David Oakes v The Commissioners for HMRC

This decision relates to an application by the appellant for permission from the tribunal to make late appeals against a variety of amendments and notices relating to both income tax and VAT. We describe those appealable matters in relation to income tax as the “income tax matters”, and the appealable matters in respect of VAT as the “VAT matters”. The income tax matters, and the VAT matters are collectively described as the “appealable matters”. Originally there were over 50 appealable matters , but by the time of the hearing, these had been whittled down to those detailed in Appendix 1.

The appealable matters arise out of enquiries commenced in respect of VAT, by HMRC in 2013, and in respect of income tax by HMRC in March 2017.

In a nutshell, the appellant’s position as regards the VAT matters is that notification of them was never sent by HMRC nor received by him. Even if he was on notice of those matters by dint of their inclusion in the bankruptcy petition of 11 June 2018 (the “bankruptcy petition”) there was insufficient detail of the VAT matters in the bankruptcy petition to enable him to make an appeal, and HMRC did not provide him with the requisite detail notwithstanding repeated requests for it. Once he had sufficient detail, he made an appeal. This was on 28 September 2020. HMRC’s position as regards the VAT matters is that the relevant notices were both sent and received by the appellant or his agent. Even if that was not the case, there was sufficient detail in the bankruptcy petition to enable the appellant to make an appeal, and indeed that is what the appellant’s current representative did as regards some but not all of the appealable matters, on 28 September 2020. There is no evidence of the appellant’s former agent asking for detailed information over and above that set out in the bankruptcy petition between the date of that petition, and the date of the limited appeal on 28 September 2020.

As regards the appellant’s position concerning the income tax matters, it is slightly different. The appellant accepts that the relevant notices were served by HMRC and received by himself or his agent, but that agent employed two individuals who, for reasons unknown to anyone, simply failed to action those notices. This was against their office policy, and the individuals have been dismissed. The appellant’s position regarding the information in the bankruptcy petition is the same as his position in respect of the VAT matters. HMRC’s position too is the same as regards the information in the bankruptcy petition, and the fact that the appellant could readily have brought an appeal immediately following the bankruptcy petition but did not do so, on a limited basis, until 28 September 2020. And the behaviour of the appellant’s agent’s employees was nothing more than failure to comply with office procedure. The failings of that agent should be imputed to the appellant.

For the reasons given in more detail later in this decision, we have dismissed the appellant’s application for permission to bring his appeals out of time.

There was no dispute about the applicable legislation which is set out in Appendix 2.

Nor was there any dispute about the essential case law which is relevant to this application. In considering whether to admit a late appeal to the FTT, the Upper Tribunal in Martland v HMRC [2018] UKUT 178 (TCC) (“Martland”) considered that the approach to applications for relief from sanctions under CPR rule 3.9 should apply to applications for permission to appeal to the FTT outside the relevant statutory limit. The Upper Tribunal went on to say:

“44.

When the FTT is considering applications for permission to appeal out of time, therefore, it must be remembered that the starting point is that permission should not be granted unless the FTT is satisfied on balance that it should be. In considering that question, we consider the FTT can usefully follow the three-stage process set out in Denton:

(1)

Establish the length of the delay. If it was very short (which would, in the absence of unusual circumstances, equate to the breach being “neither serious nor significant”), then the FTT “is unlikely to need to spend much time on the second and third stages” – though this should not be taken to mean that applications can be granted for very short delays without even moving on to a consideration of those stages.

(2)

The reason (or reasons) why the default occurred should be established.

(3)

The FTT can then move onto its evaluation of “all the circumstances of the case”. This will involve a balancing exercise which will essentially assess the merits of the reason(s) given for the delay and the prejudice which would be caused to both parties by granting or refusing permission.

45.

That balancing exercise should take into account the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected. By approaching matters in this way, it can readily be seen that, to the extent they are relevant in the circumstances of the particular case, all the factors raised in Aberdeen and Data Select will be covered, without the need to refer back explicitly to those cases and attempt to structure the FTT’s deliberations artificially by reference to those factors. The FTT’s role is to exercise judicial discretion taking account of all relevant factors, not to follow a checklist.

