David Oakes v The Commissioners for HMRC

The first of the Martland tests is to determine the length of the delay in bringing the appeals and whether that delay is serious or significant. It is clear to us that the length of delay, is tested from the date on which the appealable notices were issued, is both serious and significant. As submitted by Ms Davies, the delays are in the region of 1,000 days at least. However, Mr Avient submits that time should not start on the date on which the notices were issued, but only when they were received by the appellant, since to be valid notices they had to be validly notified.

His primary position is that HMRC have not established that the appealable matters were validly notified to the appellant in the first place. All they have provided, as evidence, are copies of the appealable matters and covering letters. This does not satisfy the first limb of section 7 Interpretation Act 1978. We disagree. This is not a case where HMRC have simply produced a computer printout and asked us to infer from that that it must have been sent to an appellant. HMRC have provided copies of the appealable matters and covering letters, all of which the appellant had accepted in evidence have been correctly addressed. HMRC have not produced an officer to speak to the system that they adopt towards putting these letters into envelopes and ensuring that those envelopes are prepaid, but the presumption of regularity has not been displaced by the appellant in this case. There is no evidence of “return to sender”.We find that it is more likely than not that the copies of the documents which have been produced to us were put into prepaid envelopes and, having been correctly addressed, sent to the appellant. And, where copies were sent to Howards, they were sent to Howards.

Having found as a fact that the appealable matters were served on the appellant or Howards, we must consider whether the appellant’s assertion that he did not receive them is proof of that fact. As regards the VAT matters, there appears to be a distinction between those matters which were sent by email, which the appellant accepts that he received, and those which were sent by post, of which appellant denies receipt. Mr Avient submits that this is a logical distinction. Ms Davies points out that the appellant’s evidence on this is confused; at one point he accepted that he had received the penalty notices, but not received the income tax or VAT assessments. But the appellant appeared to deny this in re-examination. We accept that there is evidence to show that the appellant had passed emails he had received from HMRC to Howards, and that he had passed a letter from HMRC to them. On the basis of this we are prepared to accept that had he received the VAT matters he would have sent them to Howards. And the fact that Howards received none is evidence that the appellant had not received them in the first place. We are, therefore, prepared to accept his evidence that he did not receive the VAT matters.

But this is to be distinguished from the income tax matters which we find were validly notified to Howards at or around the date on which they were sent to that firm. So the delay in respect of the income tax matters is clearly serious and significant.

However, even if the appealable matters were not received by the appellant or Howards at or around the date on which they were sent as set out in the copy documents in the bundle, it is clear to us that since the date of the bankruptcy petition, in June 2018, both the appellant and Howards have known, clearly, that HMRC had assessed the appellant to tax and penalties.

In Howards’ letter dated 21 September 2020, referred to at [8(19)] above, Howards suggest that they only received a copy of the bankruptcy petition on 23 July 2020. We believe this to be a typo, and the date was 23 July 2018. We say this on the basis that the appellant’s case is that HMRC were continuously dilatory in responding to repeated requests for clarification of the matters set out in the bankruptcy petition between 2018 and 2020, and because of that inTax were instructed, in September 2020, to resolve the position. If the bankruptcy petition been received only in July 2020, this submission would fall away since it seems to us that HMRC could not have been over dilatory between July 2020 and September 2020. Furthermore, the letter itself refers to a letter of 2 July 2020 requesting a breakdown of credits, which could not have been sent had the bankruptcy petition only come to Howards’ attention 3 weeks later on 23 July 2020. We find as a fact that the bankruptcy petition came to Howards’ attention on 23 July 2018.

So since that date, it had been clear to Howards that HMRC had assessed the appellant to tax and visited penalty notices on the appellant in respect of those matters identified in the bankruptcy petition. If therefore we take the date as starting on 23 July 2018 and ending on the date of the earliest appeal on 28 September 2020, the delay is still over 2 years. This is serious and significant, and we do not believe that the appellant would argue to the contrary.

Turning now to the reasons for the delay, Mr Avient submits that one good reason is that the appellant never received the VAT notices. And we accept that that is a good reason for not bringing a timely appeal. But as we say above, the appellant was on notice on and from 23 July 2018 that HMRC had assessed those VAT matters which were set out in the bankruptcy petition.

Mr Avient draws a distinction between the VAT matters on one hand and the income tax matters on the other. He accepts that the income tax matters had been notified to the appellant by dint of valid service on and receipt by Howards. But although the general rule is that failings by an agent should be attributed to a taxpayer as set out in Katib, that should not apply here because the individual employees at Howards choose to work outside the firm’s procedures meaning that Howards was as much a victim as was the appellant, and that, in these circumstances, the failings by Howards should not be attributed to the appellant.

