Charles Kendall Freight Limited v The Commissioners for HMRC

This decision decides two interlocutory issues that remain in dispute between the parties:

Both parties have agreed that these issues should be decided on the papers as a result of their written submissions.

As this is a lengthy decision, it is appropriate to set out the outcome at the onset.

For the reasons set out below, Issue 1 is decided in favour of HMRC. This appeal is struck out under Rule 8(2)(a) of the Tribunal Rules. For all of the reasons set out below, I decide Issue 2 in favour of HMRC. The Appellant’s application for costs is refused.

On 30 August 2023, the Tribunal received an in-time appeal filed on behalf of the Appellant by its solicitor. That appeal was against a review decision dated 8 August 2023, upholding the issue of two Post Clearance Demand Notes (C18s) in the total sum of £54,044.82. Those C18s had been issued to the Appellant as a declarant for a Non Established Taxable Person, on the basis that goods declared on import had been undervalued.

In its Notice of Appeal, the Appellant stated that further C18s had been issued and that the total amount in dispute was just under £240,000. Although the amount which the Appellant was required to pay in advance of an appeal was the amount of the two C18s under appeal, the Appellant claimed in its Notice of Appeal that it would suffer hardship if obliged to pay £254,000 before making its appeal to the Tribunal.

On 12 September 2023 (although this was unknown to the Tribunal until later), HMRC withdrew the two C18s that were the subject of this appeal. On an unknown date, the Appellant was notified of this withdrawal and informed that the two C18s were being withdrawn for technical, not substantive, reasons and that replacement C18s would be issued in due course.

On 21 September 2023, the Tribunal acknowledged and served the Notice of Appeal. As hardship had been claimed by the Appellant, the Tribunal directed HMRC to confirm within 28 days that a hardship application had been received by them from the Appellant. Both parties were informed that the appeal could not proceed until the issue of hardship had been resolved, and that the appeal was stayed until that time.

On 25 September 2023, HMRC emailed the Tribunal to confirm a hardship application had been received and was being processed. Later, on 25 September 2023, the Appellant emailed the Tribunal:

On 12 October 2023, HMRC emailed the Tribunal in response to the Appellant’s email:

It is clear from the Appellant’s Notice of Appeal that there were more C18s issued than the two which are under appeal in this specific appeal. As is clear from the review decision supplied with the appeal, and as HMRC have subsequently clarified (in their email of 29 April 2024), the two C18s which are the subject of this appeal were issued on 15 and 19 June 2023, not 7 July 2023. I find that HMRC simply made a mistake in their 12 October 2023 email when specifying the issue date of the withdrawn C18s.

The Appellant replied to HMRC later on 12 October 2023:

HMRC responded on 24 October 2023:

The Appellant responded the next day:

As the appeal was filed with a copy of the review decision made by HMRC, it cannot be the case that HMRC rejected the Appellant’s request for a review. I find, on the balance of probabilities, that what the Appellant intended to convey at point 1 of its understanding of the history of this appeal was that HMRC had not withdrawn the two C18s under appeal at the review stage.

In addition, although the Appellant has noted at its point 4 that the C18s were withdrawn after it had filed an appeal with the Tribunal, it is clear from the parties’ statements and HMRC’s subsequent clarification email that the C18s were withdrawn on 12 September 2023, prior to this appeal being notified to HMRC on 21 September 2023. Therefore, it does not follow that HMRC’s withdrawal of the C18s was as a consequence of the Appellant appealing to the Tribunal – it seems that this would have happened in any event although, of course, the Appellant could not have known this at the time it filed its appeal to the Tribunal.

On 7 November 2023, the Appellant filed a Notice of Application. The Appellant sought an order in the following terms:

As set out in the review decision supplied with the appeal, the two C18s under appeal were issued on 15 and 19 June 2023. I find that the Appellant is here referring to the review decision which upheld the issue of those two C18s.

No schedule was attached to this application, and there was no indication by the Appellant about what its costs totalled or any breakdown of any amounts incurred.