46.

In doing so, the FTT can have regard to any obvious strength or weakness of the applicant’s case; this goes to the question of prejudice – there is obviously much greater prejudice for an applicant to lose the opportunity of putting forward a really strong case than a very weak one. It is important however that this should not descend into a detailed analysis of the underlying merits of the appeal……”

We were provided with a significant bundle of documents and a lesser supplementary bundle. The appellant tendered a witness statement and gave oral evidence on which he was cross examined. Further oral evidence was given by Mr Matthew Bailey the managing director of Howards chartered accountants (“Howards”) who were the appellant’s former tax advisers. From this evidence we find the following:

The documents included copies of the appealable matters. Those copies include the correct address of the appellant and Howards (where copies have been copied to Howards).

The appellant’s witness statement indicated that he was unaware of the imposition of penalties by HMRC. Nor was he aware of any notification of the VAT matters. Even if the notices had been sent to him, he did not receive them. Yet in his oral testimony, the appellant accepted that, for example, he received a letter dated 14 July 2017 from HMRC dealing with his VAT position and passed this letter on to Howards. Furthermore, the appellant emailed HMRC on 26 June 2017 as regards VAT and was able to say “I am just finishing getting all the VAT invoices together…” This was in response to an email from HMRC indicating that they had “not received any response to my schedule 36 notices request for purchase invoices”.

Mr Bailey’s witness statement indicated that he was aware of and dealt with the enquiry made by HMRC into the VAT position of the appellant but was not aware of an enquiry into the appellant’s self-assessment tax return which commenced in 2017. He goes on to say that had he been aware of that enquiry he would have corresponded with HMRC as he was already doing that in respect of the VAT enquiry. In his second witness statement, however, he corrected this, and indicated that during his preparation for the hearing on 15 March 2022, letters from HMRC to Howards relating to the income tax self-assessment enquiry were identified and brought to his attention.

In his oral evidence Mr Bailey said that this was restricted to HMRC’s letter of 10 March 2017 opening the enquiry, Howard’s letter to HMRC of 24 November 2017 and HMRC’s letter to the appellant dated 27 October 2017 (dealing with the closure notice and the possibility of imposing penalties). It is also clear from the oral evidence of the appellant that Mr Bailey was aware of the letter sent to the appellant by HMRC on 14 July 2017, against which there was no appeal right, but his oral evidence was that he had not seen any of the VAT matters.

At the relevant time, Howards employed two individuals, Paul Hodson and Kelly Bird. It was Mr Bailey’s oral evidence that these individuals were tasked with the day-to-day management of the appellant’s tax affairs. Howards had been instructed by the appellant as regards these affairs since around July 2016.

The documentary evidence shows that there was a telephone conversation between Paul and HMRC’s officer, Mr Thomas, on 5 June 2017 in which the former explained to the latter that he had asked for business records from the appellant in order to comply with the information requests. Mr Thomas indicated that the deadline for sending information had passed and that the appellant will be charged a £300 penalty. To avoid further penalties, all of the requested information should be sent as soon as possible.

A further conversation between the same parties took place on 11 June 2017, again dealing with the information, Mr Thomas indicated that the requested information had not been received. A further conversation about business records took place on 17 January 2018 between the same individuals. It was also Mr Bailey’s evidence that the letter of 24 November 2017 had been written by Paul.

In his first witness statement, Mr Bailey suggests that one reason that Paul had sent this letter was because he intended to acquire the appellant as a client of a business that he, Paul, was setting up in competition with Howards. He also speculated that this might be the reason why there is no correspondence on the file and why he had no knowledge of the income tax enquiry. As mentioned above, this is corrected in his second witness statement, on the basis that whilst he had no personal knowledge, there was correspondence on Howards’ files which appears never to have been actioned.

