Ataf Iqbal Butt v The Commissioners for HMRC

Mr Butt’s appeal relates to a VAT assessment issued in September 2007 to him and his uncle who, at the time were carrying on an unincorporated business known as Spectrum Knitting. The assessment relates to the export of ten consignments of goods to Ace 1 Limited in France in the 05/07 VAT period. The goods had been zero-rated by Spectrum Knitting but HMRC were not satisfied that the requirements for zero rating had been satisfied including, in particular, that the goods had been removed from the UK to another EU member state. The amount of the assessment is £428,364.

Mr Butt notified an appeal against the assessment to the Tribunal on 30 November 2018. Although HMRC initially objected to the late appeal, they withdrew their objection at the hearing of the application for permission to make a late appeal which took place on 24 February 2020, as a result of which the Tribunal granted permission for the appeal to be made out of time.

Mr Butt’s grounds of appeal as set out in his notice of appeal were that “there is evidence sufficient to prove the removal/export and that the goods were correctly zero-rated.”

However, it became apparent from documents provided by Mr Butt in 2022 and his subsequent explanation of those documents that he wished to take a position which was completely contrary to his original grounds of appeal.

Mr Butt now says that the alleged transactions were part of a VAT carousel fraud in which he had become unwittingly involved and that no goods had in fact had been supplied so that no VAT liability arose. Following prompting by the Tribunal, Mr Butt made an application on 27 February 2023 to amend his grounds of appeal accordingly.

The primary purpose of this hearing is to decide whether Mr Butt should be permitted to amend his grounds of appeal. There are however two other applications which have been made and which have not yet been decided.

The first is an application made by Mr Butt on 10 January 2023 to admit all the additional documents he has provided in support of his case as part of the evidence. HMRC agree that if the application to amend the grounds of appeal is successful, the documents should be admitted. Mr Butt acknowledges that, if the application to amend is refused, the application to admit additional documents becomes irrelevant.

The second application is an application which was originally made by HMRC on 16 February 2023 for Mr Butt’s appeal to be struck out. The application was renewed on 3 April 2023 following HMRC’s review of the additional documents provided by Mr Butt and his application to amend his grounds of appeal.

The strike out application is made on the basis that the Tribunal has no jurisdiction in relation to the proceedings and also that Mr Butt has failed to comply with Tribunal directions.

However, it is apparent from the explanation for the application that the real basis for the application is that the original grounds of appeal have no prospect of success given Mr Butt’s explanation of his revised grounds of appeal.

Mr Butt accepted at the hearing that if his application to amend his grounds of appeal is unsuccessful, the appeal should be struck out on the basis that his original grounds of appeal have no prospect of success.

As will be apparent, the result of these two applications therefore follows as a matter of course from my decision as to whether the application to amend the grounds of appeal should be allowed.

The principles which the Tribunal should apply in deciding whether to give permission to amend grounds of appeal were not in dispute. As explained by this Tribunal in Mypay Limited v HMRC [2023] UKFTT 00890 (TC) at [22-23], those principles are drawn from the decision of the High Court in Quah v Goldman Sachs International [2015] EWHC 759 (Comm) at [36-38] and Kawasaki Kisen Kaisha Limited v James Kemball Limited [2021] EWCA Civ 33 at [17-18]. The principles can be summarised as follows:

In this case, the effect of allowing the application to amend the grounds of appeal would, in substance, be to restart the appeal given that the new grounds of appeal are inconsistent with the original grounds of appeal. To this extent, the application shares many similarities with an application to make a late appeal.

The principles to be applied in deciding whether a late appeal should be permitted were set out by the Upper Tribunal in Martland v HMRC [2018] UKUT 178 (TCC) at [44-45]. Other than the threshold requirement that the grounds of appeal must have a real prospect of success, the approach to late appeals is very similar to that which is taken in relation to applications to amend grounds of appeal (as explained by the High Court in Quah) in that the Tribunal should consider the extent of the delay, the reasons for the delay and should then go on to consider all of the relevant circumstances in the light of the overriding objective and taking into account the particular importance of the need for litigation to be conducted efficiently and at proportionate cost and for time limits to be respected.

Neither party suggested that I should apply the tests set out in Martland but, as I say, it seems to me that if Mr Butt manages to overcome the hurdle of showing that his amended grounds of appeal have a real prospect of success, the approach is essentially the same in that it involves taking into account all of the relevant circumstances including the injustice or prejudice to the parties if the application is allowed or refused and weighing those factors in the balance.

