Case Number: TC09581
[Taylor House]
Appeal reference: TC/2022/13507
TC/2023/08694
PROCEDURE – application to strike out appeal under rule 8(3)(c) of the Procedure Rules – appeal against closure notices and penalties – test to establish reasonable prospects of success – HMRC v Fairford Group & The First De Sales Ltd Partnership v HMRC considered and applied – Applicationallowed
Judgment date: 17 July 2025
Before
JUDGE NATSAI MANYARARA
LESLIE HOWARD
Between
ARIF ABIDI
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: Mr Ben Symons of Counsel
For the Respondents: Mr Thomas Pearson, Litigator of HM Revenue and Customs’ Solicitor’s Office
DECISION
Introduction
This decision concerns HMRC’s application to strike out the Appellant’s appeal, pursuant to Rule 8 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 SI 2009/273(“the Procedure Rules”), on the grounds that the appeal has “no reasonable prospect of success”.
With the consent of the parties, the form of the hearing was V (video). Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public. The documents to which we were referred included: (i) the Documents Bundle consisting of 797 pages; (ii) HMRC’s Skeleton Argument dated 24 September 2024; (iii) HMRC’s strike out application dated 20 December 2024; and (iv) the Appellant’s Skeleton Argument dated 16 January 2025.
The underlying tax appeals
The underlying tax appeal concerns whether various payments received by the Appellant (Mr Arif Abidi) are deductible from general income in the calculation of income tax under s 336 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”).
The Appellant appeals against closure notices (“the Closure Notices”), issued by HMRC on 13 July 2022, pursuant to s 28A(1B) of the Taxes Management Act 1970 (“TMA”), as follows:
Tax Year | Decision | Legislation | Amount assessed |
2011-12 | Closure Notice | Section 28A(1B) TMA | £31,520.00 |
2013-14 | Closure Notice | Section 28A(1B) TMA | £2,349.82 |
The Closure Notices were issued following an enquiry into the Appellant’s tax returns for the 2012 and 2014 tax years. The Appellant had received payments from companies known as Blue Chip IT Ltd (“BCL”), Trading Systems Ltd (“TSL”) and RAD Trading Software Ltd (“RAD”) (“the relevant companies”), of which he was director and sole shareholder. HMRC contend that the Appellant has provided insufficient evidence to verify that the payments are reimbursed expenses (as claimed).
The Appellant further appeals against penalty assessments (“the Penalties”) issued on 1 February 2023, pursuant to Schedule 24 of the Finance Act 2007 (“Schedule 24”), as follows:
Tax Year | Decision | Legislation | Percentage of the Potential Lost Revenue (‘PLR’) | Amount |
2011-12 | Deliberate penalty | Schedule 24 | 52.5% | £16,548.00 |
2013-14 | Careless penalty | Schedule 24 | 15.75% | £370.09 |
The Penalties were issued as a result of the inaccuracies and omissions that were identified in the Appellant’s tax returns for the relevant periods.
The 2012 tax year
For the tax year ending 5 April 2012, the Appellant had declared £10,980 dividend income in his 2012 tax return. Bank statements subsequently obtained by HMRC showed that the Appellant had received payments from BCL and TSL, which were not reflected in the tax return. The Appellant asserts that the payments relate to reimbursements of expenses paid on behalf of BCL for the tax year ending 5 April 2010, and that the bank referenced the payments as ‘dividends’ in error. The Appellant further asserts that: (i) payments received from TSL were reimbursements of expenses paid on behalf of the company, (ii) the administration of both companies (BCL and TSL) was paperless and operated through telephone banking; and (iii) no bank statements or supporting evidence was available. Bank statements were later obtained by HMRC following the issuing of an identification notice, under para. 5A of Schedule 36 (“the identification notice”), to Barclays Bank UK PLC (“Barclays”).
Officer Duncan (the decision maker) proposed to treat all payments received from BSL and TSL in line with the most contemporary evidence; that being the description on the bank statements, as follows:
Statement Description | Blue Chip IT Ltd | Trading Systems Ltd | Total |
Salary | £6,000 | £6,000 | |
Reimbursed Expenses | £30,000 | £30,000 | |
Dividends | £62,980.46 | £33,500 | £96,480.46 |
Total | £132,480.64 |
The 2014 tax year
In relation to the 2014 tax year, during the enquiry the Appellant accepted that a capital gain had been omitted from his tax return and he filed an amended tax return. The amended return also included a claim for relief, in the sum of £9,801.93.The Appellant asserts that the claim relates to reimbursed expenses from RAD, for which relief should be given pursuant to s 289A ITEPA. The Appellant further asserts that relief should be granted because he satisfies the conditions for deductibility set out in s 336 of ITEPA.
HMRC considered that not all of the receipts related to expenditure in respect of RAD as some receipts related to expenditure before the company was incorporated. Furthermore, the company accounts for year ending 30 April 2014 did not show any pre-trading expenditure. HMRC concluded that the majority of receipts provided by the Appellant did not relate to expenses wholly and exclusively incurred for performance of the Appellant’s role at RAD. HMRC further took the view that receipts totalling £2,074 were more likely than not to be expenses which were eligible for relief, and treated them as such.
Background facts and procedural history
The companies
On 8 December 2005, BCL was incorporated. BCL was dissolved on 9 February 2010. The Appellant was a director and 100% shareholder of BCL. The last company tax return filed with HMRC for BCL was for accounting period ended (“APE”) 30 September 2007.
On 12 April 2011, TSL was incorporated. TSL was dissolved on 10 February 2015. The Appellant was a director and 100% shareholder of TSL. No accounts were ever filed for TSL with Companies House, and no company tax returns were filed with HMRC.