Regrettably for the appellant, we do not agree that this is a good reason. The evidence shows, as submitted by Ms Davies, that these employees simply failed to comply with office procedure. They might have done so in a significant way, and the consequences of that failure, on the appellant, might be dramatic. But it is not such rogue behaviour as to take the attribution of Howards’ failings to the appellant outside the Katib principle. Simply failing to comply with office procedure, in this case escalating the matters up to a director, rather than dealing with them oneself, is simply a breach of office protocol for which, we accept, an employer might be dismissed. But it is not such a frolic of their own as to enable us to say that there was such a fundamental breach of Howards’ duty to the appellant as to, effectively, mean that they were not properly acting as agent.

It is our view that in the same way that an agent’s failings are attributed to a taxpayer, the failings by that agent’s employees are attributed to that agent. Indeed in many cases where a large firm is appointed agent, and time limits are missed it is highly likely that the failure is due to a failure by an employee. It would not seem right to us that if, for example, KPMG were appointed agent with its huge numbers of employees, a taxpayer could say that the attribution principle does not apply because one of the employees had not complied with office procedure.. Unless the behaviour of the employee is so exceptionally egregious or vindictive that management could not be expected to police it, and it falls far outside the ambit of behaviour expected of an employee, failures by the employee should be attributed to the employer. And the employees’ failings in this case are not in that category. The employees might have been negligent or even irresponsible, but in our view that negligence or irresponsibility must be attributed to Howards. This might sound harsh, but in our view it is up to the appellant to take this up with Howards, rather than something which exonerates the appellant from the consequences of the behaviour of Howards’ former employees.

In any case, this behaviour applies only in respect of periods before Howards received a copy of the bankruptcy petition. The appellant’s position as regards delays since then is that they did not understand the matters set out in the petition as there was insufficient detail in it, and despite repeated requests for clarification and detail, HMRC did not supply it. One reason for the delay, therefore, was HMRC’s failure to supply that information, and case law suggests that this is a significant factor that can be taken into account when considering the reasons for delay.

This is clearly a compelling point. If the appellant can clearly show that it was not possible to determine the appealable decisions from the bankruptcy petition and that HMRC had not supplied information, despite repeated repeated requests for it, to clarify the position, then that could indeed, potentially, be a good reason for the failure to make a timely appeal after receipt of the bankruptcy petition.

But there is very little, if any, evidence, to support the submission that HMRC, despite repeated requests, failed to supply information which was sought by Howards. Given it is such an important point to the appellant, we would have thought that any communications between Howards and HMRC following receipt of the bankruptcy petition, would have been included in the bundle of documents provided to us. Not only was nothing supplied in the original bundle, but only two pieces of correspondence were included in the supplemental bundle which could provide such evidence. The first is Howards’ letter on 21 September 2020, the second is inTax’s letter of 16 November 2020.

The former refers to two letters dated 2 July 2020 and 28 July 2020 in which Howards had asked for information about the credits which HMRC had given the appellant against his tax liabilities. But neither letter was included in the bundle. Nor were the emails which were attached to the letter of 21 September 2020 “for ease of reference”. We simply have no idea what they said, nor when they were dated.

As regards the latter, there is a reference to HMRC having consistently said in correspondence with Howards that the “balance of £24,835.59 was also based on a submitted return.” But there is no such correspondence in the bundle, and we simply don’t know when this correspondence between Howards and HMRC took place. We are being asked to infer that it took place between July 2018 and September 2020, but this is an inference which we are not able to make. It may simply be a reflection of the letters of 2 July 2020 and 28 July 2020 and responses to those letters.

As far as these are concerned, this is clearly not the “repeated requests” that, it is submitted, were made throughout the period from receipt of the bankruptcy petition in July 2018, and the instruction of inTax in September 2020.

We have no evidence of communications between Howards and HMRC during a period of two years between July 2018 and July 2020.

It was both the appellant’s and Mr Bailey’s evidence that there had been repeated requests for information. But we do not attribute much weight to these assertions. It is our view that the appellant’s assertions are based on information provided to him by Mr Bailey. And Mr Bailey’s recollection of the events surrounding receipt of the appealable matters, and the fact that in reviewing the files for the hearing and finding only three items, yet it was apparent from the evidence that Howards had been supplied with other documents, suggest that he did not have a particularly firm handle on the actions which Howards were undertaking on the appellant’s behalf. Furthermore, as mentioned above, Mr Bailey has not produced any of the asserted correspondence, nor indeed was the letter of 21 September 2020 put to him, so that he could explain, in more detail, the nature of the correspondence referred to in it.