For the avoidance of doubt, however, I should make it clear that the principles I have applied are those which apply to applications to amend grounds of appeal as set out in paragraph [13] above.

In relation to prejudice, HMRC refer to the decision of the Upper Tribunal in HMRC v Katib [2019] UKUT 0189 (TCC). The issue in that case was whether permission should be given to notify an appeal to the Tribunal out of time but, as we have seen, the principles to be applied are very similar. As far as the financial prejudice to Mr Katib was concerned, the Upper Tribunal made the following observations at [60]:

“... the FTT concluded that the financial consequences of Mr Katib not being able to appeal were very serious because his means were limited such that he would lose his home. That, the FTT concluded, was too unjust to be allowed to stand. We have considered this factor anxiously for ourselves. However, again, when properly analysed, we do not think that this factor is as weighty as the FTT said it was. The core point is that (on the evidence available to the FTT) Mr Katib would suffer hardship if he (in effect) lost the appeal for a procedural reason. However, that again is a common feature which could be propounded by large numbers of appellants, and in the circumstances we do not give it sufficient weight to overcome the difficulties posed by the fact that the delays were very significant, and there was no good reason for them.”

What can be taken from this in my view is that, although the financial consequences for an appellant of having to pay the tax (or in that case, the penalty) may be severe, including possible bankruptcy or losing a home, that is unlikely, of itself, to be determinative and is simply one of the factors which must be taken into account in reaching a decision whether or not to allow the application.

Before addressing the factors relevant to the decision whether or not to allow Mr Butt to amend his grounds of appeal, it is helpful, by way of context, to highlight the main points in the history of the appeal.

As I have said, the original assessment was made in September 2007. Although it appears that there was some further correspondence about this in 2008 and 2009, no further action was taken in relation to this until HMRC presented a bankruptcy petition against Mr Butt in early 2016. Mr Butt explained that it was the bankruptcy proceedings that prompted him to submit his notice of appeal to the Tribunal on 30 November 2018. At this time, Mr Butt was represented by a firm of VAT consultants called Omnis.

I have also mentioned that, following Mr Butt’s notice of appeal to the Tribunal, a hearing took place on 24 February 2020 to decide whether Mr Butt should be permitted to make a late appeal and that this was allowed as HMRC withdrew their objection to the late appeal. Mr Butt was represented at this hearing by Counsel.

The appeal progressed fairly slowly after this, no doubt partly due to the delays resulting from Covid. HMRC provided a statement of case in November 2020. The Tribunal then issued standard case management directions later the same month. HMRC did not produce their list of documents until July 2021.

Mr Butt did not provide any documents until February 2022 when he produced approximately 600 pages of documents. It was not immediately apparent either to HMRC or to the Tribunal what the relevance of these documents were to Mr Butt’s original grounds of appeal and, in March 2022, the Tribunal directed Mr Butt to explain the relevance of the documents. Unfortunately, he failed to do this and so, in April 2022, HMRC produced a bundle of documents for the hearing of the substantive appeal which did not include the documents provided by Mr Butt. The Tribunal listed the appeal for a hearing on 19 January 2023.

On 5 January 2023, Mr Butt provided HMRC and the Tribunal with a bundle of documents containing a 44 page report (which he refers to as a skeleton argument) together with approximately 800 pages of supporting documents. These supporting documents included the 600 pages of documents previously provided in February 2022.

Unfortunately, neither the Tribunal nor HMRC could access the documents which Mr Butt had attempted to provide although it appears that, by 16 January 2023, HMRC had been able to access the documents and, as a result, applied for a postponement of the hearing due to take place on 19 January 2023.

In the light of the new documentation and uncertainties as to its relevance, the Tribunal agreed to cancel the hearing on 19 January 2023 and, again, directed Mr Butt to explain the relevance of all of the documents.

Mr Butt provided this explanation on 21 February 2023. This made it clear that Mr Butt was now alleging that all of the transactions were a fraud which he said was masterminded by a Mr Jalal Kamani. He referred back to the skeleton argument which had been provided which in turn made it clear that the allegation was that no goods had in fact changed hands. Mr Butt’s formal application to amend his grounds of appeal in accordance with the skeleton argument was made on 27 February 2023.