In his oral evidence, Mr Bailey said that Paul had not been authorised to deal with the matters referred to and discussed in the telephone conversation which should have been dealt with by Mr Bailey. Mr Bailey was not aware of the telephone conversations. Nor was he aware of Paul’s letter to HMRC on 24 November 2017 which, responding to a letter from HMRC, should have been dealt with by either Mr Bailey or a fellow director. This was Howards’ policy, something of which the employees would have been aware.

The bankruptcy petition is a creditors bankruptcy petition for failure to comply with a statutory demand for a liquidated sum. It is stamped 11 June 2018, but the hearing date appears to be 31 June 2018 and the petition was issued at 10.23 on that date. It was brought by HMRC who applied for a bankruptcy order against the appellant who, HMRC claimed, was indebted to them in the sum of £200,844. The particulars of this debt are listed over two pages. There are approximately 50 entries which are itemised under a number of headings, for example self-assessed payments on account, penalties, national insurance contributions, taxes act penalties for failure to comply with schedule 36 FA 2008, VAT due under sections 25 and 73 VAT act 1994 and surcharges under section 76 of that act. These detailed figures are identified against years/periods ended.

Neither party took us through the figures in the bankruptcy petition. But it seems to us that it includes those matters identified at 1 (1) (2), 2(1), 3(2) (b) and (c) set out in Appendix 1.

inTax were instructed on or around mid-September 2020. They were appointed to assist in resolving the dispute between HMRC and the appellant. Mr Oakes’ and Mr Bailey’s oral evidence was that this was because they were frustrated with HMRC and their failure to engage with them in a meaningful way.

On 28 September 2020, inTax sent two letters to HMRC. The first was an appeal against a number of the appealable matters. It does not include all of them, just 18 of them. The second letter asks for information in order to enable inTax to undertake a full review of the dispute. It indicates that inTax had reviewed “the papers and it is clear that there is information missing the means neither the client nor Mr Bailey were capable of agreeing with HMRC’s position”.

The appeal was notified to the tribunal on 29 September 2020 and given appeal number 2020/03506.

In a further letter to HMRC dated 16 November 2020, inTax sought further information from HMRC. Whilst that letter refers to previous correspondence between Howards and HMRC, it does not record that there had been any correspondence between June 2018 and the date of that letter.

In an email of 11 March 2022 from inTax to HMRC, inTax made further formal appeals against, amongst other things, the 2015/2016 self-assessment return amendment of £24,835.59, the schedule 24 FA 2007 penalty in relation to that amendment, and certain schedule 36 FA 2008 penalties.

In directions given by the tribunal on 19 March 2021, the tribunal ordered HMRC to send to inTax, not later than 9 April 2021, copies of the notices/decisions listed in inTax’s letter to HMRC dated 28 September 2020.

We could find no evidence of written communication in the bundles, other than set out below as regards the letter of 21 September 2020, dealing with requests for further information between the appellant, Howards, and those HMRC officers dealing with the appealable matters between the date of the bankruptcy petition, and the date on which inTax wrote to HMRC on 28 September 2020.

The only letter to which our attention was drawn was a letter dated 21 September 2020 from Howards to Judge Barber of the High Court. It records that on 2 July 2020 and on 28 July 2020 Howards had requested a detailed breakdown of the “credits” allocated against the appellant’s Government Gateway account (which details all transactions relating to open tax matters). It records that a response had been received from an HMRC officer, and although that letter states that copy emails are “attached for ease of reference”, no such emails were included in our bundle. It also records that on 3 July 2020, HMRC replied to Howards’ requests in respect of the strike out of the “first petition and the “credits” allocated amounting to circa pounds 250 k”. Reference is made in this letter to HMRC’s “original petition (“petition 1-2014”) for £250 k”.

That letter goes on to record that “HM Revenue & Customs only supplied my firm with a copy of the second petition on 23 July 2020”.

The parties agree that the burden of establishing that we should grant permission to the appellant to make his appeals late, lies with the appellant.

