdrawn and whether Mr Marsden had actual authority to do so was of no consequence: he had ostensible authority.
In respect of point (2) HMRC submitted that Mr Smith did not have the authority to bring the appeals on behalf of TM 3 LLP by way of applying for the withdrawn appeals to be reinstated. This was because in the TM 3 LLP Agreement it said that litigation or other legal proceedings (other than debt recovery) would not be undertaken without an Extraordinary Resolution and there was no evidence of there being an Extraordinary Resolution. The FTT did not accept that reinstating an appeal was the same as commencing an appeal, but instead a continuation of the case that was withdrawn. The FTT therefore concluded that Mr Smith had standing to apply for the appeals to be reinstated.
Given the decision regarding point (2) the FTT did not need to decide point (3), but had it needed to, the FTT would have ruled that applying the overriding objective of the FTT it would have extended the time limit to allow Mr Wright to make the application.
In respect of point (4) Judge Greg Sinfield found that with reference to St Annes Distributors Ltd v R & C CommrsVAT[2011] BVC 1539 "considering the circumstances of the withdrawal of the appeals in this case and the fact that there is no suggestion that Mr Smith acted other than in good faith, I consider that, in the absence of any other considerations, I should grant TM 3 LLP's application to reinstate". However HMRC submitted that there were "other considerations": the application should be refused because it was made to enter into the ADR which is not a valid purpose and TM 3 LLP did not have an arguable case. The FTT found that a desire to enter into ADR was not sufficient to either justify nor refuse reinstatement. The FTT agreed that if there was no reasonable prospect of success for TM 3 LLP in the appeals the reinstatement should be refused. Although TM 3 LLP accepted that the facts of its case were not materially different from those dealt with in Tower MCashback LLP1 and 2 it contended that some of the expenditure HMRC sought to disallow was qualifying expenditure on the purchase of patent rights under CAA 2001, Capital Allowances Act 2001 part 8Pt. 8. The FTT was not satisfied that patent rights were acquired and therefore concluded that a claim for capital allowances in respect of expenditure on the purchase of patent rights would not have any reasonable prospect of success and therefore the application for TM 3 LLP's appeals to be reinstated was refused.
The FTT accepted that the correct procedures had been followed to enable the reinstatement of the appeals, but as it found that the appeals had no reasonable prospect of success it refused the reinstatement application.
[1]This decision concerns an application by the Appellant ("TM 3 LLP") for two appeals that had been withdrawn to be reinstated. For the reasons set out below, I have decided that TM 3 LLP's application should be refused because the appeals have no reasonable prospect of succeeding.
[2]For the hearing, I was provided with various documents, including correspondence between the parties and an unsigned witness statement of Mr John Wright who is the current chairman of the TM 3 LLP board. I set out below various matters of fact, which I have taken from the documents, by way of background to the applications.
[3]Under an agreement dated 6 July 2004 ("the TM 3 LLP Agreement"), the original founding members of TM 3 LLP were Mr Simon Smith, Mr Stephen Marsden and Mr Paul Feetum. They were the designated members for the purposes of the Limited Liability Partnership Act 2000 and members of the Board of TM 3 LLP.
[4]In its partnership tax return for the year ended 5 April 2005, TM 3 LLP...
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