Gary Stenhouse v The Commissioners for HMRC

This decision deals with applications (“the applications”) by the appellants for permission to bring late appeals against firstly discovery assessments visited on them pursuant to section 29 Taxes Management Act 1970 (“TMA”), and secondly penalties (“the penalty notices”) for failing to comply with information notices (“the information notices”) issued to them pursuant to the provisions of schedule 36 Finance Act 2008 (“schedule 36”).

The amounts to which they have been assessed by the discovery assessments are considerable. Mr Stenhouse has been assessed to additional income tax of £305,708. Mrs Stenhouse has been assessed to additional income tax of £141,931. The penalties amount to £13,700.

It is HMRC’s assertion that the appeals are between 68 months and 33 months late and there is no good reason for this delay. They therefore oppose the applications.

For the reasons given later in this decision we have allowed the applications in respect of the discovery assessments but rejected them for the penalty notices.

Under section 29 TMA, where an HMRC officer discovers (inter alia) that an assessment to tax is or has become insufficient, that officer may make an assessment to make good that loss of tax. Where a taxpayer has submitted a tax return for the relevant tax year, then the assessment can only be issued if one of two conditions are satisfied. The relevant condition in this case is that the insufficiency of the self-assessment was brought about carelessly by the appellants.

Once the officer has discovered an insufficiency, they must go on to issue the assessment. The time limit for issuing the assessment is four years after the end of the year of assessment to which it relates, but if HMRC can demonstrate carelessness, that four year period is extended to 6 years.

A taxpayer who has been issued with a discovery assessment has 30 days within which to appeal against that assessment to HMRC. If they miss that deadline, then HMRC can permit a late appeal. If they do not so permit it, then a taxpayer can only bring an appeal with the permission of this tribunal.

Under schedule 36, HMRC may give a notice to a taxpayer requiring that person to provide information or documents if those are reasonably required by HMRC for checking the taxpayer’s tax position (“aninformation notice”).

Penalties can be visited on a taxpayer who fails to comply with an information notice. Any such penalties must be assessed by HMRC and that assessment served on the taxpayer. The taxpayer then has 30 days within which to appeal to HMRC against that assessment. Again, if the taxpayer brings a late appeal, HMRC have a discretion as to whether to accept it. If they do not do so, then the taxpayer can only bring an appeal to the tribunal if the tribunal gives permission.

A taxpayer is relieved from liability for a penalty if they can establish that they have a reasonable excuse for the failure to comply with the provisions of an information notice.

Under Rule 2 of the First-tier Tribunal (Tax Chamber) Rules 2009 (as amended):

“Overriding objective and parties’ obligation to co-operate with the Tribunal

(1)

The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly.

(2)

Dealing with a case fairly and justly includes—

(a)

dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties;

(b)

avoiding unnecessary formality and seeking flexibility in the proceedings;

(c)

ensuring, so far as practicable, that the parties are able to participate fully in the proceedings;

(d)

using any special expertise of the Tribunal effectively; and

(e)

avoiding delay, so far as compatible with proper consideration of the issues.

(3)

The Tribunal must seek to give effect to the overriding objective when it—

(a)

exercises any power under these Rules; or

(b)

interprets any rule or practice direction.

(4)

Parties must—

(a)

help the Tribunal to further the overriding objective; and

(b)

co-operate with the Tribunal generally”.

When deciding whether to give permission, the tribunal is exercising judicial discretion, and the principles which we should follow when considering that discretion are set out in Martland v HMRC [2018] UKUT 178 (TCC), (“Martland”) in which the Upper Tribunal considered an appellant’s appeal against the FTT’s decision to refuse his application to bring a late appeal against an assessment of excise duty and a penalty. The Upper Tribunal said:

“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...

47.