On 30 April 2013, RAD was incorporated. RAD was dissolved on 15 May 2018. The Appellant was the sole director and shareholder of RAD, until his resignation on 1 April 2017.
The 2012 and 2014 tax returns
On 11 December 2013, HMRC issued a notice to file to the Appellant, for the tax year ending 5 April 2012.
On 8 April 2014, the Appellant telephoned HMRC and stated that he had not filed a self-assessment tax return for the 2012 tax year as he had previously received a letter from HMRC advising that he was not required to submit tax returns.
On 24 July 2014, the Appellant filed his 2012 tax return. The tax return declared £10,980 of dividend income.
On 24 January 2015, the Appellant filed his 2014 tax return. The tax return included a claim under s 336 ITEPA 2003, for reimbursed expenses relief relating to payments received from RAD.
The enquiry
On 19 June 2015, Officer Richard Reid opened an enquiry into the Appellant’s 2012 and 2014 tax returns. This included a request for information and documents in relation to payments received by the Appellant during the relevant periods. A copy of the letter opening the enquiry was sent to the Appellant’s agents at the time.
On 10 August 2015, the Appellant’s agents wrote to HMRC advising that the Appellant had omitted a capital gain from his 2014 tax return. The tax return was subsequently amended to reflect a capital gain for the relevant year.
The Schedule 36 information notices and the penalties
On 16 November 2015, Officer Reid issued a notice for information and documents, under Schedule 36 Finance Act 2008 (“theSchedule 36 information notice”), to the Appellant. The Appellant’s agents were sent a copy of the notice. The notice requested explanations and evidence in relation to:
2011-12 dividend payments from BCL and TSL (“the dividend payments”); and
2013-14 travel and subsistence (“T&S”) expenses from RAD (“the T&S expenses”).
On 7 December 2015, the Appellant’s agents wrote to HMRC, enclosing a statement from the Appellant in response to the Schedule 36 information notice, as follows:
“The appointed accountants for Trading Systems Ltd, Tax Assist Accountants Ltd, had the incorrect address for Trading Systems Ltd and sent all communication regarding accounts to the incorrect address...Therefore no accounts were ever produced by the Accountants or submitted. In March 2013, HMRC threatened to strike off the company...The winding up petition took place on 30th September 2013 and the company was struck off in February 2015...
...The accountants for RAD Trading Software Limited have advised me that the P11d expenses do not need to be broken down and the figures on the P11d are correct and should be entered in as employment income on the self assessment form.”
On 19 January 2016, Officer Reid issued a letter to the Appellant’s agents requesting a breakdown of the T&S expenses. HMRC did not receive a response to this letter.
On 4 April 2016, Officer Reid issued a Schedule 36 information notice to the Appellant. A copy of the notice was also sent to the agents. The notice requested, inter alia, a breakdown of the T&S expenses in order for HMRC to verify the figures on the Appellants 2014 tax return.
On 29 April 2016, the Appellant wrote to HMRC providing a breakdown of the T&S expenses for 2013-14. The Appellant also provided bank statements (account no. ****2320), which showed payments from BCL referred to as ‘dividends’, as follows:
£10,000 on 23 June 2011;
£10,000 on 24 June 2011;
£25,000 on 24 June 2011; and
£480.46 on 19 August 2011.
The payments were not accounted for on the Appellant’s 2012 tax return.
On 31 May 2016, Officer Reid issued a request for information in relation to the dividend payments shown on the bank statements. The Appellant did not respond.
On 5 July 2016, Officer Reid issued a Schedule 36 information notice to the Appellant. The Appellant’s new agents were copied in. The notice requested the same information as that which was requested in the letter of 31 May 2016.
On 1 August 2016, the Appellant sent a letter to HMRC stating that the bank account no. ****2320 was held by TSL, and that payments he received were for reimbursed expenses for 2009-10 and were not dividends as BCL had been dissolved in February 2010. The Appellant stated that the transfers were incorrectly referenced as dividends by the bank due to miscommunication.
On 12 August 2016, Officer Reid wrote to the Appellant requesting further evidence to support his claims that the payments in 2011-12 were reimbursed expenses and not dividends, as well as evidence of the T&S expenses.
On 7 November 2016, Officer Reid issued a Schedule 36 information notice to the Appellant, which requested the same information as that which had been requested in the letter of 12 August 2016.
On 13 July 2017, Officer Reid issued a penalty assessment, in the sum of £300, to the Appellant for failure to comply with the Schedule 36 information notice issued on 7 November 2016. This was subsequently cancelled on 6 November 2017.
On 10 November 2017, Officer Reid issued a Schedule 36 information notice to the Appellant (copying in his new gents). The notice asked for:
the Appellants personal bank statements for the 2012 tax year; and
invoices or receipts to support the Appellants claim relating to the T&S expenses.
On 14 November 2017, the Appellant sent a notice of appeal to the First-tier Tribunal (“FtT”), against the Schedule 36 information notice of 10 November 2017.
On 19 December 2017, Officer Reid wrote to the Appellant (copying in his new agents) stating that his appeal was invalid because:
he had failed to state the grounds of appeal, in accordance with para. 32(2) of Schedule 36; and
there is no right of appeal against a request under Schedule 36 for statutory records (i.e., bank statements) in accordance with para. 29(2) of Schedule 36.
On 19 January 2018, Officer Reid issued a penalty assessment, in the sum of £300, to the Appellant (copying in his agents) for failure to provide the information requested in the Schedule 36 information notice of 10 November 2017.
On 27 July 2018, the Appellant’s appeal was heard by the FtT. The FtT issued an extempore decision and validated the Schedule 36 information notice as the information requested in the Schedule 36 information notice of 10 November 2017 comprised statutory records and/or was reasonably required.