On 15 December 2023, the Tribunal file was referred to me, and I drafted a letter that was sent to the parties. In that 15 December 2023 letter, I asked the parties whether they were content for the issue of how the appeal should be concluded to be decided on the papers, and also directed them to provide written submissions on this issue. I also noted:

HMRC filed their written submissions on 12 January 2024. The Appellant sought additional time, and filed their submissions on 19 January 2024. Both partis agreed to the issue of how the appeal should be determined being decided on the papers.

The Appellant concluded its written submissions of 19 January 2024 as follows:

No schedule was attached with those written submissions. The Appellant did not make any submissions setting out why it considered that HMRC’s conduct of this appeal was unreasonable.

On 8 February 2024, both parties were given the opportunity to file any further written submissions, having by that stage since the submissions of the other party. No further written submissions were received by the Tribunal until 29 April 2024 when the clarification required by the Tribunal (as to which specific C18s had been withdrawn) was provided by HMRC.

I start by setting out the relevant part of Tribunal Rule 8. Paragraph (2) provides:

This makes clear that the Tribunal has no discretion in this matter. If the Tribunal does not have jurisdiction in respect of these proceedings then the appeal must be struck out. However, to decide whether the Tribunal does have jurisdiction in the circumstances of the present case, it is necessary to consider relevant decisions on the effect of Rule 8 and how the Tribunal should proceed in cases such as this. I apologise in advance to the parties for the length of the extracts from those decisions. In addition, in two of the more recent authorities there is some reference to a much older decision; I will start by considering with Furtado (Surveyor of Taxes) v City of London Brewery Company [1914] 1 KB 709.

In Furtado, the Court of Appeal was asked to decide whether an application made under Section 134 of the Income Tax Act 1842 to the General Commissioners (a predecessor body to this Tribunal), seeking an amendment to the profits stated in an assessment, constituted an appeal within Section 59 of the Taxes Management Act 1880. In giving the judgment of the Court of Appeal, Swinfen Eady LJ summarised some of the legislative background that had given rise to the proceedings:

After considering various provisions, the Court of Appeal stated:

Other applications which could be made to the General Commissioners were considered by the Court of Appeal before they concluded:

The effect of that conclusion was that the Section 134 application that had been made to the General Commissioners did not constitute an “appeal”. Although an onward appeal could be made against a decision in respect of an appeal, no onward appeal could be made against the General Commissioners’ decision on an application. Therefore, as the General Commissioners’ decision in respect of the application was final, the General Commissioners did not have the power to state a case for the opinion of the High Court.

In Rasam Gayatri Silks Limited v HMRC [2010] UKFTT 50 (TC), HMRC had withdrawn a decision that was the subject of the appeal to the Tribunal, and suggested to the Appellant that it should withdraw its appeal to the Tribunal as there was no longer an underlying decision to appeal. The Tribunal (Judge Berner) considered Rule 8(2) and how that applied where HMRC had withdrawn their decision after an appeal had been filed, concluding:

Judge Berner did not go on to detail how, in practical terms, the Tribunal could progress with the appeal proceedings that he considered still subsisted despite the lack of an underlying decision, or what interest the parties would continue to have in those proceedings. In Rasam Gayatri Silks it seems that HMRC had withdrawn their decision for substantive reasons and there was no replacement decision. It is unclear how the parties in Rasam Gayatri Silks would have continued if HMRC had maintained the substance of their position where an assessment or decision had been withdrawn for technical reasons but a replacement could not be issued, perhaps because of time limits. It is difficult to believe that the Tribunal would continue to a hearing in order to reach a decision on the issues that were in dispute (as it sometimes must when a respondent is barred from continuing to participate in the proceedings) because, without an underlying decision, that would be a wholly hypothetical exercise. So, although the Tribunal in Rasam Gayatri Silks describes the appeal proceedings as not ending simply because HMRC have withdrawn the underlying decision, the fact that the Tribunal then immediately went on to allow the appeal suggests that HMRC’s withdrawal of the underlying decision – in circumstances where no replacement decision was issued – does, in fact, mean the end of the appeal proceedings. Therefore, I understand that what Judge Berner meant when he said that the proceedings were not ended was that he considered the Tribunal was not obliged to strike out the appeal when an underlying decision was withdrawn, as HMRC had argued the Tribunal was compelled to do under Rule 8(2). I understand Judge Berner instead considered that the Tribunal retained the power to decide the manner in which the appeal should end. In Rayam Gayatri Silks, the proceedings were ended by the Tribunal making an order in the Appellant’s favour, rather than the Tribunal striking out the appeal.

