Stephen Ray v The Commissioners for HMRC

The matter before the Tribunal was an application (the “Application”) for permission to notify late appeals to HMRC pursuant to s49 Taxes Management Act 1970 (“TMA 1970”) against a series of notices of penalty assessment.

The details of the notices of penalty assessment are set out in the schedule to this judgment. For the sake of brevity, the word “penalties” is used in this judgment even though strictly some are surcharges charged under notices of surcharge; nothing turns on the distinction for the purposes of this judgment.

In summary, 26 notices of penalty assessment were issued to Mr Ray at various dates in 2016 and 2017. In respect of 7 of those, appeals were made to HMRC within the statutory time limits and the appeals in respect of those are proceeding separately to the Tribunal under case reference TC/2023/07471. Appeals were not made to HMRC within the statutory time limits in respect of the remaining 19 of those notices of penalty assessment and the Application to the Tribunal is in respect of those.

In deciding whether or not to allow the Application, we applied the three-stage test set out by the Upper Tribunal (“UT”) in Martland v HMRC [2018] UKUT 178 (TCC) (“Martland”), which is as follows:

Applying those tests, we found as follows:

Accordingly, the Tribunal decided that the Application should be dismissed.

The documents to which we were referred were: HMRC’s statement of case (23 pages) and skeleton argument (10 pages), Mr Ray’s skeleton argument (3 pages), HMRC’s main document bundle (454 pages) and two supplemental document bundles (27 pages and 41 pages).

We found the following facts which were not disputed by Mr Ray:

Section 31A(1) TMA 1970 provides that notice of an appeal against matters such as the penalty assessments which have been issued to Mr Ray must be given in writing to the relevant officer of HMRC within 30 days of the specified date, that date being the date the late payment penalty/surcharge notice was issued. Section 49(2) TMA 1970 provides that notice of appeal may be given after the relevant time limit if (a) HMRC agree, or (b) where HMRC do not agree, the Tribunal gives permission. Section 49(2) TMA 1970 gives a wide judicial discretion to the Tribunal, to be exercised in accordance with the guidance given by the applicable case law.

The case of Martland concerned an application to make a late appeal against excise duty and a related penalty, but the principles set out have been applied and followed when deciding late appeal applications in relation to other taxes. We considered that these principles apply to Mr Ray’s Application.

In Martland at [38] the UT set out Rule 3.9 of the Civil Procedure Rules (“CPR”), which reads:

“(1)

On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need –

(a)

for litigation to be conducted efficiently and at proportionate cost; and

(b)

to enforce compliance with rules, practice directions and orders.”

The UT then considered the authorities, in particular Denton v TH White Limited [2014] EWCA Civ 906 (“Denton”) and BPP v HMRC [2017] UKSC 55 (“BPP”).  The UT said:

“[40] In Denton, the Court…took the opportunity to ‘restate’ the principles applicable to such applications as follows (at [24]):

‘A judge should address an application for relief from sanctions in three stages. The first stage is to identify and assess the seriousness and significance of the “failure to comply with any rule, practice direction or court order” which engages rule 3.9(1). If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate “all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]”.’

[41] In respect of the ‘third stage’ identified above, the Court said (at [32]) that the two factors identified at (a) and (b) in Rule 3.9(1) ‘are of particular importance and should be given particular weight at the third stage when all the circumstances of the case are considered.’”

The UT noted at [42] that the Supreme Court in BPP had implicitly endorsed the approach set out in Denton. At [43] the UT said:

“The clear message emerging from the cases - particularised in Denton and similar cases and implicitly endorsed in BPP - is that in exercising judicial discretions generally, particular importance is to be given to the need for ‘litigation to be conducted efficiently and at proportionate cost’, and ‘to enforce compliance with rules, practice directions and orders’. We see no reason why the principles embodied in this message should not apply to applications to admit late appeals just as much as to applications for relief from sanctions, though of course this does not detract from the general injunction which continues to appear in CPR rule 3.9 to ‘consider all the circumstances of the case’.”