On 6 August 2018, Officer Reid sent a letter to the Appellant confirming the outcome of the Appellant’s appeal to the FtT, and requesting compliance with the Schedule 36 information notice of 10 November 2017.
On 7 September 2018, Officer Reid sent a letter to the Appellant stating that the Appellant had no further right of appeal against the Schedule 36 information notice, and informing him that he would incur further penalties if he did not comply with the notice.
On 2 October 2018, Officer Reid issued a penalty assessment to the Appellant (copying in his new agents) charging further penalties, in the sum of £7,650, for failure to comply with the Schedule 36 information notice of 10 November 2017.
On 22 October 2018, the Appellant made an application to the FtT for permission to appeal to the Upper Tribunal (‘UT’). HMRC were not aware of the appeal at the time.
On 14 November 2018, Officer Reid issued a penalty assessment, in the sum of £2,340, to the Appellant charging further penalties for failure to comply with the Schedule 36 information notice of 10 November 2017.
On 25 November 2018, the Appellant wrote to HMRC to make them aware that he had made an application to appeal to UT against the FtT decision.
On 4 December 2018, Officer Reid wrote to the Appellant stating that HMRC would suspend collection of the penalties until after the application for permission to appeal was determined. On the same day, the FtT rejected the Appellant’s application for permission to appeal to the UT.
On 15 December 2018, the Appellant wrote to HMRC stating that he had the information required in the Schedule 36 information notice and was willing to meet with HMRC to resolve the matter.
On 25 January 2019, Officer Reid retired. Officer Edward Duncan then took over the administration of the Appellant’s case.
On 28 January 2019, Officer Duncan wrote to the Appellant, informing him that he was now dealing with his case, and providing the Appellant with a full review of the current position. The letter included a reminder of the outstanding information requested in the Schedule 36 information notice of 10 November 2017.
On 28 February 2019, Officer Duncan issued an identification notice to Barclays. HMRC requested the name, last known address and date of birth of each of the signatories for bank account no. ****2320. No response to this notice was received.
On 11 March 2019, the Appellant telephoned HMRC to discuss the penalties and to reassure HMRC that he was going to comply with the Schedule 36 information notice. HMRC stated that they would not accept redacted bank statements.
On 23 March 2019, the Appellant sent a letter to HMRC, together with redacted bank statements and some supporting documentation (receipts) in relation to the expenses for 2013-14.
On 25 March 2019, a letter was sent by the Appellant’s new representative, WLH Taxation Ltd (“WLH Tax”), who provided a copy of bank statements that were not redacted. The bank statements provided showed that the Appellant had received the following additional payments from both BCL and TSL during the tax year ending 5 April 2012, which were also omitted from the Appellant’s tax return:
Date | Description | Reference | Amount |
9 May 2011 | Received from BCL | Dividend Feb 2011 | £3,500 |
31 May 2011 | Received from BCL | Dividend Feb 2011 | £4,000 |
22 June 2011 | Received from BCL | Dividend 2010 | £10,000 |
Total BCL | £17,500 |
And:
Date | Description | Reference | Amount |
8 November 2011 | Transfer from Account ****2320 | £15,000 | |
17 November 2011 | Transfer from Account ****2320 | £1,500 | |
28 December 2011 | Transfer from Account ****2320 | £7,000 | |
6 March 2012 | Transfer from Account ****2320 | ACCOM 2011 | £10,000 |
6 March 2012 | Transfer from Account ****2320 | Salary 2011 | £6,000 |
Total TSL | £40,500 |
The total value of the receipts provided was £11,295.46. This exceeded the T&S expenses claimed in the amended return for 2014.
On 20 September 2019, as no response had been received from Barclays in relation to the identification notice of 28 February 2019, HMRC issued a further identification notice to Barclays. Once again, HMRC requested the name, last known address and date of birth of each of the signatories for two specific bank accounts nos. ****2320 and ****8048.
On 16 October 2019, Barclays issued a letter to HMRC stating that the account no. ***2320 was in the name of TSL, with the date of birth of the signatory matching the Appellant’s, and an address matching the Appellant’s private residence. It was also confirmed the account no. ****8048 was held in the Appellant’s name, with the date of birth and private address matching the Appellant’s.
On 15 January 2020, Officer Duncan received a letter from the Appellant, dated 8 January 2020, which stated that WLH Tax no longer acted for him regarding the late penalty appeal and the compliance check. The Appellant also enclosed two letters from WLH Tax, dated 1 November 2019.One letter stated that WLH Tax had advised that:
the additional £17,500 payments identified from BCL are reimbursed expenses and, as such, do not need to be included in the tax return;
the additional £40,500 payments identified from TSL were also reimbursed expenses and do not need to be included in the tax return;
the Appellant would be unable to provide any further supporting evidence due to the loss of company records;
the Appellant did not complete the bank mandate as it was “too wide for the alleged purposes”;
the Appellant did not complete the certificate of bank accounts operated as the Appellant was unclear what accounts he held in the period, and may inadvertently provide an inaccurate certificate due to the time that had passed;
the P11d previously provided is sufficient to show that the T&S expenses were allowable as the receipts would have been provided to RAD and were checked by the company accountant to justify the reimbursement;
RAD started to trade on 30 April 2013 and WLH believe the reference to a June date may have occurred due to a name change of the company; and
WLH believed the payments to local supermarkets are allowable subsistence as the Appellant would buy food at home for consumption during travel and so these were wholly, exclusively, and necessarily incurred expenses.
On 7 February 2020, Officer Duncan wrote to the Appellant requesting a full response on the outstanding issues by 7 March 2020, and providing an updated schedule of information and documents still required.