In the meantime, as I have said, HMRC applied for the appeal to be struck out in February and April 2023. The strike out application was listed for a hearing on 21 March 2024. However, unfortunately, Mr Butt’s application to amend his grounds of appeal was overlooked by all parties (including the Tribunal).

The result of this was that the hearing which took place on 21 March 2024 was adjourned as the strike out application could not be decided in isolation from the application to amend Mr Butt’s grounds of appeal and that application could not be decided as the parties had not come prepared to deal with it. This is partly why the hearing of that application has been delayed for such a long time.

Against that background, I now turn to the application made by Mr Butt to amend his grounds of appeal.

As we have seen, Mr Butt has effectively abandoned his original case that the zero rating of the transactions to which the assessment relates can be properly evidenced and now says that these alleged transactions were part of a VAT carousel fraud and that the supplies in question in fact never took place.

The first question is whether Mr Butt has a real (as opposed to fanciful) prospect of succeeding in this argument based on the evidence which he has been able to provide.

Ms Nkonde, of behalf of HMRC, notes that the evidence from 2007, primarily being the statements made at the time by Mr Butt when HMRC visited his premises in June 2007 and business records provided by his agent, supports the existence of the relevant supplies, as does the original grounds of appeal contained in Mr Butt’s notice of appeal to the Tribunal in November 2018.

Ms Nkonde goes on to submit that Mr Butt’s new version of events simply represents assertions made by him which are unsupported by evidence.

It is important to note that it is not the function of the Tribunal at this stage to determine whether the new grounds of appeal can be substantiated at a full hearing. It is enough for Mr Butt to show that there is a real prospect of being able to do so. There must be evidence which establishes “a sufficiently arguable case” (Kawasaki at [18]) but this does not preclude the possibility of further evidence being provided should the amendment be allowed.

I also note the observation made by Mrs Justice Carr in Quah at [69(a)] that:

“The fact that the proposed amendments raise a totally different and inconsistent case to the original case is relevant background. It heightens the need for careful scrutiny of the merits of the new case;”

I was not taken through the evidence which Mr Butt has provided in any detail but broadly speaking, it includes:

Based on these documents, it is clear that Mr Butt’s new grounds of appeal are not simply assertions. The grounds of appeal are put forward with conviction and are backed up by, at least, some evidence. Based on this evidence, I am satisfied that the suggestion that the transactions in question were part of a wider VAT fraud is more than merely arguable and has a real (and not just fanciful) prospect of success.

However, as I observed at the hearing, that the mere fact that the alleged transactions were part of a VAT fraud does not, of itself, mean that those transactions did not in fact take place.

Mr Butt accepts this and also accepts that, at present, there is no direct evidence that the transactions did not take place other than his assertion (based on what he says he has been told by people working for Mr Kamani) that this is the case. He is hopeful that he may be able to persuade one of the individuals who previously worked for Mr Kamani to provide a witness statement and to attend the Tribunal for cross-examination although he explained that one of the difficulties he has faced is that witnesses are scared to come forward based on concerns about possible reprisals.

Nonetheless, based on the evidence of fraud, it is not in my view fanciful to suggest that the transactions in question did not in fact take place even though there is, at present, no direct evidence in relation to this. Given what Mr Butt has said, I do have concerns about whether such evidence will be forthcoming, and, in my view, this is a factor which it is relevant to take into account in the overall consideration as to whether or not to allow the amendment.

However, on balance, I am prepared to accept that Mr Butt’s proposed amendment has a sufficiently real prospect of success that I should proceed to the next stage of looking at the reasons for any delay and all of the other relevant circumstances which need to be weighed up in deciding whether to give permission to amend.

As explained in Quah, the concept of lateness is relative rather than absolute. It is necessary to consider whether the amended grounds of appeal could have been put forward at an earlier stage and, if they could, what the explanation is for why this did not happen.

Mr Butt accepts that, in late 2007/early 2008, he suspected that the alleged transactions to which the assessment relates were connected with a VAT fraud. This was the reason for the conversations which he had with Mr Kamani at around that time and for which he has provided transcripts (and indeed the reason that he recorded those conversations).

The extracts from Mr Butt’s witness statement made in the bankruptcy proceedings note, in relation to a discussion Mr Butt had in September 2007 with other individuals said to be involved in the fraud, that “…it was after this conversation that I realise I’ve been fitted up. The import and export line was clearly all fake…”.