Shortage of funds (and consequent inability to instruct a professional adviser) should not, of itself, generally carry any weight in the FTT’s consideration of the reasonableness of the applicant’s explanation of the delay: see the comments of Moore- Bick LJ in Hysaj referred to at [15(2)] above. Nor should the fact that the applicant is self-represented – Moore-Bick LJ went on to say (at [44]) that “being a litigant in person with no previous experience of legal proceedings is not a good reason for failing to comply with the rules”; HMRC’s appealable decisions generally include a statement of the relevant appeal rights in reasonably plain English and it is not a complicated process to notify an appeal to the FTT, even for a litigant in person”.

In addition, the Upper Tribunal in HMRC v Katib [2019] UKUT 0189 (TCC) (“Katib”), which concerned an appeal by HMRC against a decision of the tribunal to give permission for the taxpayer to make late appeals, emphasised the importance of adhering to statutory time limits at [17]:

“We have, however, concluded that the FTT did make an error of law in failing to acknowledge or give proper force to the position that, as a matter of principle, the need for statutory time limits to be respected was a matter of particular importance to the exercise of its discretion. We accept Mr Magee’s point that the FTT referred to both BPP Holdings and McCarthy & Stone in the Decision. Paragraph 27 (1) of the decision (cited above) shows that the FTT seemed to have the point in mind. However, instead of acknowledging the position, the tribunal went on to distinguish the BPP Holdings case on its facts. Differences in fact do not negate the principle, and it is not possible to detect that the tribunal thereafter gave proper weight to it in parts of the decision which followed”.

We were provided with a bundle of documents. Mr Stenhouse gave oral evidence on behalf of himself and his wife. He was cross examined on that oral evidence. Mrs Stenhouse also gave oral evidence. From the documentary and oral evidence, we find as follows:

In 2009/2010, Mr Stenhouse and a colleague went into business together. Their business was the purchase of residential properties from builders who had built but couldn’t sell those properties, and then letting them out.

Mr Stenhouse and his colleague were unable to obtain mortgages for properties they wished to purchase. This was because they were self-employed. However, lenders were prepared to lend to employees. So many of the properties were purchased in the names of; their respective spouses, a friend, and his colleague’s father (as they were in employment). We were told (and this was not challenged either before us or in correspondence) that the intention was that those individuals would have no interest in the rent derived from those properties, nor did they have any liability for those mortgages. The benefits and liabilities were solely those of Mr Stenhouse and his colleague.

Mr Stenhouse was responsible for organising the relevant tax returns. Rather than simply treating the individuals as bare trustees and returning the profit (income less allowable expenses) on the returns of himself and his colleague, (and so avoiding the need to submit any returns for the legal owners) he computed the net profit for each of those owners, and then deducted an equivalent amount by way of management fee payable to himself and his colleague. He did this on the advice of his accountant. This methodology has not been challenged by HMRC in correspondence nor before us at the hearing.

For each of the tax years from 2012/2013, to date, Mr Stenhouse and his wife completed and submitted timely self-assessment tax returns to HMRC.

HMRC opened enquiries into the tax returns submitted by Mrs Stenhouse for the tax years 2015/2016, 2016/2017 and 2018/2019. They opened enquiries into the tax returns submitted by Mr Stenhouse for the tax years 2016/2017 and 2018/2019. Those enquiries were subsequently closed without any adjustments to the amount originally submitted in those returns. We were told by Miss Brown that the reason for this was that HMRC had insufficient information on which to make any adjustments via a closure notice. This was because the appellants had not supplied any information in response to the information notices.

In March 2018, October 2018 and December 2018, HMRC served information notices on Mrs Stenhouse. These requested disclosure of bank statements and also copies of invoices and detailed breakdowns of rents received and various outgoings. Mrs Stenhouse failed to supply that information, and accordingly, HMRC subsequently sent penalty notices to her, the earliest on 20 April 2018, and the latest on 16 May 2019.