On 5 March 2020, the Appellant wrote to HMRC providing information and documents, including correspondence from his former agents in relation to the T&S expenses. The Appellant also reiterated that it was his view that the penalties should be cancelled, and that he would appeal to the FtT if HMRC did not cancel the penalties.
On 6 November 2020, the Appellant wrote to HMRC providing some of the information requested (HSBC and Halifax bank account details). The Appellant stated that he had no recollection of having the Barclays account, and that Barclays have no record of the account. The Appellant stated that the provision of the remaining information that was outstanding would be delayed due to the Covid-19 pandemic.
On 9 December 2021, Officer Duncan issued a ‘pre-decision’ letter and provided an opportunity for the Appellant to provide further evidence. For the tax year ending 5 April 2012, Officer Duncan proposed to treat all payments received from BSL and TSL in line with the most contemporary evidence; that being the description on the bank statements, as follows:
Statement Description | Blue Chip IT Ltd | Trading Systems Ltd | Total |
Salary | £6,000 | £6,000 | |
Reimbursed Expenses | £30,000 | £30,000 | |
Dividends | £62,980.46 | £33,500 | £96,480.46 |
Total | £132,480.64 |
For the tax year ending 5 April 2014, Officer Duncan proposed to bring into charge the omitted capital gain as agreed by Officer Reid and the Appellant’s previous agents. He also proposed to limit the Appellant’s s 336 relief to £2,074 for allowable expenses.
On 26 January 2022, the Appellant wrote to HMRC to provide explanations in response to HMRC’s letter of 9 December 2021.
The Decisions
On 13 July 2022, Officer Duncan issued a final decision letter to the Appellant and enclosed the Closure Notices for the 2012 and 2014 tax years. Officer Duncan also stated that it was his belief that the Appellant’s tax returns contained inaccuracies, and that a penalty may be charged. HMRC issued a penalty explanation letter on the same day, detailing the proposed Penalties.
On 6 August 2022, the Appellant wrote to HMRC requesting a review of the decision to issue Closure Notices. The letter repeated the Appellant’s previous arguments. The Appellant also provided a copy of a letter dated 17 April 2015, addressed to a Mrs Nayab Begum, with a crime reference number of 3810957/15. The letter was from the Metropolitan Police in relation to a burglary at the business address of TSL and provided an overview of the items that were stolen, but provided no specific details in relation to the actual items that were stolen (and whether these included documents that were relevant to the enquiry).
On 21 October 2022, HMRC issued a review conclusion letter to the Appellant, upholding the decision in respect of the Closure Notices.
On 1 February 2023, Officer Duncan issued two penalty assessment letters to the Appellant, under Schedule 24, for tax years ended 5 April 2012 and 5 April 2014, in the sum of £16,548.00 and £370.09, respectively.
On 24 February 2023, the Appellant wrote to HMRC appealing against the Penalties.
On 13 March 2023, Officer Duncan wrote to the Appellant stating that it remained HMRC’s view that the Penalties are correct.
On 6 April 2023, the Appellant wrote to HMRC requesting a review of the decision regarding the Penalties.
On 26 April 2023, Officer Duncan wrote to the Appellant addressing the concerns raised by the Appellant in his letter of 6 April 2023.
On 26 May 2023 HMRC issued a review conclusion letter, upholding the decision to charge the Penalties.
Procedural history and case management directions
On 14 November 2022, the Appellant appealed to the FtT against the Closure Notices (appeal reference “TC/2022/13507”).
On 15 February 2023, HMRC served their Statement of Case in respect of the appeal against the Closure Notices. Pursuant to rule 27(2) of the Procedure Rules, the Appellant had an obligation to file and serve a List of Documents (‘LoDs’) by 29 March 2023. The Appellant did not file or serve LoDs.
On 14 June 2023, the Tribunal issued directions, directing the Appellant to provide his LoDs by 14 July 2023, and his witness statement by 11 August 2023. The Appellant failed to do so.
On 22 June 2023, the Appellant appealed to the FtT against the Penalties (appeal reference “TC/2023/08694”).
On 28 July 2023, HMRC applied for consolidation of the two appeals (TC/2022/13507 and TC/2023/08694), existing case management directions to be suspended, and for new case management directions to be issued.
On 5 October 2023, the Tribunal consolidated the appeals under reference TC/2022/13507, set aside all existing case management directions, and directed HMRC file and serve a consolidated Statement of Case by 2 November 2023. HMRC filed their Statement of Case on 1 November 2023, and their LoDs on 14 December 2023.
On 7 March 2024, the Tribunal issued directions, directing that the Appellant provide his LoDs by 19 April 2024, witness statementsby 17 May 2024, and the Bundle of Documents by 14 June 2024. The Appellant did not comply with any of these directions.
On 9 May 2024, the Tribunal wrote to the Appellant informing him that he had failed to comply with the direction to provide his LoDs, and requiring him to immediately provide his LoDs (with an application for the list to be admitted out of time), or tell the Tribunal if there are no documents upon which he relies.
On 3 July 2024, the Tribunal wrote to the Appellant setting out that he had failed to comply with the directions of 7 March 2024, and failed to respond to the Tribunal’s letter of 9 May 2024. The Tribunal directed that unless the Appellant confirmed, in writing, by 5pm on 17 July 2024 that he intended to proceed with the appeal, then the proceedings would be struck out.
On 10 July 2024, the Appellant’s representative emailed the Tribunal and HMRC stating that he intended to proceed with the appeal. The Appellant did not provide his LoDs or witness statements.
On 20 December 2024, HMRC made their application to strike out the Appellant’s appeal.