At [44] the UT set out the following three stage approach by way of guidance to this Tribunal:

The UT also said at [46]:

“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…It is clear that if an applicant’s appeal is hopeless in any event, then it would not be in the interests of justice for permission to be granted so that the FTT’s time is then wasted on an appeal which is doomed to fail. However, that is rarely the case. More often, the appeal will have some merit. Where that is the case, it is important that the FTT at least considers in outline the arguments which the applicant wishes to put forward and the respondents’ reply to them. This is not so that it can carry out a detailed evaluation of the case, but so that it can form a general impression of its strength or weakness to weigh in the balance. To that limited extent, an applicant should be afforded the opportunity to persuade the FTT that the merits of the appeal are on the face of it overwhelmingly in his/her favour and the respondents the corresponding opportunity to point out the weakness of the applicant’s case. In considering this point, the FTT should be very wary of taking into account evidence which is in dispute and should not do so unless there are exceptional circumstances.” 

We applied the three stage approach in Martland on the basis of the facts, taking into account the parties’ submissions.

The time limit for appealing the notices was 30 days from the date each was issued. The delay in notifying these appeals by Mr Ray was in each case more than 5 years and in some more than 6 years after the expiration of the statutory time limit. In Romasave v HMRC [2015] UKUT 254 (TCC) (“Romasave”), the UT said at [96] that:

“In the context of an appeal right which must be exercised within 30 days from the date of the document notifying the decision, a delay of more than three months cannot be described as anything but serious and significant.” 

The delay in relation to these appeals was therefore plainly serious and significant.

We then considered the reasons why the delay occurred. Mr Ray’s explanation for the delay (and his grounds for appeal) were not entirely clearly stated in his Notice of Appeal. Our summary of his grounds is as follows:

We very carefully considered the points Mr Ray made around mental health. In relation to this issue, he presented no medical evidence and, when pressed, admitted that he had not sought treatment because he was a resilient individual. We accept that receiving multiple APNs and penalty assessments all at once (7 notices of penalty assessment were sent to him on 1 November 2016 for example) would be extremely stressful and that mental health issues are capable of amounting to a reason for making an appeal late. However, we took into account that, in spite of the receipt of multiple APNs and penalty assessments, Mr Ray had appealed several of the late payment penalties within the permitted time period. Also, at the time he received the late payment penalties he was engaged in judicial review proceedings. We infer therefore a degree of familiarity with judicial processes and procedures and a level of mental health that permitted him to be involved in litigation. It seemed to us that in the round there was insufficient evidence that mental health issues were the reason Mr Ray had delayed in appealing the penalty assessments within the statutory time period.

One observation that seemed to us relevant in relation to the reason for the delay is that Mr Ray had at least some familiarity with the APN appeal process. For example in on 7 September 2015, Mr Ray made representations under section 222 Finance Act 2014 in relation to one APN notice. On 5 September 2016 he appealed APN penalties relating to tax years 2012, 2013 and 2014. It seemed to us noteworthy that, in spite of that familiarity, he failed in September 2016 to appeal against the APN penalties relating to 2010 and 2011 and then subsequently failed to appeal the remaining penalty assessment within the statutory time limit.

For the reasons set out above, based on the evidence presented to us, we found that there was no good reason for the failure to make the appeals within the statutory time limits.

The third step in the Martland approach is to consider all the circumstances, and then to carry out a balancing exercise.

Significant weight must be placed as a matter of principle on the need for statutory time limits to be respected - see Martland at [45]. 

In this case the delay was over five years.  We found that there was no good reason for this delay, and this factor weighs heavily against the Mr Ray.

We took into account that Mr Ray is a litigant in person. However, we concluded that, especially for a litigant who was involved in other litigation and seemingly familiar with the appeal process, it was reasonable to expect compliance with time limits and certainly a failure to comply with a 30 day time limit for 5 or 6 years, seemed a significant failure. We also took into account the observations in BPP at [39] that “even in Tribunals where the flexibility of process is a hallmark of the delivery of specialist justice, a litigant in person is expected to comply with rules and orders”.

We took into account that the background to Mr Ray’s Application was that he had voluntarily entered into a series of tax avoidance schemes which had been given DOTAS numbers. While we did not think it was a strong factor, it seemed to us that this was at least potentially relevant. In our view, a reasonable and prudent taxpayer who had entered into tax avoidance arrangements would be aware that these were likely to be viewed with disfavour by HMRC. While the particular way in which the schemes Mr Ray had participated in were challenged would have come as a surprise (since the challenge was under retrospective legislation), the possibility of challenge would have been in the mind of a reasonable and prudent taxpayer. Such a taxpayer would therefore, in our view, have taken great care to comply with procedural formalities since the user of such a scheme might expect to be less likely than other taxpayers to be granted leniency by HMRC.

