William Archer v The Commissioners for HM Revenue and Customs

Hearing dates: 25 – 26 April 2023

Approved Judgment

INTRODUCTION

The appellant is William Archer. He appeals against notices of surcharge issued to him by HMRC, the respondents, in the total amount of £1,403,181.78 for failure to pay tax. I granted permission for this second appeal.

The appellant says he had a reasonable excuse for not paying the tax due as a result of closure notices issued by HMRC, and that he paid the tax without unreasonable delay once that reasonable excuse came to an end. The essence of his case is that his application for judicial review gave him a reasonable excuse for as long as it remained extant, including on appeal to the Court of Appeal and while the application for permission to appeal to the Supreme Court was outstanding. Once his application to the Supreme Court for permission was refused (at which point his appeal rights were exhausted) he paid the tax within days. By his application for judicial review, he sought to challenge the validity of the closure notices issued to him by HMRC. He says there was an obvious defect in the closure notices, that he was entitled to apply for judicial review, that payment of the tax would have undermined the judicial review proceedings and it was reasonable not to pay the tax until the judicial review was finally concluded and his appeal rights were exhausted.

The appellant was unsuccessful in those arguments in the FTT. The UT held that the FTT's reasoning was wrong in law and set aside the FTT's decision. It remade the decision against the appellant. The appellant argues in this Court that the UT erred in law in three ways, which overlap:

(1) The subjective evidence issue: the UT erred in requiring a taxpayer to give evidence of his subjective belief as to the strength of his judicial review and that his belief in the merit of those proceedings was the cause of not paying the tax.

(2) The existence of the judicial review: the UT failed to appreciate that the judicial review, which was supported by interim relief granted by the Court prohibiting HMRC from seeking to enforce the closure notices, which was then replaced by an agreement with HMRC not to enforce the closure notices while the judicial review remained extant, was in and of itself a reasonable excuse for non-payment. Specifically, for the appellant to have paid the tax while those proceedings were pending would have rendered them nugatory, and was anyway contrary to the expectation of HMRC.

(3) The postponement issue: the UT's reasoning was internally inconsistent in concluding that if the matter had been litigated in the FTT, the tax would not have been payable until the conclusion of the appeal proceedings, but then holding that the appellant did not have a reasonable excuse for not paying the tax at the outset of his judicial review proceedings. In any event, the UT's consideration of a hypothetical appeal to the FTT was misplaced because the Court of Appeal had confirmed that the appellant was entitled to seek a judicial review. The issue of postponement was only relevant by analogy, if at all.

HMRC resist all three grounds. They have filed a Respondents' Notice seeking to uphold the decision of the UT for the reasons given by the UT and further inviting this Court to remake the decision in the same way if this Court finds that the UT did err in law.

In this Court, the appellant was represented by Amanda Brown KC and Conrad McDonnell (both of whom represented the appellant in the UT, although Mr McDonnell was alone for the appellant in the FTT). HMRC were represented by Julian Ghosh KC (who did not appear below) and Michael Ripley who appeared for HMRC in the UT. The case was expertly presented by both sides, and I am grateful for all the written and oral submissions this Court has received.

LEGAL FRAMEWORK

Legislation

The case concerns the existence (or not) of a reasonable excuse for non-payment of tax. In the background are other legislative measures which provide for closure notices, postponement of tax in the context of an appeal to the FTT and Accelerated Payment Notices (“APNs”). I shall set out the key provisions and simply describe the effect of other provisions.

(i) Reasonable Excuse

Section 59C of the Taxes Management Act 1970 (“ TMA”) (a provision which has since been repealed) imposed surcharges for non-payment of tax. In the relevant years, the provision applied to any income tax or capital gains tax which had become payable in accordance with sections 55 or 59B of the Act. If the tax remained unpaid 28 days from the due date, the taxpayer was liable to a surcharge equal to 5% of the unpaid tax. If the tax remained unpaid after 6 months, the taxpayer was liable to a further surcharge equal to 5% of the unpaid tax. Surcharges carried interest from 30 days after the date of imposition until payment (section 59C(6)). An appeal could be brought within 30 days of imposition (section 59C(7)). The provisions of the TMA in relation to appeals against assessments applied to appeals against surcharge notices (section 59C(8)).

Section 59C(9) and (10) TMA are in issue in this appeal. At the relevant time, they provided:

“(9) On an appeal … the tribunal may—

(a) if it appears that, throughout the period of default, the taxpayer had a reasonable excuse for not paying the tax, set aside the imposition of the surcharge; or

(b) if it does not so appear, confirm the imposition of the surcharge.

(10) Inability to pay the tax shall not be regarded as a reasonable excuse for the purposes of subsection (9) above.”

The reference to the tribunal should here be read as a reference to the FTT (see section 47C TMA), which can set aside the surcharge if satisfied that throughout the period of default the taxpayer had a reasonable excuse for not paying the tax, noting that inability to pay is not to be regarded as a reasonable excuse.

Section 118(2) TMA provided that:

“(2) For the purposes of this Act, a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Board or the tribunal or officer concerned may have allowed; and where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.”

Therefore, a person who has a reasonable excuse is deemed not to have failed to pay the tax due if he paid it “without unreasonable delay” after the excuse ceased.

(ii) Closure Notices

Section 28A of the TMA, as it was in force at the relevant time, provided that where an officer of HMRC had opened enquiries under section 9A(1), he or she could issue a closure notice to complete those enquiries; a taxpayer could apply to the FTT for a direction compelling issue of a closure notice (section 28A(4)), as in fact had occurred in this case. Section 28A(2) required a closure notice to state either that no amendment of the taxpayer's return was required or to “make the amendments of the return required to give effect to” the officer's conclusions (section 28A(2)(b)). The appellant's judicial review challenged the efficacy of the closure notices issued by HMRC on the basis that they did not make the required amendments because they did not state an amount of tax due.

There is a right of appeal to the FTT in relation to any conclusion stated or amendment made by a closure notice, pursuant to section 31 TMA. On an appeal, the FTT has the power to reduce or increase a self-assessment under section 50(6) and (7) TMA.

By section 114(1) TMA, an assessment which purports to be made under the TMA can be validated if defective, in certain circumstances.

An amount of tax which is payable as a result of an amendment by a closure notice to a self-assessment return is payable within 30 days: section 59B(5) TMA read with Schedule 3ZA.

(iii) Postponement

Postponement of the requirement to pay tax, where there is an appeal to the FTT, is governed by section 55 TMA. A request for postponement can be made under section 55(3), in the first instance to HMRC and after that to the FTT. The general rule is contained in section 55(6) TMA:

“The amount of tax the payment of which shall be postponed pending the determination of the appeal shall be the amount (if any) in which it appears that there are reasonable grounds for believing that the appellant is overcharged to tax; …”

If postponement is granted, tax is postponed until the appeal to the FTT is determined, at which point HMRC can issue a notice of the total amount payable in accordance with the determination, see section 55(9). To similar effect, section 56(2) provides that postponement, if granted, ends once the FTT has determined the appeal; at that point, tax must be paid in accordance with the FTT's determination, whether or not the taxpayer is seeking a second appeal.

Provisions at section 55(8B)-(8D) create an exception to the general rule, in circumstances where a person has been given an APN or partner payment notice (“PPN”) which has not been withdrawn. The...