On 2 January 2025, the Tribunal wrote to the parties in the following terms:
“The Appellant is directed to provide its representations on the Respondents’ application to strike out his appeal dated 20 December 2024 by 5pm Friday 10 January 2025.
If the Appellant intends to proceed with this appeal he should immediately confirm this and provide to the Tribunal (with an application for the late provision of): a list of documents or confirmation that he does not intend to rely on any documents that are not within the hearing bundle (see below); and witness statements or confirmation that he is not seeking to adduce witness evidence. We also remind the Appellant that he is due to provide an authorities bundle today.”
By an email dated 16 January 2025, the Appellant provide his witness statements, together with a series of zipped files said to include various (unpaginated and unexplained) documents that the Appellant sought to rely on in support of his appeal.
Relevant law
The relevant law in relation to the underlying tax appeal is set out in the ‘Appendix’ to this Decision.
Evidence and submissions
In further amplification of HMRC’s strike out application, Mr Pearson submits (in summary) that:
The appeal has no reasonable prospect of success.
The Appellant asserts that the Closure Notices are incorrect but has adduced no evidence to support this assertion. A bare assertion that is entirely unsupported by evidence carries no degree of conviction whatsoever and, accordingly, has no prospects of success.
The Appellant has repeatedly and consistently failed to comply with Tribunal directions for the provision of documents and witness statements. It cannot reasonably be expected that any evidence is forthcoming. Even if the Appellant were to produce evidence at such a late stage, there is no reasonable prospect that the Appellant would be permitted to rely on such evidence.
HMRC have adduced evidence, both documentary and witness, to show that the Appellant deliberately or carelessly brought about the inaccuracies in his tax returns. The Appellant’s challenge is unsupported by evidence that he took reasonable care. This does not amount to a real challenge to HMRC’s evidence, which therefore should be accepted.
The Appellant’s grounds of appeal are vague, unparticularised and disclose no basis for challenging the decisions.
Mr Symons submits, in summary, that:
The Appellant has filed evidence, in the form of his own witness statement dated 9 January 2025, attesting to the basis on which he appeals.
HMRC’s application should be dismissed for two reasons: firstly, the Appellant has presented evidence in the form of his witness statement, albeit belatedly, that provides evidence on which he relies in his appeal; and, secondly, the Appellant’s witness statement provides a realistic basis on which he can succeed.
The Tribunal should take account of evidence that could reasonably be expected to be available at trial; that being the Appellant’s witness statement dated 9 January 2025.
At the conclusion of the hearing, we reserved our decision, which we now give with reasons.
Discussion
This is HMRC’s application to strike out the appeal pursuant to rule 8(3)(c) of the Procedure Rules. The Procedure Rules provide the procedural framework for proceedings within the FtT. The overriding objective of dealing with cases proportionately, in light of their importance, the complexity of the issues and the costs is the overarching consideration within the Procedure Rules. The case management powers of the FtT include an ability to give a direction in relation to the conduct or disposal of proceedings at any time, and to deal with an issue in the proceedings as a preliminary issue.The case management powers of the FtT are provided for at rule 5, as follows:
“Case management powers
5. —(1) Subject to the provisions of the 2007 Act and any other enactment, the Tribunal may regulate its own procedure.
(2) The Tribunal may give a direction in relation to the conduct or disposal of proceedings at any time, including a direction amending, suspending or setting aside an earlier direction.
(3) In particular, and without restricting the general powers in paragraphs (1) and (2), the Tribunal may by direction—
…
(e) deal with an issue in the proceedings as a preliminary issue;
…”
The Procedure Rules further provide a discretion to strike out a case if it has “no reasonable prospect of success”.Rule 8(3)(c) of the Procedure Rules, which forms the basis of this application, provides that:
“8(3) The Tribunal may strike out the whole or a part of the proceedings if—
[…]
(c) the Tribunal considers there is no reasonable prospect of the appellant’s case, or part of it, succeeding.”
The FtT’s power to strike out an appeal pursuant to rule 8(3)(c) of the Procedure Rules is to be exercised in a manner analogous to rule 3.4(2)(a) of the Civil Procedure Rules (‘CPR’): HMRC v Fairford Group [2014] UKUT 329 (TCC); [2015] STC 156 (‘Fairford’) (Simon J and Judge Bishopp).
In Fairford, the UT was considering the jurisdiction of the FtT under rule 8(3)(c). The appeal related to 36 transactions and more than £13,000,000 of input tax. The appeal was against HMRC’s decision to deny input tax for the periods 03/06 and 06/06 on the basis that the taxpayer’s transactions were connected with the fraudulent evasion of VAT, and that they knew, or should have known, of the connection. The alleged connection forming the basis of HMRC’s decision was the Missing Trader Intra-Community (‘MTIC’) fraud. The fraud in that appeal involved both the “vanilla” version, where transactions carried out by the taxpayers can be traced directly to a fraudulent tax loss, and the “contra-trading” version, where the transactions carried out by the taxpayers can be traced through a “clean” chain to a trader involved in covering up the tax losses of fraudulent, defaulting traders in a linked dirty chain.
At [30], the UT held that:
“30. ... The FTT has the power to strike out a part of the proceedings if it concludes that there is no reasonable prospect of all or part of an appellant’s case succeeding... The Court’s powers may be exercised if a defence is vague, evasive, incoherent or obviously ill-founded, although in such cases the objectionable nature of the party’s case can often be cured by amendment or further particulars.”