HMRC also served five information notices on Mr Stenhouse (in October 2018, April 2019, September 2019, January 2021 and March 2021) requesting similar information. Mr Stenhouse failed to respond to those notices, and so HMRC issued him with penalty notices for those failures, the earliest on 7 December 2018, and the latest on 3 March 2021.

Each of those penalty notices explained to the recipient, under the heading “What to do if you disagree” that “If you disagree with our decision to charge this penalty, you can appeal. You need to write to us within 30 days of the date on this notice, telling us why you think our decision is wrong. We will then contact you to try to settle the matter. If we cannot come to an agreement, we will write to you and tell you why. We will then offer to have the matter reviewed by an HMRC officer who has not previously been involved in the case. We will also tell you about your right to go to an independent tribunal”. It also explained that if the recipient made an appeal, they did not have to pay the penalty whilst the appeal is being considered, and that further information about appeal and review rights could be found from fact sheets available on HMRC’s website.

HMRC also served discovery assessments on the appellants. As regards Mr Stenhouse, the discovery assessments were issued as follows: for the tax year 2012/2013, on 27 March 2019; for the tax year 2013/2014, on 3 April 2020; for the tax year 2014/2015, on 27 March 2019; for the tax year 2015/2016, on 3 April 2020.

For Mrs Stenhouse, the discovery assessments were issued as follows: for the tax year 2012/2013, on 27 March 2019; for the tax year 2013/2014, on 3 April 2020; for the tax year 2014/2015, on 27 March 2019.

Each of the discovery assessments contain similar information to that contained in the penalty notices concerning what the recipient should do if they disagreed with the notice of assessment. Under the heading “What to do if you disagree”, the recipient was told that “If you disagree with this notice of assessment, you can appeal. To do this, you need to write to us within 30 days of the date of our assessment, telling us why you think our decision was wrong. We’ll contact you to try to settle the matter. If we can’t come to an agreement, we will write to you and tell you why…”. It then goes on to explain the right to request an independent review, that tax would be postponed if an appeal was made, that interest might be payable on any tax due, even if payment was postponed, and where the appellant could find further information about appeals and reviews (on the www.gov.uk website).

A note of HMRC’s telephone conversations on 13 March 2018 was included in the bundle. There were two telephone conversations. The first with the appellants’ accountant who “advised that he has requested documents from Mrs Stenhouse a number of times however she has still not provided these”. The second was with Mrs Stenhouse who apparently confirmed that the opening letter had been received and the accountant was in the process of dealing with the response. It was the oral evidence of Mrs Stenhouse that she had never spoken to the accountant, and she could not remember any telephone conversation with an HMRC officer on 13 March 2018. Given that this is her birthday, it was her view that she would have remembered any such telephone conversation.

On 3 July 2018, Mr Stenhouse sent an email to HMRC. This followed up a telephone conversation that he had held with the officer two weeks previously. It explains the nature of the appellants property business and the ownership of the properties and the way in which income and outgoings were dealt with in the tax returns of the relevant individuals.

It was Mr Stenhouse’s oral evidence that with this email he sent a copy of the spreadsheet which he would send to his accountant on an annual basis in order to enable the accountant to compile his and his wife’s tax returns. However, there is no evidence of such an attachment on the face of the email and HMRC have no record of receiving it. We were not pointed to any evidence in the correspondence, referring to the spreadsheet nor the fact that Mr Stenhouse had sent it to HMRC on 3 July 2018.

A record of a telephone conversation which took place on 6 December 2018 between an HMRC officer and the appellants’ accountant records that, in connection with the recent information notice, the accountant was in touch with Mr Stenhouse who was very busy dealing with a VAT enquiry/inspection. It records that the agent had told Mr Stenhouse that this was not a reasonable excuse and that he needed to respond. It also records the agent as saying that Mr Stenhouse is not good at doing things on time and leaves things to the last minute.