In LS v HMRC and RS v HMRC [2017] UKUT 257 (AAC), the Administrative Appeals Chamber of the Upper Tribunal considered the effect on in-year Section 16 decisions relating to tax credit entitlement when subsequent post-year Section 18 decisions on tax credit entitlement are taken and those Section 18 decisions supersede all or part of the earlier Section 16 decisions. In paragraphs 19-23, the Upper Tribunal considered what could constitute the subject matter of an appeal. At paragraph 20 the Upper Tribunal stated:

The Upper Tribunal then went on to consider the operative effect of a decision. From paragraph 24 the Upper Tribunal stated:

The Upper Tribunal analysed the concept of lapsing, rejecting the argument that it only applied when specifically mentioned in legislation; and then went on to consider the effect of the Tribunals, Courts and Enforcement Act 2007 on the options available to the First tier Tribunal when an underlying decision was no longer in existence:

The Upper Tribunal concluded that an earlier Section 16 decision that was wholly superseded would lapse as it would lose all operative effect. The Upper Tribunal contrasted their own jurisdiction, on an appeal from the First-tier Tribunal, and the First-tier Tribunal’s jurisdiction holding that, once a matter was before the Upper Tribunal then it did not matter that a Section 16 decision had lapsed but that the situation was different with an appeal before the First-tier Tribunal:

In Learna Limited v HMRC [2023] UKFTT 00972 (TC) both Rayam Gayatri Silks and LS and RS were considered by the Tribunal. The facts of Learna were that HMRC had withdrawn their underlying decision and they suggested to the appellant that, as a consequence of HMRC’s withdrawal, the appellant should withdraw its appeal to the Tribunal. The appellant disagreed, arguing that HMRC should themselves withdraw from the appeal given they no longer stood by the decision which had been the subject of the appeal.

In Learna the Tribunal declined to follow LS and RS, concluding that the Administrative Appeals Chamber had possibly misunderstood the procedure that applied for tax appeals in 1911 and thus misinterpreted Furtado v City of London Brewery Company (1913) 6 TC 382. While I agree with the analysis of Furtado set out in Learna, I do not agree that the Upper Tribunal in LS and RS may have misunderstood this. In my opinion, the Upper Tribunal were using Furtado only to emphasise that the parties’ dispute must arise out of an appealable decision and that that appealable decision must still be in existence. If that is not the case then there can be no appeal.

The Tribunal in Learna concluded:

Having set out those decisions (to which I will return) this is a convenient point to set out the submissions of the parties.

In its submissions on this point, the Appellant states:

I agree with the Appellant that this appeal was validly made but I do not consider that point assists my decision here. The issue for the Tribunal is whether it retains any jurisdiction over a valid appeal once the decision that was the subject of the appeal has been withdrawn. There is no suggestion that the Appellant has made a Rule 17 withdrawal.

In their submissions, HMRC rely on LS and RS, submitting:

HMRC submitted that Learna is not binding on the Tribunal whereas LS and RS (being an Upper Tribunal decision) is binding, and added:

In their submissions, HMRC also noted the very limited extent of the Tribunal’s jurisdiction before hardship has been decided and they relied on Section 16(3) Finance Act 1994. In this regard HMRC suggested that it is not possible for the Tribunal to allow the appeal as, until hardship has been resolved, the Tribunal does not have the power to make such an order.

Subsection 16(3) Finance Act 1994 provides

This requirement that hardship must be decided before the appeal can be entertained by the Tribunal is reflected in Tribunal Rule 22(4) which provides:

The path through these conflicting decisions has not been clear. I wish to state at the outset that I agree with Judges Berner and Aleksander that, generally, proceedings would be resolved more quickly and with less dispute between the parties if (whenever possible) HMRC were to withdraw from an appeal in accordance with Tribunal Rule 17, instead of only withdrawing the underlying decision. It is not surprising that an appellant who considers they have been successful in their appeal because HMRC has withdrawn the underlying decision, should be frustrated to find the consequence of that success is that HMRC expects them either to withdraw their appeal to the Tribunal or have their appeal struck out.