At [41], the UT held that the FtT should consider a strike out application under rule 8(3)(c) in a similar way to the approach to an application under CPR rule 3.4:
“41... The Tribunal must consider whether there is a realistic, as opposed to a fanciful (in the sense of it being entirely without substance) prospect of succeeding on the issue at a full hearing, see Swain v Hillman [2001] 2 All ER 91 and Three Rivers (see above) Lord Hope at [95]. A ‘realistic’ prospect of success is one that carries some degree of conviction and not one that is merely arguable, see ED & F Man Liquid Products v Patel [2003] EWCA Civ 472. The tribunal must avoid conducting a ‘mini-trial’. As Lord Hope observed in Three Rivers, the strike out procedure is to deal with cases that are not fit for a full hearing at all.”
At [48], the UT then referred to what it described as a “practical and legitimate” procedure for dealing with applications of the nature in this appeal. The UT concluded that:
“48. …An appellant who advances a positive case will be required, by virtue of other customary directions, to set it out in witness statements or, if that is not practicable, in a response or a letter, or in some similar way. Accordingly, an appellant putting a positive case must disclose his hand in advance; we see no reason why one merely putting HMRC to proof should be in a better position. If there is a real challenge to HMRC’s evidence it should be identified; if there is not, the evidence should be accepted. We see no reason why an appellant who does not advance a positive case should be entitled to require HMRC to produce witnesses for cross-examination when their evidence is not seriously disputed. Such a course is wasteful not only of HMRC’s resources but also of the resources of the FTT, since it increases the length of hearings and adds to the delays experienced by other tribunal users.”
And, at [49]:
“49. In our view the FTT should also direct that if an appellant raises no positive case, serves no evidence challenging the evidence of HMRC’s witnesses, and does not identify the respects in which the statements of those of HMRC’s witnesses who deal only with the questions set out at para 47 above are disputed, then their evidence can be given, and will be accepted by the tribunal, in the form of a written statement under FTT Rule 15(1) (see also Rule 5(3)(f)), and that cross-examination of that witness will not be permitted.”
Another relevant authority is the decision in The First De Sales Limited Partnership v HMRC [2018] UKUT 396 (TCC); [2019] 4 WLR 21 (‘The First De Sales Ltd Partnership’)(Henry Carr J and Judge Sinfield). There, the UT cited the judgment of Lewison J (as he then was) in Easyair Limited v Opal Telecom [2009] EWHC 339 and held, at [33], that:
“33. Although the summary in Fairford Group plc is very helpful, we prefer to apply the more detailed statement of principles in respect of application for summary judgment set out by Lewison J, in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) at [15]. This was subsequently approved by the Court of Appeal in AC Ward & Son v Caitlin Five Ltd [2009] EWCA Civ 1098; [2010] Lloyd's Rep IR 301. The parties to this appeal did not suggest that any of these principles were inapplicable to strike out applications.
i) The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91
ii) A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8]
iii) In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman
iv) This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]
v) However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;
vi) Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;
vii) On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it...”
At [74], the UT said this:
“74. …The FTT, correctly in our judgment, was satisfied that it had before it all the evidence necessary for the proper determination of the question and that the parties had an adequate opportunity to address it in argument. The Appellants’ evidential case was, in our view, hopeless, based on the evidence before the FTT. The FTT was right to conclude it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction.”
The guidance given by the UT in The First De Sales Ltd Partnership can be summarised as follows:
The court must consider whether the claimant has a “realistic” as opposed to a “fanciful” prospect of success.
A “realistic” claim is one that carries some degree of conviction. This means a claim that is more than merely arguable.
In reaching its conclusion, the court must not conduct a “mini-trial”.
This does not mean that the court must take at face value, and without analysis, everything that a claimant says in his statements before the court. In some cases, it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents.
It is not uncommon for an application to give rise to a short point of law or construction. If the court is satisfied that it has before it all the evidence necessary for the proper determination of the question, and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it.
It is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction (or indeed the point of law).
Three points that stand out from the decision in The First de Sales Ltd Partnership are (and I paraphrase) that: (i) it is necessary to consider whether the Appellant has a “realistic” as opposed to a “fanciful” prospect of success; (ii) it is not appropriate to conduct a mini-trial; and (iii) if the FtT is satisfied that it has before it all the evidence necessary for the proper determination of the question, and the parties have had an adequate opportunity to address it in argument, the FtT should decide the issue. This would require the point in issue to be a “short point of law”.
In British Telecommunications Plc v R & C Comrs [2023] UKUT 00122 (TCC) (Leech J and Judge Aleksander), at [68] and [69], the approach of the UT in Fairford was adopted. The UT then further amplified the guidance/approach in The First De Sales Ltd Partnership.
Turning to the circumstances of this application:
In essence, Mr Pearson submits that the Appellant has adduced no evidence to support his assertion that the Closure Notices and the Penalties cannot stand. A bare assertion that is entirely unsupported by evidence carries no degree of conviction whatsoever and, accordingly, has no prospects of success. He adds that the Appellant has been provided with numerous opportunities to provide evidence in support of his claim, both during the enquiry and when case management directions were being issued by the Tribunal.
Mr Symons submits that the Tribunal should take account of evidence that could “reasonably be expected to be available” at the substantive hearing; that being the Appellant’s witness statement dated 9 January 2025 (significantly later than requested by the Directions issued by the Tribunal).
The Appellant submitted notices of appeal after the Closure Notices and the Penalties were issued. The Appellant’s Grounds of Appeal in relation to the Closure Notices are as follows:
“1. In respect of the tax year ending 5 April 2012, certain payments received by the Appellant from Blue Chip IT Limited and Trading Systems Limited were simply reimbursed expenses and deductible under S336(1) of the Income Tax (Earnings and Pensions) Act 2003.
2. In respect of the tax year ending 5 April 2014, certain payments received by the Appellant from RAD Trading Software Limited were also reimbursed expenses and deductible under S336(1) of the Income Tax (Earnings and Pensions) Act 2003.
