Contractors Support Limited v The Commissioners for HMRC

It is the appellant’s application that the appeal against the information notice is in time or, if it is out of time, that permission should be granted for it to make a late appeal.

It is the appellant’s view that: The email of 10 June 2022, in the context of what had gone before, comprised valid notice of appeal; the term appeal is not defined in any tax statute; it could be defined as a “request for a decision to be changed”; HMRC’s appeals manual indicates six criteria that must be satisfied for an appeal to be valid; it must be in writing, sent to HMRC, within the time limit, by the appropriate person, against appealable decision, and contain the grounds of appeal; the email of 10 June 2022 fulfils these criteria; the reasonable recipient of that email would have construed it as an appeal against the information notice; there is no requirement that an appeal should include the word “appeal”; HMRC accept this.

HMRC’s view is that the reasonable recipient of the email would not have treated it as a valid notice of appeal and indeed the recipient officer did not do so. In HMRC’s view the text of that email shows that the appellant was not challenging the notice (“I believe that I have made reasonable enquiries and fully cooperated with you”). There is nothing in the email specifically challenging the information notice.

To my mind this is finely balanced. In the context of an organisation which professes to provide a variety of services to clients to take the stress away from those clients when dealing with HMRC, I find it somewhat surprising that the appellant was not able to submit what would clearly be a notice of appeal. If the appellant’s team had the range of expertise which it professes to have, it would not have been difficult to simply say at the head of the email “We wish to appeal against the information notice dated 12 May 2022”. And that would have been that. But it didn’t.

I agree that the rule of thumb is whether the email of 10 June 2022 is to be treated as an appeal by a reasonable recipient of that email. However, whether the officer receiving it so treated it, is neither here nor there. I have no supervisory function here. My role is to decide afresh whether it was a notice of appeal.

On balance, but only just, I agree with Mr Smith, that in the context of the previous communications between HMRC and the appellant, the email of 10 June 2022 does comprise a valid appeal against the information notice. It is written in response to the information notice. It sets out why the appellant is not able to comply with it (essentially it sets out the appellant’s grounds of appeal which is the important element of an appeal). The appellant has re-emphasised that it has tried to obtain the information sought by the information notice, but has been unable to do so. He was not involved with the appellant during the applicable periods. He asks what more he can do in the circumstances.

The appellant therefore is addressing, head on, the issues raised in the information notice. That notice seeks information which the appellant has already told HMRC it cannot obtain. The email 10 June 2022 re-emphasises that. To my mind that is a fair and square challenge to the information notice.

I therefore find as a fact that the email of 10 June 2022 was a valid in time appeal against the information notice.

However, I am also of the view that the information sought by the information notice comprises statutory records and so the appellant’s victory on the in time appeal is somewhat Pyrrhic given that it has no appeal right against the request for information sought by the information notice

Mr Smith did not seriously challenge the claim that the information regarding the bank and building society accounts was not part of the appellant’s statutory records and I agree. The information is clearly required in order to enable the appellant to deliver complete and accurate tax returns for the periods in question. However, Mr Smith suggests that the client details for whom the appellant provided services during the relevant accounting periods, and whether the appellant received payment for the services so provided, was not necessarily part of the appellant’s statutory records. To provide this information the appellant was required to do something (namely compile the list). Essentially, statutory records are limited to existing documents, and do not extend to creating information based on primary evidence (for example, invoices).

I disagree with Mr Smith. Schedule 36 enables HMRC to obtain documents (the primary evidence) as well as information. So a secondary source is disclosable provided it is the statutory records. The information sought by HMRC in the third bullet of its information notice comprising details of the clients (by way of a list) the name, work, dates, and details of any payment made, is, to my mind, part of the statutory record. It is information which is required to enable the appellant to deliver an accurate tax return for the period in question. As was said in Couldwell, a trading company must be able to verify trade debtors and other debtors in order to deliver a correct tax return. The same is true of trade creditors. Information in this regard is not restricted to the primary documentation (for example invoices). It includes an analysis of who has been charged what, and whether they have paid.

I find as a fact therefore that the information sought by the information notice comprises statutory records of the appellant and as such the appellant has no right of appeal against the request for this information.

The tribunal therefore has no jurisdiction in relation to the proceedings relating to the information notice and must strike them out. However, under Rule 8(4) of the First-tier Tribunal Rules, I cannot strike out the proceedings without giving the appellant an opportunity to make representations in relation to the proposed striking out. I do not believe that, even though the appellant has made submissions in this hearing regarding the information, that it has been given that opportunity. I therefore give directions at the end of this decision regarding the strike out.

I now turn to the consideration of whether I should exercise my judicial discretion in favour of the appellant and permit it to make a late appeal against the penalty notice.

I consider the three stage Martland test. Firstly, whether the delay in making the appeal is serious or significant.

The penalty notice was issued on 19 August 2022 and an appeal against that notice should have been made on or before 18 September 2022. The earliest date on which an appeal could be treated as having been submitted is 27 October 2022.

It is HMRC’s view that at that date, Independent Tax had no authority to make an appeal on behalf of the appellant, and although they received the signed letter authority, dated 26 September 2022, on 3 November 2022, a valid appeal was only brought on 14 November 2022 when Independent Tax asked HMRC to consider their letter of appeal dated 27 October 2022.

To my mind it is clear that as at 27 October 2022, Independent Tax had authority to make an appeal against the penalty notice by dint of the authority letter dated 26 September 2022. The fact that this was not sent to HMRC until November 2022 does not affect its validity. Indeed, HMRC do not seriously challenge its validity.