I deal first with the last point raised by HMRC, that of hardship. As a result of Section 16(3) and Rule 22(4), the Tribunal stays all appeals to which hardship applies until such point as hardship is resolved. I agree with HMRC that the Tribunal does not have the power to progress a substantive appeal while hardship is still unresolved, and the Tribunal cannot allow an appeal at this stage.

The present appeal was notified to HMRC before the Tribunal was notified that the C18s had been withdrawn. At the time it notified the appeal to HMRC, the Tribunal understood that hardship applied in respect of the underlying C18s. Once it was clear that the underlying C18s had been withdrawn then I do not agree that hardship any longer applied. Once the C18s were withdrawn then there could no longer be any amount due, and thus no amount could remain unpaid. Once hardship is resolved, the Tribunal is able to progress appeals and its jurisdiction is no longer restricted.

I do not consider the fact that hardship once applied (or that the Tribunal understood that hardship once applied) has any impact on the issue to be decided here of whether the Tribunal is compelled to strike out an appeal or has the jurisdiction to make a different order to conclude an appeal once it is understood that hardship no longer applies.

Turning now to Rayam Gayatri Silks, LS and RS, and Learna, I understand that in the first and third of these decisions the Tribunal has concluded that, provided there was an underlying decision at the commencement of the proceedings – so that at one time the Tribunal did have jurisdiction – then Rule 8(2) does not apply to subsequent changes to that underlying decision. I do not consider that this is correct. I do not read Rule 8(2) as having effect only at the point that the Tribunal proceedings begin. I consider that Rule 8(2) continues to apply throughout the course of Tribunal proceedings, as the positions of the parties evolve and develop. During the course of the proceedings, a change in events can result in the Tribunal ceasing to have jurisdiction. I consider that if, at any time during those proceedings, it becomes clear that the Tribunal no longer has jurisdiction then Rule 8(2) will still apply. This will be the case even if the Tribunal clearly and unarguably did have jurisdiction at the beginning of the proceedings.

I understand the Tribunals in Rayam Gayatri Silks and in Learna both accepted that Rule 8(2) would apply if the underlying decision had been withdrawn before an appeal was made to the Tribunal. In that case the Tribunal proceedings would be struck out because the Tribunal would never have had jurisdiction. I agree with (and am bound by) the Upper Tribunal’s conclusion at paragraph 25 of LS and RS that:

I conclude that if the underlying decision is withdrawn during the course of proceedings then, at that point, the Tribunal ceases to have jurisdiction.

The consequence of these conclusions is that, once the Tribunal no longer has jurisdiction in respect of an appeal that was originally validly made then the Tribunal must – in accordance with Rule 8(2) – strike out the appeal. I conclude that the Tribunal does not have the power to allow an appeal against a decision that no longer exists.

In reaching this point, I have not ignored the suggestion in Learna that if the Tribunal strikes out an appeal where it ceases to have jurisdiction then it will be unable subsequently to make an order for costs under Rule 10(1)(b). However, after consideration of Rule 10, I do not consider that this would be the case. My conclusion that the Tribunal ceases to have jurisdiction once an underlying decision has been withdrawn does not mean that the Tribunal did not have jurisdiction before that point or that there were never any valid proceedings. The Tribunal was once seized of a valid appeal; I do not consider that the withdrawal of an underlying decision has the effect of re-writing this history. As Rule 10 of the Tribunal Rules does not require a valid appeal still to be in place for a costs application to be considered, in my opinion a decision notice which confirmed the striking out of an appeal would constitute a decision notice which finally disposed of all issues in the proceedings (for the purposes of Rule 10(4)(a)).

Although this is not the position here, where an appeal has been allocated to the Complex category the usual rule is that costs follow the event (unless the appellant has requested the proceedings be excluded from potential liability for costs). While that might be thought to cause issues for an appellant whose appeal had been struck out, the Tribunal is able to look to the Civil Procedure Rules for guidance, see Versteegh Limited and others v HMRC [2014] UKFTT 00397 (TC). CPR 44.2(2)(b) provides that the court may depart from the usual rule by making a different order, and CPR44.2(4)(b) enables the court to look at whether any party has been substantially successful if not wholly successful. In such circumstances, I consider the Tribunal has the power to make an order for costs in favour of an appellant despite the appeal being struck out if that appeal was struck out only because the respondent withdrew the underlying decision that was the subject of the appeal. It is not inevitable that the “winning” party will be awarded their costs.