In our view the appellant has not discharged the evidential burden to support his submission that the delay in bringing the appeal was as a result of HMRC’s failure to provide information despite repeated requests to do so following receipt of the bankruptcy petition in July 2018.

More fundamental, however, is the fact that when inTax made an appeal on 28 September 2020 they had obtained no more information from HMRC than was available in the bankruptcy petition. On the appellant’s case, no additional information had been provided (even if there had been the asserted repeated requests for it which) over and above that set out in the bankruptcy petition.

It is the appellant’s case that this information was insufficient to bring an appeal. Yet inTax were able to do so. So why, Ms Davies asks rhetorically, were Howards not able to do so shortly after they received the bankruptcy petition. And we agree with her. As we say above, and although we were not addressed on the point, it seems to us reasonably clear that some of the significant appealable amounts were clearly set out in the bankruptcy petition.

Mr Avient suggests that the appellant is in an impossible position because HMRC have not accepted that the appeal made on 28 September 2020 was necessarily a valid appeal. The logic is that therefore even if the appellant had made a protective appeal in July or August 2018, it would not necessarily have been accepted by HMRC. But it would have made it a great deal easier for the appellant to argue that he had made a timely appeal since he had made it (even if there was then a dispute about its validity) very shortly after he received notice of the extent of the appealable decisions set out in the bankruptcy petition.

We do accept that to the extent that the appealeable matters were not apparent from the bankruptcy petition (and only became apparent following correspondence between HMRC and inTax in the Autumn 2020 and the Spring of 2021, and subsequent directions made by the tribunal) then that is a good reason for the appeal not having been brought until details had been either supplied voluntarily by HMRC or supplied pursuant to a direction by the tribunal. But where the appealable matters were apparent from the bankruptcy petition, we do not think that the justification for the late appeal, namely that there was insufficient detail from the bankruptcy petition to enable the appellant to make an appeal, is valid. In simple terms, if inTax could do it in September 2020, Howards could have done it in August 2018.

And a failure by Howards to do this must be attributed to the appellant.

We now turn to the third stage of the Martland test, namely a final evaluation of all the circumstances balancing the merits of the reasons, with the prejudice which would be caused to either party in granting or rejecting the application. We remind ourselves that when undertaking this exercise, we must be conscious that time limits should be respected, litigation should be conducted efficiently, and that we can consider any obvious strengths and weaknesses of the parties respective positions as regards the underlying appeal.

As regards the last of these, we heard submissions that, on the one hand, the appellant’s case was very weak, on the other that it was strong. But there was little substantive evidence to support these respective assertions. We have, therefore, not set much store by those competing positions.

In our view the delay in bringing the appeals is serious and significant, and no good reasons have been given for that delay since July 2018. The appellant, therefore, needs to demonstrate that the prejudice to him in failing to allow the application spectacularly outweighs these deficiencies and any prejudice to HMRC in granting the application. We regret, for him, that he has not achieved this.

We accept that there will be prejudice in that the bankruptcy petition which is currently suspended pending the outcome of these appeals, is likely to be actioned. We do not know precisely what the consequences of this are, but they are likely to be detrimental to the appellant. However, as was said in Katib, (where one of the consequences of the appellant losing his application to bring a late appeal was the loss of his house) such consequence is simply one of the results of bringing a late appeal which is avoidable if a timely appeal is brought. Suffering hardship is a common feature which could be argued by a large number of appellants. And, as in Katib, we do not think that this is something of such significant prejudice that it outweighs the serious and substantial delay in bringing the appeal and the lack of good reasons for that.

HMRC will suffer prejudice in that, as submitted by Ms Davies, the officers who will be required to review the files and give evidence at the substantive appeal may no longer be employed by HMRC or, if they are, their memories will have undoubtedly faded with the years.

We have also reviewed the arguments raised by Mr Avient that the rogue behaviour of the two employees is a “freestanding” good reason for the late appeal in respect of the income tax matters, whether or not that behaviour takes the situation outside the Katib principle that failure by an adviser is attributed to the taxpayer. We have dealt with this above. Whilst we appreciate the point, we do not think that failure to comply with office procedures is sufficient to displace the general rule that failure by an adviser should be attributed to a taxpayer and does not outweigh the principle that time limits should be respected.

The presumption is that whilst each case must be determined on its merits, permission to appeal late should not be granted. We accept that this does not depend on there being exceptional circumstances. But in light of the fact that the delay in bringing the appeal is serious and significant, and the reasons for that are not good ones, they are not outweighed by the prejudice caused by rejecting the appellant’s application.