In relation to a conversation with Mr Kamani in January 2008 which Mr Butt decided to record, he observes in his witness statement “I thought, if I am going down for VAT fraud, you are all coming down with me…”.

Despite this, Mr Butt submitted his notice of appeal to the Tribunal in November 2018 on the basis that the supplies had taken place and that he could prove that they were correctly zero rated. Mr Butt has put forward two reasons for this:

Taking the first point, there is limited evidence of the risk/threat to which Mr Butt was subject other than his own assertions. However, based on Mr Butt’s own evidence, these threats took place around 2012/2013. He speculated that the reason for threats at this time was that HMRC can generally only go back six years and so those involved wanted him to keep quiet until those six years had passed. There was no suggestion from Mr Butt that he was under any particular pressure when the notice of appeal was submitted in 2018.

Indeed, Mr Butt stated that his defence to the bankruptcy petition, which was presented in early 2016, has always been that the transactions were part of a fraud and so there is no reason to suppose that Mr Butt would have had any concern in putting this forward to the Tribunal in his notice of appeal in November 2018.

Based on the evidence provided, I therefore conclude that any pressure to which Mr Butt was subject pre-dated the appeal to the Tribunal and does not provide any reason for not putting forwarded the amended grounds of appeal at that stage.

Nor do I consider that the fact that Mr Butt did not have sufficient evidence to prove the fraud at the time the notice of appeal was submitted justified him putting forward grounds of appeal which, based on his defence to the bankruptcy proceedings, he clearly cannot have considered to have been correct and making no reference to the fraud which he believed had taken place.

In this context, as I have mentioned above, it is clear from Mr Butt’s own evidence in the bankruptcy proceedings that he believed as long ago as 2008 that a fraud had taken place. I acknowledge, as Mr Butt observed, that there is a difference between having suspicions and being able to prove something but the purpose of setting out the grounds of appeal in the notice of appeal is to explain both to HMRC and to the Tribunal what the taxpayer’s case will be. The evidence, in the form of documents and witness statements follows at a later stage.

The fact that Mr Butt did not have all of the evidence at the time the notice of appeal was submitted is not a reason for failing to put forward what he considered to be the true grounds or appeal – in this case that the alleged supplies were connected with a fraud and that there was in fact no supply. Nor is it a reason for putting forward grounds of appeal which he did not believe were correct and which he must therefore have known he could never prove.

Although Mr Butt says that nothing happened between 2009-2016 (when the bankruptcy petition was presented), he acknowledged that, once the petition had been presented, he started to investigate the fraud in more detail. This was almost three years before the notice of appeal to the Tribunal was submitted. Even allowing for the fact that Mr Butt has limited resources, it might be expected that he would have made some progress in his investigation during this time.

Mr Butt did however explain that, in 2016, he was involved in a traffic accident in which he nearly died and that for most of the time between 2016-2018 he was recovering from this accident and had limited ability to get around (both his legs having been broken).

I have no evidence of this other than Mr Butt’s own evidence at the hearing, but I am prepared to accept that there was a limited amount which he could do during this time and that a significant part of the evidence which he has now obtained came to light after the appeal to the Tribunal was made.

It will, however, be apparent from what I have already said that I do not consider this to be a good reason for not referring to these grounds of appeal in the notice of appeal given that he clearly believed that a fraud had taken place even if he did not have all the evidence at that time.

As I have noted, Mr Butt was represented by a firm of VAT consultants when he submitted his notice of appeal. By his own admission, he simply provided them with the documents relating to the transactions which he now says were produced by Mr Kamani and which he says related to fictional transactions which never took place. However, he admits that he said nothing about these concerns to the VAT consultants and that it was as a result of this that the notice of appeal was submitted on the basis that the transactions were genuine and that the zero rating could be justified.

Taking all of this into account, there is little doubt that Mr Butt could and should have put his amended grounds of appeal forward at the time he submitted the notice of appeal. He clearly believed that a fraud had taken place and that there had not been any supply of goods. Although he did not have all of the evidence needed to support this, he did have some evidence (for example the transcripts of the conversations with Mr Kamani in 2007/2008) as well as the other invoices and documents which he now says were not produced by him.