Mr Ray raised in his skeleton and in the hearing a number of matters relating to his views of the legality of the APN Penalties and the loan charge regime in general and in particular his view that the APNs which he had been issued should have been withdrawn. We understood the passion with which he held and advanced those points and were sympathetic to the stress and mental health issues that the users of loan charge schemes like Mr Ray have suffered. The review of the loan charge regime conducted by Sir Amyas Morse speaks to the unusual nature of the loan charge and the distress and hardship amongst those affected, including reports of people taking their own lives in cases linked to the loan charge, as well as wider impacts on mental health. However, we noted that the Morse review supported the essential purpose of the loan charge and we noted that recommendations of the review have been implemented in ways that presumably have benefited Mr Ray and others. In any event, it did not seem to us that the points Mr Ray made about the loan charge regime in general were of material relevance to the relatively narrow question with which we were presented. Wider questions of the legality of the loan charge and APN regime were, in our view, not particularly relevant to the question we had to decide.

On balance therefore, while we took these background factors into account, they did not weight materially in our consideration of all the circumstances.

The UT said in Martland that there is “much greater prejudice for an applicant to lose the opportunity of putting forward a really strong case than a very weak one”.  The merits of the appeal may therefore be a relevant factor in the balancing exercise.  However, the UT also said that the Tribunal should not “ descend into a detailed analysis” of the merits of the appeal.

To the extent we could discern Mr Ray’s substantive grounds for appeal they appeared to be a subset of the points made at [19] and [20] above, namely in summary:

We took the view that these grounds were weak:

It seemed to us there was very little here which would allow the Tribunal to put any great weight on Mr Ray’s side of the scales in relation the merits of the appeal.  Without descending into a detailed analysis of his case, to the extent we could discern it, his case appeared to be based on unsupported assertion, issues that were not relevant, and issues that are not within the Tribunal’s jurisdiction. Accordingly, we decided that the merits did not favour Mr Ray’s Application.

Other prejudice

Mr Ray will suffer prejudice if permission to make a late appeal is refused, because he will be unable to appeal against penalties.  That is however an inevitable consequence of losing the opportunity to challenge an HMRC decision.

HMRC will suffer prejudice if the Tribunal gives permission, because they will have to devote time and attention to defending the notices of penalty assessment before the Tribunal. This is the inevitable consequence of granting permission. This point might carry more weight where, as here, there has been a significant delay. However, we did not consider this point particularly important since the issues that would arise would be the same as those in the appeals Mr Ray is now bringing under reference TC2023/07471 in relation to those penalty assessments he did appeal in time. The marginal effort in contesting additional appeals by the same taxpayer about the same point seemed to us likely to be small.

Finally, granting permission also prejudices the position of other taxpayers, in that both HMRC and the Tribunal will divert resources away from other cases: as Davis LJ said in Chartwell Estate Agents v Fergies Properties [2014] EWCA Civ 506 at [28], the interests of justice include:

“the interests of other court users: who themselves stand to be affected in the progress of their own cases by satellite litigation, delays and adjournments occurring in other cases...”

Once the circumstances have been identified, they must be balanced.  The consistent message from  Denton, BPP and Martland  is that particular weight is to be given to the need to enforce compliance with statutory time limits. 

The delays in relation to these appeals was many times longer than the three months referred to in Romasave.  These delays were plainly serious and significant, and we found that there was no good reason for them.  Those factors weigh heavily against Mr Ray.  Added to that is the prejudice to HMRC and to appellants in other cases if permission were to be given and the apparent lack of merit in Mr Ray’s substantive case.

On the other side of the scales is the prejudice to Mr Ray of losing the opportunity of appealing to the Tribunal.  However, that factor does not carry significant weight for the reasons given above.  The result of the balancing exercise is therefore that permission is refused.

For the reasons set out above, we refused the Application for Mr Ray to make late appeals against the notices of penalty assessment.

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.