However, as mentioned above, it is our view that this applies only in respect of the income tax matters and those VAT appealable matters which were apparent to the appellant from the bankruptcy petition. As regards the income tax appealable matters, it is clear from the correspondence that Howards had received copies of the closure notice and penalty assessment referred to in paragraph 1 of Appendix 1, and the penalty notices set out in paragraph 3 (3) of Appendix 1. As regards those VAT appealable matters which were not apparent from the bankruptcy petition, and details of which were only disclosed following inTax’s letter of 28 September 2020, we accept that notwithstanding serious and significant delays, there are good reasons for those delays (namely the appellant was not aware of those appealable matters).

We therefore reject the appellant’s application for permission to bring a late appeal in respect of the income tax matters.

We also reject the appellant’s application for permission to bring a late appeal in respect of the VAT matters, save to the extent that those matters were not set out in the bankruptcy petition. To the extent that they were not so set out, we grant the appellant’s application for permission to bring a late appeal in respect of those matters, out of time.

We Direct that following release of this decision, the parties shall discuss, in good faith, which of the VAT matters were, or were not, set out in the bankruptcy petition. If the parties have failed to agree on this within 56 days from the date of release of this decision, then either party may refer the matter to the tribunal for determination.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

Income tax

HMRC’s closure notice dated 22 February 2018 amending Mr Oakes’s self assessment for the year ended 5 April 2016 to increase the tax due by £24,835.59.

The penalty assessment dated 14 February 2018 for an inaccurate return for the year ended 5 April 2016 in the amount of £17,384.91.

VAT

Notice of VAT assessments dated 4 August 2017 for the four quarters 09/14 to 06/15 resulting in a total amount due of £13,697.

The penalty assessment dated 17 October 2017 in respect of all four quarters for inaccurate returns for a total amount of £3,081.82.

Penalties under Sch 36, FA 2008

VAT notice to provide information dated 8 January 2016:

VAT notice to provide information dated 25 January 2017:

Income tax notice to provide information dated 28 April 2017:

Such a notice must be given within 30 days of the date on which the closure notice was given (s 31A(1)(b) and (3)(a)).

The notice of appeal must state the grounds of appeal (s 31A (5).

A notice of appeal may be given outside of 30 days (i.e. late) where either:

Where notice of appeal has been given to HMRC, in the absence of a review by HMRC, the taxpayer may notify the appeal to the Tribunal (s 49D TMA 1970).

A notice to be served or made on any person may be served by post in a letter addressed to that person or his VAT representative at the usual residence or place of business (s 98 VATA 1994).

It is provided in s 7 of the Interpretation Act 1978 that:

An appeal to the Tribunal may be brought by a person with respect to an assessment to VAT under s 83 VATA 1994 (s 83(1)(p) VATA 1994).

HMRC must offer a review of the assessment where an appeal can be made to the Tribunal (s 83A VATA 1994). Such an offer must be made at the same time as the assessment.

An offer of a review by HMRC may not be accepted if an appeal under s 83G VATA 1994 has already been made (s 83C(2) VATA 1994).

Where no HMRC review of the decision is required following notification of the decision (s 83A(1) VATA 1994) (emphasis added), an appeal is to be made before the end of 30 days beginning with the date of the document notifying the decision to which the appeal relates (s 83G(1) VATA 1994) (emphasis added). However, an appeal may be made after 30 days if the Tribunal gives permission to do so (s 83G(6)).

HMRC may charge a penalty in respect of a careless or deliberate inaccuracy contained in the following documents where there is an understatement of a liability to tax:

A person may appeal against the decision to impose a penalty (para 15, Sch 24, FA 2007). Such an appeal will be treated in the same way as an appeal against an assessment to the tax concerned. (para 16, Sch 24 FA 2007) (SA 10).

A person is liable to a penalty of £300 if they fail to comply with an information notice issued under Sch 36 FA 2008 (para 39, Sch 36, FA 2008).

Where the failure continues, the person may be liable to further penalties not exceeding £60 for each subsequent day of failure (para 40, Sch 36, FA 2008).

Where a person is liable to a penalty, HMRC must notify the person (para 46(1) Sch 36 FA 2008).

The person has a right to appeal the decision to impose a penalty (para 47, Sch 36 FA 2008) and notice of appeal must be given within 30 days beginning with the date on which the notification was issued (para 48, Sch 36 FA 2008).

Otherwise than stated in the Sch 36 provisions, the provisions in TMA 1970 in respect of appeals are to have effect (para 5, Sch 36 FA 2008).

The provisions in s 115 TMA 1970 provide that a notice may be sent, served or delivered by post to the usual place of residence or business.