Therefore, for the reasons set out above, I decide Issue 1 in favour of HMRC. This appeal is struck out under Rule 8(2)(a) of the Tribunal Rules.

Rule 10(1) of the Tribunal Rules sets out the circumstances in which the Tribunal may made an order for costs. The relevant parts of Rule 10(1) provide:

The Appellant’s submissions on costs are set out above. Other than making clear they resist costs, HMRC do not appear to have made any submissions specifically concerning costs.

Above I have set out my opinion that it is possible for the Tribunal to make an order for costs after the conclusion of an appeal, even if that appeal had been concluded by being struck out for want of jurisdiction. However, given that Section 16(3) was raised by HMRC, I note for completeness that the Tribunal does not have the power to make an award of costs when hardship is still unresolved. However, once hardship is no longer in dispute then, as held by Judge Aleksander in Patel v HMRC [2023] UKFTT 00128 (TC), the Tribunal has the power to make an award of costs in respect of the period of the proceedings which precedes hardship being decided.

The practice of the Tax Chamber is to allocate an appeal to a category in accordance with Tribunal Rule 23 only until after hardship is resolved. (This practice remains unchanged following SNM Pipelines Limited v HMRC [2022] UKFTT 00231 (TC).) Therefore, an appeal that concludes before a hardship application has been decided is not categorised. Here hardship was resolved when the C18s were withdrawn but, given the circumstances, this appeal was not allocated to any category.

The category of an appeal is relevant when the Tribunal considers an application by either party for an award of costs. In this case, the Appellant was informed that this appeal did not meet the criteria to be categorised as a Complex appeal. These are set out in Tribunal Rule 23(4) and explained in the Tribunal’s Practice Direction on categorisation.

In its submissions the Appellant suggests that its appeal was one of many allocated to a specific group (although, in fact, this appeal was not so allocated) and also that it was necessary for the Appellant to appeal to the Tribunal because HMRC had not withdrawn its underlying decision. Neither of these factors make it appropriate for this appeal to be allocated to the Complex category.

For an appeal allocated to a category other than the Complex category, the onus is on the applicant to demonstrate that the person against whom a costs order is sought:

In addition, in Distinctive Care v HMRC [2019] EWCA Civ 1010, the Court of Appeal noted (at paragraph 31) that the starting point for consideration of the conduct of the respondents to an appeal was the date on which the Tribunal notified them of that appeal. In this appeal HMRC were notified of the appeal on 21 September 2023. The underlying C18s had been withdrawn on 12 September 2023, nine days earlier. The Appellant was aware of the withdrawal by 25 September 2024 (at the latest), four days after HMRC were notified of the appeal. The Appellant has made no attempt to explain why it considers HMRC’s conduct to have been unreasonable at any stage of these proceedings.

There is one other obvious deficiency in the Appellant’s application. Rule 10(3)(b) makes it clear that any application for costs must be accompanied by:

Despite the Appellant being legally represented and having its attention specifically drawn to Rule 10, the Appellant’s application for costs was not accompanied by a schedule of the costs sought. There has been no indication of the costs that the Appellant incurred in these proceedings, nor any certification that any costs have been incurred, see Bhargava v HMRC [2024] UKFTT 00066 (TC). While it is possible to seek dispensation from the requirement to provide a schedule (even though the circumstances here are very different to those that made waiver appropriate in First Choice Recruitment Limited v HMRC [2019] UKFTT 0412 (TC)), the Appellant has not made an application for waiver of the requirement to provide a schedule.

In First Choice Judge Aleksander stated:

In the absence of either a schedule or application to dispense with a schedule, I conclude that the Appellant’s costs application here is invalid.

Therefore, for all of the reasons set out above, I decide Issue 2 in favour of HMRC. The Appellant’s application for costs is refused.

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.