The reasons put forward by Mr Butt as to why the original grounds of appeal were put forward instead of the amended grounds of appeal do not provide any good explanation for the delay, particularly bearing in mind that the VAT consultants were not even informed of Mr Butt’s suspicions.

Even if this were a reasonable course of action at the time the notice of appeal was lodged, I have little doubt that Mr Butt could have made his position clear to HMRC and to the Tribunal much sooner than he did. The bulk of the evidence which he has provided was first sent to HMRC and to the Tribunal in February 2022. In March 2022, he was directed by the Tribunal to explain the relevance of this evidence but failed to do so.

Had Mr Butt explained to the Tribunal and to HMRC in March 2022 what he explained in February 2023, it would have become clear at that stage that he needed to amend his grounds of appeal and an application could have been made at that time. Instead, a hearing date was fixed, and this hearing date had to be cancelled at very short notice as a result of Mr Butt again putting forward these documents (together with further documents) in January 2023.

In the light of this, there is no doubt in my mind that the application to amend the grounds of appeal is late in the sense that those grounds of appeal could and should have been put forward much sooner, indeed, at the outset of the proceedings.

It is relevant to consider what work would need to be done if the amendment is allowed and what work which has already been done will have been wasted. This is a particular concern in this case given that the amended grounds of appeal are wholly inconsistent with the original grounds of appeal. In effect, the amended grounds of appeal would represent a new appeal and the whole appeal process would need to start again.

Although the amended grounds of appeal can, in broad terms, be discerned from the skeleton argument provided by Mr Butt, it would be necessary for him to provide a much more focused and concise explanation of his grounds of appeal identifying the particular facts and matters relied on in support of his case that the supplies in question had not in fact taken place. HMRC would then need to provide a new statement of case (the original statement of case being entirely irrelevant to the amended grounds of appeal). This would be followed by the parties exchanging documentary and witness evidence.

Pretty much all of the work which has taken place to date throughout the six years of this appeal will have been wasted. Resources of both HMRC and the Tribunal will have been expended for no purpose. This is a factor which weighs against giving permission to amend.

In his explanation as to why he did not have all of the evidence to support his case in November 2018, Mr Butt referred to the difficulty of obtaining evidence in relation to events which took place in 2007. This is clearly a factor to take into account given that it is now 17 years since those events took place. As Mr Butt says, this is likely to affect his ability to obtain the evidence he needs to support his case. It will also have an impact on HMRC’s ability to obtain evidence to counter anything put forward by Mr Butt and to support their own case. As HMRC point out, this will consume significant resources which could otherwise be deployed elsewhere. These factors also suggest that permission to amend should not be granted.

As is clear from the comments made in Quah at [38(g)], it is also necessary to take into account the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately and that the Tribunal can enable them to do so. This appeal has already been ongoing for almost six years. If permission to amend Mr Butt’s grounds of appeal is granted, the proceedings will be back to square one. This will clearly have an impact on the ability of other taxpayers to progress their appeals.

I have already referred to the prejudice to HMRC in allowing the amendment. I do, of course, also need to consider the prejudice to Mr Butt in refusing permission to amend his grounds of appeal.

Given that HMRC have presented a bankruptcy petition, it must be likely that, if Mr Butt has to pay the tax, he will be made bankrupt, and that, as he has said, he will lose his home. There cannot be any doubt that this is a significant factor to take into account in deciding whether Mr Butt should be given permission to amend his grounds of appeal. However, as I have said, based on the comments of the Upper Tribunal in Katib (with which I agree) it cannot override all other factors.

Although it is quite possible that Mr Butt got himself involved in something which he did not understand at the time and which may have been masterminded by organised criminals and which has resulted in him incurring a significant liability to VAT without having received any benefits, taking into account the overriding objective of dealing with cases fairly and justly (which includes dealing with cases in ways which are proportionate, including in relation to costs and avoiding delay) and the factors which I have already mentioned, I have come to the conclusion that it would not be right in this case to give Mr Butt permission to amend his grounds of appeal. My reasons for this are explained above but can be summarised as follows:

For the reason which I have explained, permission for Mr Butt to amend his grounds of appeal is refused.

In the light of this, the appeal is struck out in accordance with Rule 8(3)(c) of the Tribunal Rules as there is no real prospect of Mr Butt’s original grounds of appeal succeeding.

Mr Butt’s application to admit additional documents supporting his amended grounds of appeal is irrelevant and the application 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.