The parties also agree that Martland provides the appropriate framework within which we should consider the application. This requires us to establish the length of the delay between the date on which the appealable matters were notified to the appellant or his agent and the date of the appeals, and to consider whether that delay is serious or significant. We then need to go on to consider the reasons for that delay. And finally we must undertake an evaluation of all the circumstances, balancing the merits of the reasons for the delay with the prejudice to be caused to both parties. At this final evaluation stage, we must be conscious that time limits should be respected, and the need for litigation to be conducted efficiently and at proportionate cost. And we can also consider any obvious strengths and weaknesses of each party’s position in the underlying appeal.

Both Mr Avient and and Ms Davies made clear and helpful submissions, both written and oral, couched by reference to the three stage Martland test set out above, which we have carefully considered in reaching our conclusions. However, we have not found it necessary to refer to each and every argument advanced by them on behalf of the parties.

In summary Mr Avient submitted:

The appellant could not bring any appeals against notices of which he was unaware. Under s7 Interpretation Act 1978, which applies to all of the appealable matters, HMRC must show that “unless the contrary intention appears, the service is deemed to be effected by properly addressing, pre-paying and posting a letter containing the document and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post”.

HMRC have simply pointed to copies of correspondence on their files, which is replicated in the bundles, as evidence that the appealable matters were properly addressed, prepaid, and posted. That is not evidence of those facts. HMRC have not come up to proof on this point.

Even if they have, the appellant’s evidence is that he never received any of the VAT matters, even though he might have received communications regarding the VAT enquiries, for example. The same is true of Howards as regards the VAT matters.

There could, therefore, be no serious and significant delay before notification of the appealable matters. The earliest that there was some indication of the appealable matters was in the bankruptcy petition in June 2018.

However, where appealable matters had been notified, he accepts that the delay is serious and significant.

As regards reasons for delay in respect of the VAT matters, there was no notification until the bankruptcy petition. Since then, the appellant and Howards have made repeated requests for clarification of how the petitioned debt arose, but “HMRC only provided full details of the decisions in a letter of 7 April 2021…….”

Any delay, therefore, which took place after the date of the bankruptcy petition arises because of HMRC’s failure to provide this information. In deciding whether this is a good reason for the delay, case law suggests this could be a very significant factor. If HMRC had provided copies of the decisions immediately after the bankruptcy petition, the appellant would have appealed immediately. This is evidenced by the fact that once he knew of the bankruptcy petition, he did everything he could to discover the decisions on which it was based and where appropriate appealed them.

As regards reasons for delay in respect of the income tax matters, he repeats his assertions regarding HMRC’s failure to provide details following the bankruptcy petition. But he also submits that there is another reason for the delay, namely the acts and omissions of the two employees of Howards. He accepts the general principle that in most cases, in considering applications to permit a late appeal “…failings by a litigant’s advisers should be regarded as failings of the litigant”, (The Commissioners for Her Majesty’s Revenue and Customs v Muhammed Hafeez Katib [2019] UKUT 0189 (TCC)) at (49) (“Katib”).

But he distinguishes Katib from the circumstances of the appellant in this appeal. In Katib the adviser was incompetent whereas in this instance Howards were themselves the victim of the employee’s improper behaviour. They were in an exceptional position. No one is quite sure of the employees’ motives but it might have been to secure work from the appellant in ignorance of Howards. The employees chose for their own reasons to effectively work outside the firm’s procedures. So, the failings of Howards should not be attributed to the appellant. In any event, the employees’ behaviour is a good reason for the delay.

At the final evaluation stage, HMRC might suffer prejudice but it is of their own making. It could have been avoided had they provided the information requested by the appellant and Howards. It is clear that HMRC do not believe that the appellant or Howards failed to receive the appealable matters. The default lies with HMRC. HMRC have not discharged their burden of establishing proper service of the appealable matters on the appellant or his agent. Evidence of prompt action following the bankruptcy petition can be seen in Howards’ letter of 21 September 2020 and inTax’s letter of 16 November 2020. Prejudice to the appellant will be suffered because he will be made bankrupt.

As far as the strengths and weaknesses of the underlying case are concerned, the VAT matters are based on speculation, incomplete information, and the income tax matters reflect excessive assessments. The appellant has a reasonable excuse for the penalties.