3. The Respondents’ decision states that these payments should be classed as income.
4. The Appellant’s position is that all the payments received were reimbursements of expenses that were wholly, exclusively and necessarily in the performance of the duties of the employment.
5. Witness evidence will be served by the Appellant in due course that deals with the points raised in the Review Conclusion.
6. The evidence available will show that, on the balance of probabilities, the Appellant’s position is correct, and the appeal should be allowed”.
[Emphasis added]
The Grounds of Appeal is relation to the Penalties are as follows:
“It is disputed that there is any tax liability and, so, the penalties are also challenged and are not due.
The penalties will naturally fall away if the above appeal is successful.
If the above appeal is unsuccessful and there is a tax liability, the client also disputes that the actions were deliberate for period 11/12 period and disputes that the errors for the 12/13 were careless. All reasonable care was taken to declare the correct liability.
Finally, if the penalty is found to be correct, it is contested that the maximum reduction in the penalty should have been applied, reducing the penalty amount. The Appellant assisted HMRC Officers as much as he could and provided all material he held. The Appellant contends that if a penalty is due, that penalty should have been suspend.”
We find that there is considerable force in Mr Pearson’s submission that the Appellant’s challenges amount to “bare assertions, which are wholly unsupported by any evidence”. The authorities show that an appellant putting a positive case must “disclose his hand in advance”. The UT in Fairford could see no reason why one merely putting HMRC to proof should be in a better position. If there is a real challenge to HMRC’s evidence, it should be identified at the earliest opportunity. The UT further could see no reason why an appellant who does not advance a positive case should be entitled to require HMRC to produce witnesses for cross-examination when their evidence is not seriously disputed. Such a course is wasteful not only of HMRC’s resources, but also of the resources of the FtT since it increases the length of hearings and adds to the delays experienced by other tribunal users. As also stated by the UT in Fairford, the court’s powers may be exercised if a defence is vague, evasive, incoherent or obviously ill-founded. We find that this is so concerning the Appellant’s appeal.
Having considered the lengthy background (both factual and procedural) leading up to these proceedings, we find that the Appellant has completely failed to provide any evidence in support of his appeal, waiting until a few days before this hearing to file and serve a series of unpaginated and unexplained documents in zipped files. Indeed, at the commencement of the hearing, Mr Symons could not explain what the documents included in the zipped files comprised and the Appellant could not shed any further light (despite relying on the documents). That is insufficient. Where a party seeks to rely on late evidence, it is the duty of that party to explain its relevance, and to provide reasons for the late service of the evidence. We therefore did not admit the late evidence.
Prior to the decisions being issued by HMRC, numerous requests for further information and documents were made; the majority of which were either not responded to by the Appellant, or challenged up to the lodging of an appeal against the Schedule 36 information notice of 10 November 2017 before the FtT (which was dismissed with permission to appeal to the UT being refused). Requests for information and documents were made on 9 January 2016, 4 April 2016, 31 May 2016, 5 July 2016 and beyond. The Appellant failed to maintain adequate records, resulting in his inability to provide the information and documents requested by HMRC during the enquiry. We are fortified in our view of the failings on the part of the Appellant by the provisions of TMA. Section 12B(1) TMA requires records to be kept for the purposes of returns.
“12B Records to be kept for purposes of returns.
…
(2) The day referred to in subsection (1) above is—
(a) in the case of a person carrying on a trade, profession or business alone or in partnership or a company, the fifth anniversary of the 31st January next following the year of assessment or (as the case may be) the sixth anniversary of the end of the period;
(b) otherwise, the first anniversary of the 31st January next following the year of assessment ...
or (in either case) such earlier day as may be specified in writing by the Commissioners for Her Majesty's Revenue and Customs (and different days may be specified for different cases).
The Appellant later stated that no documentary evidence was available due to a flooding incident and a burglary (which were said to have occurred in 2014). The documentary evidence that was subsequently provided by the Appellant to corroborate this (i.e., the letter from the Metropolitan Police) did not refer to the Appellant, or indeed to loss of the documents requested. The Appellant’s explanation for this is because it was only jewellery that had been insured at the property at which the burglary took place. We find that such an explanation is insufficient. Moreover, the Appellant could not explain why he did not maintain a copy (electronic or otherwise) of any records that were required for the completion of his tax returns.
We are satisfied that it would have been a relatively simple and straightforward matter for the Appellant to contact his clients for duplicate documents to reflect the expenses paid when he was working for them through his companies (if such documents were lost due to flooding and/or a burglary). The Appellant has failed to do this and no explanation has been given for this failure. The Appellant’s case is that he is an IT consultant and it is not credible that there would be no back-ups of documents; not least because there is a requirement to maintain records in relation to tax.
The Appellant also submits that the defaults (in submitting evidence) have arisen because he was let down by his previous representatives. The procedural background to this matter however shows that the previous representatives did, indeed, correspond with HMRC and the Tribunal. There is no evidence before us to support a finding that the previous representatives are to blame for the situation that has arisen, nor indeed is there any evidence that the Appellant launched any complaints against his previous representatives (via their professional regulators).
As mentioned earlier, shortly before the hearing (and certainly otherwise than in accordance with the Directions issued by the Tribunal), the Appellant purported to file and serve six zipped files, which contained a number of documents that were neither paginated, numbered nor explained. Mr Symons was unable to say whether any of those documents were duplicates of those already included in the bundle before us, or indeed whether the late evidence was relevant. This was despite the matter being put back to facilitate an effective hearing whilst considering both a “late” application to admit late evidence, and an application to advance new arguments (included within Mr Symons’ skeleton argument).