I find therefore that a valid appeal was made by the appellant against the penalty notice on 27 October 2022, which is some 39 days after the expiration of the statutory time limit.

Even in the context of an appeal right which must be exercised within 30 days, I do not find that the delay 39 days in the context of the appeal against the penalty notice to be per se serious or significant. However, it is not “very short” and so it weighs in the balance at the final evaluation stage. And it means I must consider both that and the second stage of the Martland test, namely an assessment of the reasons for the delay.

There are a number of reasons given as to why the appeal was not made in time. The first, somewhat oddly, is that the appellant thought that it had made a valid appeal on 10 June 2022. Mr Johnston did not give this evidence, it is something which was reported to me by Mr Smith. I attribute no weight to this assertion. This is not only because there was no primary evidence from which I can draw any form of inference, but must clearly be wrong given that the penalty notice was not issued until after 10 June 2022. So the appeal of 10 June 2022 could not possibly have been thought by anyone to have been an appeal against the later assessment.

A second reason given for that delay is that the appellant did not have the skills to deal with the appeal (even though it holds itself out as being competent to provide advice to contractors in their dealings with HMRC, and in particular during the enquiry process) and so needed to appoint tax advisers who did have the relevant skills. And the delay was caused by the onboarding of the appellant by that firm of tax advisers. I do not find this a particularly compelling reason. Mr Smith seeks to make a distinction between the skills to deal with the enquiry process on the one hand (which the appellant possessed) and the skills required to deal with an appeal on the other (which the appellant did not possess). I do not accept this distinction especially when the penalty notice makes itself expressly clear that there is a 30 day appeal period within which an appeal must be made. That does not require any specialist skills, merely an understanding of plain English.

Furthermore, there is no evidence that following the receipt of the information notice, the appellant sought professional advice. It sent the email of 10 June 2022 to HMRC which it intended to be (and which I have found to be) a notice of appeal. If it felt itself capable of appealing against the information notice, I cannot see why it felt itself incapable of doing what the penalty notice told it to do, namely appealing it within 30 days.

Finally, the appellant claims, (again second-hand through Mr Smith, there is no primary evidence of this) that it takes time to undertake all the necessary checks in order to enable a professional tax advisor to take on a client. Yet whilst the penalty notice was issued on 19 August 2022, the letter of authority was not signed until 26 September 2022, and the appeal was not made until 27 October 2022. It seems likely to me that the onboarding arrangements would have been completed by 26 September 2022, and it surprises me that it took a further month for an appeal to be lodged against the penalty notice which would have been a simple matter to do and would have taken little time.

Furthermore, the appellant cannot be excused from delays by its agent which are, generally speaking, attributable to the appellant. They are not a good reason for the delay (although such delays by an agent may be taken into account when considering the third evaluative stage of the Martland process).

I now turn to the third stage. This is an evaluation of all the circumstances of the case in which I must conduct a balancing exercise. I should assess the merits of the reasons given for the delay and the prejudice which would be caused to both parties by granting or refusing permission. And when undertaking this balancing exercise, I must be conscious of the need for litigation to be conducted efficiently and at proportionate cost and for statutory time limits to be respected. I can also have regard to any obvious strengths and weaknesses of the parties’ respective cases.

In my view the delay is not serious and significant but does require to be explained. I do not think that the explanations given by the appellant are particularly meritorious for the reasons I have expressed above. The appellant is not an innocent abroad when it comes to the tax system. It holds itself out as having the competencies of dealing, regularly, with HMRC. It was capable of appealing against the information notice without professional advice, so I can see no reason why it was not capable of appealing against the penalty notice without such advice. Nor can I see why it took two months from the date of the notice on 19 August 2022 until the appeal was made by the appellant’s agent on 27 October 2022. Statutory time limits should be respected, and the appellant was fully aware that there was a statutory time limit to appeal against the penalty notice as it was clearly set out in words of one syllable in the penalty notice itself. And this is irrespective of the fact that an organisation which holds itself out as competent to deal with HMRC on matters such as enquiries, could, and should, know not only of the time limit itself, but that it should be respected. This failure to respect the time limit outweighs, in my view, any prejudice that will be caused to the appellant by rejecting its application. There are no obvious strengths to the appellant’s position. However, that is compensated for by the fact that there are no obvious strengths to HMRC’s position. Nor do I think that HMRC have made out much of a case that it will be prejudiced (and indeed other more compliant taxpayers will be prejudiced) if I allow the appellant to appeal out of time. But the amount at stake is modest (£300) and in the context of the issues which I have discussed above, means that when undertaking the balancing exercise, I am unable to find that the prejudice which would be caused to the appellant by denying the application is sufficient to outweigh the lack of meritorious reasons for the delay.

Drawing the threads of this decision together. I have found that the appellant made an in time appeal against the information notice on 10 June 2022. I have also found that the information notice requests statutory information against which the appellant has no right of appeal. I have also come to the conclusion that I should reject the appellant’s application to make a late appeal against the penalty notice.

I allow the appellant’s application to make an out of time appeal against the information notice.

I reject the appellant’s application to make an out of time appeal against the penalty notice.

I direct that within 28 days from the date of release of this decision the appellant shall send to HMRC and to HMCTS written representations as to why its appeal against the information notice should not be struck out for want of jurisdiction under Rule 8(2) (a) of the First-tier Tribunal Rules by dint of the fact that the information notice requests information and documents which are statutory records.

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.