On 19 September 2019, HMRC sent an email to Mr Stenhouse (“the 19 Septemberemail”). It deals with the tax affairs relating to Mrs Stenhouse. It recorded that discovery assessments had been issued on 27 March 2019 to protect HMRC’s position. Those assessments are issued as he had provided no information to help HMRC check his tax affairs. The officer therefore had no option but to disallow all expenses that had been claimed.

It also records that the officer had made clear that the assessments will stand if they were not appealed and that they had not been appealed at that date. He had been in contact with his colleagues in debt management who were in the process of commencing legal action to obtain the unpaid taxes. It records that Mrs Stenhouse had spoken to those colleagues and that the debt should be reduced to nil.

That email then goes on to record that the assessment still stood at the date of that letter and that the officer had notified debt management of this. It went on to say “Should you disagree with the assessment you will firstly need to send me your appeal. You will as a first step, have to tell me why your appeal is late so that I can determine if you have a reasonable excuse. You will then need to detail precisely what you are appealing and tell me why you are appealing it. You will also need to provide any documentation required to support your appeal. If you would like that tax stood over pending the outcome of your appeal (should it be accepted), you will need to specify this. Please let me have your response as soon as possible”.

On 17 November 2022, HMRC sent an email to Mr Stenhouse explaining that his tax adviser should be able to provide advice on his options going forward; the notice of assessment explains that the appellant could appeal to HMRC within 30 days of receipt; he could submit a late appeal request to HMRC which HMRC may accept if there was a reasonable excuse and a request was made without unreasonable delay after that excuse ended; and should HMRC not accept his late appeal, he could appeal direct to the tribunal.

On the same day Mr Stenhouse responded explaining that his accountant had written to HMRC notifying them of his intention to appeal “months ago quoting the case numbers and has further chased but had nothing back from them as yet, where are the contact details for the tribunal in case it gets that far”.

On 21 December 2023, the appellants’ accountant sent a letter to HMRC’s debt management team recording that Mrs Stenhouse had been issued with a demand for payment arising from determinations made by HMRC; HMRC had requested bank statements and mortgage offers which the appellants had tried to obtain but which were unavailable; the statements were requested in June 2019 but due to Covid, account closures, moving bank, and the archive team being on furlough, the statements were not received until June 2022; those statements show that no tax is due for those years and the determinations should be cancelled; it states that their client wished to make an appeal under the Special Relief provisions of the TMA and that the appellants’ MP had contacted HMRC in an attempt to have the enforcement action suspended.

It also went on to state that “our client wishes to submit a late appeal for the determinations made for 2013, 2014 and 2015”.

It is clear from HMRC’s letter to Mr Stenhouse of 19 January 2024 that a similar letter was sent to HMRC, on his behalf, by the accountants.

HMRC accepted those letters as late applications for appeals against the discovery assessments and the penalty notices. In letters dated 19 January 2024 in respect of both appellants, HMRC rejected those applications.

On 31 January 2024, Mr Stenhouse notified his appeal to the tribunal. On 14February 2024, Mrs Stenhouse notified her appeal to the tribunal.

In oral evidence, the appellants made the following assertions of fact.

In May 2018 their 18-month-old daughter was admitted to hospital with severe sepsis. She stayed in hospital for about a week. Thankfully she has now made a full recovery. The penalty notices had been received during that period and they were not given much attention since, unsurprisingly, the appellants were focusing on the health of their daughter.

Reference in the documents to a VAT enquiry related to a VAT enquiry in respect of a company and had nothing to do with the rental properties.

Mr Stenhouse had been told by an HMRC officer over the telephone, in connection with HMRC’s compliance checks into their returns, that HMRC would be making determinations for various tax years as if they failed to do so, they will be time-barred. He was also told that they would have a right of appeal against those determinations.

Their accountant was not responsible for dealing with the tax appeals until 2022.