In summary Ms Davies submits:

The delays in bringing the appeals is serious and significant as regards all appealable matters. In respect of the VAT matters, those relating to the assessments and inaccuracy penalties are over 1,000 days late, whilst those relating to the schedule 36 FA 2008 penalties are between 1,200 and 1,500 days late if it is accepted that an appeal was made against them 28 September 2020. As regards the income tax matters, those related to the closure notice and inaccuracy penalties are approximately 1,000 days late, while the appeals relating to the schedule 36 FA 2008 penalties are just over 1,000 days late.

The copies of the appealable matters on HMRC’s file and replicated in the bundle are sufficient evidence to discharge the burden of proof of having made effective service. There is no need to produce a witness statement from the officer who was responsible for their production and dissemination. The documents speak for themselves.

It is inconceivable that all of the appealable matters, correctly addressed to the appellant at his home address, went astray. There is no evidence of non-delivery. In her view the appellant received them but simply failed to action them. This reflects HMRC’s experience of the appellant’s previous behaviour and reflects a disregard for his tax affairs in general.

In any event, it is clear from the evidence (and the evidence of both the appellant and Mr Bailey has changed considerably over the course of the hearing, as has their case regarding receipt of the appealable matters) that both the appellant and Mr Bailey were in receipt of some of the appealable matters. The appellant and Mr Bailey have unreliable recollections of what they did and didn’t see in respect of the appealable matters and that evidence is not reliable. Furthermore, Howards’ records of their contacts with HMRC in respect of the appellant’s tax affairs is incomplete.

The behaviour of the two employees is not so extraordinary as to take it outside the general Katib principle. It was simply a failure to comply with office procedure. And the failures by Howards to bring a timely appeal, or act upon the information that they had received either from HMRC or from the appellant or which was set out in the bankruptcy petition, should be attributed to the appellant.

And with effect from their knowledge of the bankruptcy petition in or around June 2018, they were in possession of more than sufficient knowledge to make an appeal. Indeed, when inTax made its appeal on 28 September 2020, it was in possession of no more information than had been available to Howards as set out in the bankruptcy petition. If, she asks rhetorically, inTax were able to make an appeal on 28 September 2020, why could Howards have not made an appeal shortly after they became aware of the bankruptcy petition, albeit on a protective basis pending receipt of detailed information.

There is no evidence that, as asserted by the appellant, either he or Howards made diligent attempts to seek further information about the basis of the tax debt identified in the bankruptcy petition, between June 2018 and September 2020. There are no documents in the bundle evidencing this. It is simply, therefore, not true to say that the delay in bringing the appeal until September 2020 was caused by HMRC’s failure to provide information in response to requests for it from the appellant or Howards.

This is notwithstanding submissions that there was such communication (see for example paragraph 85 of the appellant’s skeleton argument, and paragraph 19 of Mr Avient’s speaking notes (“Despite repeated requests for clarification of how the petitioned debt arose, HMRC only provided full details of the decisions in a letter of 7 April 2021…….”).

And also notwithstanding that in the appellant’s witness statement, he states that in September 2020 “after been very frustrated with HMRC and its failure to engage with us in a meaningful way [Howards appointed inTax]….”.

As regards the final evaluation stage, the balance of prejudice weighs in favour of HMRC, and the application should be dismissed. There is no justification for any assertion that the delay was caused by HMRC’s failure to provide information.

The underlying appeal is a weak one given that the closure notices were based on the appellant’s own VAT figures.

HMRC will also be prejudiced in that their officers involved in the income tax and VAT enquiries may no longer be with HMRC, and their memories will not be as acute as would have been the case had a timely appeal been made. She accepts that bankruptcy is a serious consequence, but as in the case of DeSilva(De Silva v Revenue and Customs Commissioners[2021] UKUT (TCC) this could have been avoided had the appellant made a timely appeal and attended to his tax affairs with proper diligence.

Statutory time limits should be respected. Extending those time limits should be the exception. They should not be extended in the case of this appellant.