They had originally used RBS, as their bankers but changed to TSB in 2017. They therefore had no access to the RBS online statements. Mr Stenhouse tried to obtain copies of the statements requested by the information notices via customer services, attending at branches of RBS and via telephone calls. In September 2019 he provided a mandate to allow HMRC’s case officer to contact RBS to obtain the bank statements.

During Covid, in April 2020, RBS was working with a reduced number of staff and the archive team, which was responsible for obtaining copies of the bank statements, had been furloughed.

Although the documents they had received explained that the determinations could be appealed, to do so they would need the bank statements to prove there was no tax due. They therefore could not make an appeal until they had received the bank statements. It was his understanding that no appeal can be made until he had evidence that there was no tax to pay.

In June 2022 he collected the bank statements from a branch of RBS. These provided proof that mortgages and other expenses were being paid in respect of the properties. He therefore contacted his accountant telling him that they now had all the information to prove that no tax is due. The accountant wrote to HMRC. That letter was never acknowledged.

Copies of the invoices (in respect of both rental income and outgoing expenses) were not, in his view, sufficient evidence of the income and outgoings of the business. These could only be ascertained from the bank statements which showed where the money came from and where it went to.

He accepted that he could, and should have, obtained and retained hard copies of the bank statements for the years in question.

In summary, Miss Brown submitted as follows:

The delays in making the appeals both to HMRC and to the tribunal by both appellants are both serious and significant. In the case of Mr Stenhouse, the delay is between 60 months and 33 months. In the case of Mrs Stenhouse, the delay is between 68 months and 45 months.

The appellants have provided no good reasons for these delays. The most significant reason appears to be that they were unable to obtain copies of the bank statements from RBS and were unable to appeal until they had received those bank statements.

However, the requests for information were not limited to the bank statements. They included requests for other information concerning income and expenses which the appellants could readily have provided but which they chose not to.

Furthermore, it is clear that the appellants were able to provide sufficient information to their accountant to enable him to produce their tax returns. Why, therefore, was this information not provided to HMRC. There is no evidence of receipt by HMRC of any spreadsheet having been sent to them by Mr Stenhouse.

Whilst it is wholly understandable that the appellants were concerned about the health of their daughter when she was hospitalised in May 2018, the discovery assessments and penalty notices were issued over a number of years between December 2018 and April 2020. No good reason has been given why there was no response to those, by way of an appeal, during that period.

The notices make clear, in plain English, what the recipient must do if they disagree with the contents of a notice (whether it is a discovery assessment or a penalty notice). The appellants have simply failed to read the notices and make appeals accordingly. There is no justification for the submission that no appeal could be made unless and until the bank statements had been obtained.

In addition, the appellants had clearly been told in the 19 September email that they needed to appeal if they disagreed with the determinations and what to do to make that appeal. That was in 2019.

Furthermore, the bank statements were obtained in June 2022, yet the appeals to HMRC by the appellants’ accountants were not made until December 2023. No reasons have been given for this delay.

The tribunal must give proper force to the position that the need for statutory time limit to be respected as a matter of particular importance. Litigation must be conducted efficiently and at proportionate cost. HMRC would be prejudiced if the application is granted as they would have to divert resources to defend this appeal which they were entitled to consider closed. This would prejudice them and indeed other taxpayers who have made timely appeals. The appellant’s case is obviously weak. They have failed to cooperate with the enquiries or comply with the information notices. The bank statements have not been supplied to HMRC. It is only because of the enforcement action that the appellants have addressed the position.

In summary, the appellants submitted as follows:

They are conscientious taxpayers who have never sought to avoid a tax liability. This is reflected in the fact they have always submitted timely tax returns.

They could not afford the professional fees for representation before the tribunal.

The enquiries into their returns have been closed. No additional tax has been assessed. This shows that HMRC must have been satisfied with the information in those returns.

The bank statements show that there is no tax to pay. It would therefore be a manifest injustice if they were not allowed to proceed with their appeal.

If they were not allowed to appeal, there would clearly be double taxation, something which is reflected in the discovery assessments.

Their daughter’s hospitalisation in May 2018 meant that documents are received during that period were not given due attention. This is perfectly understandable given their domestic position.

They could not appeal unless and until they had the information which proves that there was no tax to pay. For a number of reasons over which they had no control, they did not have this information which was contained in the bank statements, until June 2022. They could not, therefore, have brought an appeal until then.

It is in the interest of justice to allow the application so that the merits of the appeal can be considered. They are not asking for special treatment, just for fairness. If we reject the application, then they will lose everything that they have worked for, and their children will be detrimentally affected.

Following the hearing, the appellants submitted their written speaking notes and closing submissions. They took the opportunity to add to those closing submissions, brief further submissions which they had not made at the hearing. We have disregarded those further submissions when reaching our decision.

We will apply the three stage approach set out in Martland. This is the case for both appellants, against both the discovery assessments and the penalty notices. We remind ourselves that we are exercising judicial discretion, and in that regard, we are subject to the overriding objective in Rule 2 namely to deal with the case fairly and justly.

The appellants did not dispute that the appeals were made very late. This is the case in respect of both appeals against the discovery assessments and against the penalty notices. In the case of Mr Stenhouse, the delays are between 16 and 33 months. In the case of Mrs Stenhouse, the delay is between 68 and 45 months. These are clearly serious and significant delays and we can therefore move on to the second stage, namely to assess the reasons for the failure.

These are straightforward. The appellants submit that they were unable to appeal unless and until they had the bank statements from RBS, since without them they could not dispute HMRC’s figures. In turn, they were unable to obtain these until June 2022 as a result of the change of bank from RBS to TSB, their inability therefore to access their electronic RBS records, and the difficulties which the bank faced in providing paper copies due, in part, to the Covid pandemic. Furthermore, due to their daughter’s hospitalisation in May 2018, documents received on or around that time were not given their due attention.

And so, we proceed to the third stage of the Martland approach, namely to undertake an evaluation of all the circumstances of the case. This requires us to conduct a balancing exercise, assessing the merits of those reasons, with the prejudice which would be caused to both parties by granting or refusing permission. And in undertaking this balancing exercise, we must 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.

Three further things need to be said. Firstly, we can have regard to any obvious strengths or weaknesses of the appellant’s case. Secondly, the fact that the appellants represented themselves, as they could not afford representation, is not generally something we should take into account. Finally, as was set out in the Upper Tribunal decision in HMRC v BMW Shipping AgentsLtd [2021] UKUT 91 (TCC) (“BMW Shipping Agents”) (albeit in the context of a reinstatement application, but in our view this is of general application when considering an application for permission to bring a late appeal)“… It remains a balancing exercise which invites, among other considerations, a consideration of the nature of the reasons for the breach of direction and the results that would follow if the appeal is, or is not, reinstated”.

We will deal first with the applications for permission to bring late appeals against the discovery assessments. We will then consider the applications in respect of the penalty notices.

It is abundantly clear that the discovery assessments spelt out, in words of one syllable, precisely what a recipient needs to do if they disagreed with the assessment. They need to write to HMRC within 30 days of receiving the assessment. No satisfactory explanation was given by the appellants as to why they did not follow these plain English instructions. There was some suggestion by Mr Stenhouse that he thought that there must have been a form to complete which he could not find. We do not give any weight to this assertion. No tax expertise or experience is required to interpret what HMRC tell a taxpayer to do if they disagree with the assessment. A simple letter would suffice.

Furthermore, when they receive these discovery assessments, the appellants were still instructing their accountants to complete their tax returns. We appreciate that it is an expensive exercise for the appellants to have instructed professionals to represent them at the hearing. But they, very wisely, paid a professional accountant to ensure they complied with their obligations to complete accurate and timely tax returns. It would have been the work of a moment to have contacted their retained accountant and asked them what to do. Again, no satisfactory explanation (indeed no explanation at all) was given by either of the appellants as to why they did not do this. There is no evidence that they went on to HMRC’s website to seek further information about what to do.

And this was not the only information the appellants were given concerning how and when they should make an appeal. In September 2019, in the 19 September email, it was also spelt out to them that the assessments would stand if they were not appealed and what to do in order to make an appeal.

The reason given by the appellants as to why they did not make an appeal was because, in their view, they could not do so without the relevant financial information which would have enabled them to contradict HMRC’s figures. And this was not available to them until the hard copy bank statements were obtained from RBS in June 2022.

However, as cogently observed by Miss Brown, the appellants appeared to be in a position to provide their accountants with financial information relating to, in the case of Mrs Stenhouse tax years 2015/2016, 2016/2017 and 2018/2019, and in respect of Mr Stenhouse 2016/2017 and 2018/2019. In respect of these earlier years, they were still banking with RBS. So, if they were able to provide the information to their accountants, why were they not able to provide it to HMRC. Mr Stenhouse answered this by saying that he had thought that he had sent a copy of his spreadsheet, which he sent to his accountant, to HMRC at the same time as he sent an email to HMRC on 3 July 2018. But we had no corroboration of this, and HMRC had not received it. We are pretty certain that had they done so, they would have acted upon it. We reject his assertion and find that the spreadsheet was not sent to HMRC.

We do not know why Mr Stenhouse thought that he could not make an appeal unless and until he had the bank statements. We accept that it was an honestly held belief. But in the face of the information that was available to him from both his accountant and HMRC, we do not consider this to be reasonable. It is not a “good” reason for having failed to bring the appeals in time and does not weigh heavily in his favour in the balance at this final evaluation stage.

Weighing against him too, and indeed against Mrs Stenhouse, is the fact that the appeals were brought very late.

However, we can consider any obvious strengths and weaknesses of the appellants’ position. And there are three of these. Firstly, HMRC have the legal and evidential burden of establishing that they have made a valid discovery assessment, and no evidence has been provided, other than the discovery assessments themselves, that an HMRC officer made a valid subjective and objective discovery. Secondly, given that the appellants submitted returns and HMRC are relying on the extended time of six years for four of the discovery assessments, they must show that the appellants have acted carelessly, and no prima facie evidence of carelessness has been provided to us. Finally, there has been no serious challenge to the way in which the appellants described to us the way in which Mr Stenhouse and his partner ran their business, which was reflected in previous returns submitted by Mrs Stenhouse which demonstrated that she was not liable to tax on the profits generated by the business carried on by her husband and his partner. So the discovery assessments on her clearly overtax her.

We have not needed to undertake any sort of detailed forensic analysis. These are obvious strengths and weaknesses.

It is clear from the discovery assessments that these were issued on a protective basis as HMRC were running out of time. They were issued very close to the four and 6 year deadlines and make clear that it was too late to amend the appellants tax returns hence the reason why they were issuing the assessments.

Although this was not submitted to us by Miss Brown, we are aware of the presumption of regularity (in simple terms, an HMRC officer is presumed to have acted regularly and properly in making a discovery). But we also take judicial notice of the fact that many discovery assessments are successfully challenged on the basis that the officer did not make an objectively reasonable discovery. Given that; the burden of establishing the discovery rests with HMRC, the fact that the discovery assessments were made at the very last minute, and that HMRC appeared to accept that they had very little information to go on when closing the appellants enquiries, as the appellants had provided little relevant information, there is sufficient obvious evidence to neutralise the presumption.

It is clear too, from Mullens v HMRC [2023] UKUT 00244 that when alleging carelessness, as HMRC must do in order to make good a discovery in the first place (when a taxpayer has submitted a tax return) and to benefit from the extended 6 year time period, HMRC must provide some prima facie evidence of that carelessness. The burden of proving carelessness rests with them, even though it is a matter objective fact, determinable by the tribunal, as to whether a taxpayer has indeed been careless.

The discovery assessments make no mention of carelessness. We were provided with no evidence justifying why HMRC considered the appellants to have behaved carelessly when submitting their tax returns. This is a considerable weakness in HMRC’s case. It may well be that they have some evidence but it was not provided to us. Again, we take judicial notice that it is reasonably common that when HMRC issue a discovery assessment relying on an extended time limit they will, at the same time, either in the same letter, or a covering letter, explain why they are alleging carelessness against a taxpayer. No evidence that this was provided to the taxpayers has been provided in this case. There is no evidence that HMRC have issued penalties for careless inaccuracies in the appellants’ tax returns.

These are obvious weaknesses in HMRC’s case.

There is also an obvious strength in the appellant’s assertion that Mrs Stenhouse should not be taxed and there is effective double taxation by dint of the fact that the discovery assessments tax her, and Mr Stenhouse, on the same income.

As mentioned above, no serious challenge to the appellants’ business model was made either in correspondence, or at the hearing, by HMRC. They appear to accept the way in which the appellants have dealt with the distinction between legal ownership of the properties on the one hand, and the beneficial right of Mr Stenhouse and his partner to the profits generated by those properties on the other.

And indeed, the appellants had submitted tax returns for a number of years on this basis which were accepted by HMRC (we accept that some were enquired into and closed without amendment on the basis of a lack of information).

So HMRC appear, in the past, to have accepted that Mrs Stenhouse had no beneficial interest in the business profits. And no suggestion was made, either at the hearing or in correspondence with HMRC, to justify why they thought she had a beneficial interest in those business profits.

In light of this it seems that the discovery assessments, on their face, significantly overcharge Mrs Stenhouse. This requires no detailed forensic analysis. It is simply an obvious deduction from the facts, which appear to have been accepted by HMRC, concerning the way in which the property business was organised.

The position is extremely finely balanced. On the one hand we have significant and serious delays and a disregard for time limits which were clearly explained to the appellants, without, frankly, a good reason for that disregard. And particular importance must be given for litigation to be conducted efficiently, and for statutory time limits to be respected. On the other hand, we can take into account obvious strengths and weaknesses, and that it remains a balancing act, in which we can take into account the consequences of rejecting the applications.

We have reached the conclusion that the obvious strengths and weaknesses outweigh (but only just) the delays and reasons given for them.

We therefore grant permission for the appellants to bring their appeals against discovery assessments out of time.

We now turn to the penalty notices. The position here is very different. The delays are serious and significant, and the reasons are poor. Whilst we accept that the appellants were finding it difficult to obtain the RBS statements, we can see no reason why these were required in order to challenge the penalty notices, which were not tax geared, and arose from the failure by the appellants to provide information which had been sought, by statutory information notices, on a number of occasions. Furthermore, whilst some of the information related to the provision of bank statements, much of the information requested did not. The information notices asked, for example, for details of rents rates and property repairs and copies of invoices. This information appears to have been provided to the appellants accountants as they relate to years in which the appellants had filed tax returns. Yet no reason was given as to why it could not be provided to HMRC.

We, like HMRC, are sympathetic to the plight of their daughter, but this was for a limited time in May 2018 and the penalty notices were issued between December 2018 and May 2019.

There are no obvious weaknesses to HMRC’s position as there were in the case of the discovery assessments. There are no obvious strengths to the appellants’ position.

The balance of prejudice, therefore, weighs very heavily in rejecting the appellants’ applications for permission to bring their appeals against the penalty notices out of time, and we do not give them permission to do so.

It is our decision that the fair and just course is to allow the appellants’ applications for permission to bring appeals against the discovery assessments out of time, and we hereby grant them permission to do so.

It is our decision that the fair and just course is to reject the appellants’ applications for permission to bring appeals against the penalty notices out of time. And we hereby deny them permission to do so.

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.