Mr Symons was only instructed shortly before the hearing and provided his skeleton argument the day before the hearing. He submits that the Appellant ran his IT consultancy business through BCL and RAD and would have purchased computer equipment on his personal credit card to provide services to clients that he worked for. This was a new argument having never been raised before. Furthermore, no credit card statements have ever been provided to HMRC (during the enquiry), or the Tribunal (when the Appellant’s LoDs were being requested). We are further satisfied that it would have been a relatively easy and straightforward matter for the Appellant to provide copies of his credit card statements to corroborate his claims. The Appellant tried to explain away the information that came to light when bank statements were obtained from Barclays pursuant to the information notice issued by HMRC.
Mr Symons also refers to the spreadsheet at Exhibit ED-1 of Officer Duncan’s witness statement as “evidence in support of the Appellant’s claim”. We are satisfied that Officer Duncan’s witness statement cannot be relied on as evidence in support of the Appellant’s appeal.
In relation to the new arguments advanced in Mr Symons’ skeleton argument, the case of Shinelock Ltd v HMRC [2023] UKUT 107 (TCC) (“Shinelock”)provides some guidance. The case concerned an application for permission to make a late amendment to a case before the hearing. The arguments between the parties had changed, considerably, in the course of their dispute. The UT said this, at [118]:
“118. Where a party who wishes to raise a new argument has applied to the FTT for permission to make a late amendment to its case before the hearing, then the FTT should consider that application taking into account the principles set out in Quah v Goldman Sachs International [2015] EWHC 759 (Comm)…”
The case of Quah v Goldman Sachs International [2015] EWHC 759 (Comm) (‘Quah’) also involved an application to make a late amendment to a claim. Carr J (as she then was), summarised the relevant principles, at [37] to [38]. We summarise those principles as follows:
applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted;
a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it;
a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept;
gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that the payment of costs may not be adequate compensation;
it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay.
The UT in Shinelock also considered the case Satyam Enterprises v Barton [2021] EWCA Civ 287, where Nugee LJ referred to Al-Medenni v Mars UK Ltd [2005] EWCA Civ 1041, as follows:
“...It is fundamental to our adversarial system of justice that the parties should clearly identify the issues that arise in the litigation, so that each has the opportunity of responding to the points made by the other. The function of the judge is to adjudicate on those issues alone. The parties may have their own reasons for limiting the issues or presenting them in a certain way. The judge can invite, and even encourage, the parties to recast or modify the issues. But if they refuse to do so, the judge must respect that decision. One consequence of this may be that the judge is compelled to reject a claim on the basis on which it is advanced, although he or she is of the opinion that it would have succeeded if it had been advanced on a different basis. Such an outcome may be unattractive, but any other approach leads to uncertainty and potentially real unfairness.”
We completely agree with those propositions. The differences in Shinelock and Quah, and in the application before us, do not negate the need to ensure a fair hearing.
It is trite law that litigation should not be conducted by ambush and that parties have a right to be put in a position where they can properly prepare their cases: McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775, 792J-793A (‘McPhilemy’) (per Lord Woolf MR). We endorse the observations made in McPhilemy and add that it is an important principle of natural justice that every party must have reasonable notice of the case that it has to meet (in this case HMRC). That is to say, there should be no “trial by ambush”. The function of the Grounds of Appeal and the Statement of Case (collectively known as “the pleadings”) is to concisely set out each party’s case. This enables the parties to know, in advance, each other’s case at the hearing, and to understand the positions adopted. The purpose is to encourage a “cards on the table” approach to litigation. This also allows parties to prepare effectively, and at proportionate cost. Pleadings are required to mark out the parameters of the case that is being advanced by each party. In particular, pleadings are still critical to identifying the issues and the extent of the dispute between the parties. What is important is that the pleadings should make clear the general nature of the case of the pleader (in reference to the words of Lord Woolf MR in McPhilemy).
The requirement that the pleadings set out a party’s position in full (and in advance of the hearing) is in order to avoid a trial by ambush as the next usual step after the pleadings are lodged with the Tribunal is a substantive appeal hearing. That is because a party’s change of position would run the risk that a hearing date would be lost in circumstances where the parties, and the Tribunal, have a legitimate expectation that fixtures will be kept. Moreover, trial by ambush is not justice. Each party should be able to prepare to meet the other party’s case in advance of the hearing to increase the likelihood that the outcome of the appeal will be in accordance with the true facts of the case. Each party must, therefore, state in advance (and in summary terms) what is in dispute and why. We find that the Appellant had the chance to plead his case and provide his evidence in advance of the hearing.
In the words of Lord Hope in Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2001] UKHL 16, at [94] to [96], the method by which issues of fact are tried in our courts is well settled. After the normal processes of discovery and interrogatories have been completed, the parties are allowed to lead their evidence so that the trial judge can determine where the truth lies in the light of that evidence. To that rule, there are some well-recognised exceptions. For example, it may be clear as a matter of law, at the outset, that even if a party were to succeed in proving all the facts that he offers to prove he will not be entitled to the remedy that he seeks. In that event a trial of the facts would be a waste of time and money, and it is proper that the action should be taken out of court as soon as possible. In other cases, it may be possible to say with confidence before trial that the factual basis for the claim is fanciful because it is entirely without substance. It may be clear beyond question that the statement of facts is contradicted by all the documents or other material on which it is based. The simpler the case, the easier it is likely to be take that view and resort to what is properly called summary judgment.
The Appellants’ evidential case was, in our view, weak based on the evidence before us. Whilst the Appellant has tried to cure the defects in his appeal at the 11th hour, it is not enough simply to argue that the case should be allowed to go to a full hearing because something may “turn up” which would have a bearing on the issues at hand. As mentioned earlier, the Appellant was provided with a number of opportunities to provide information and documents to HMRC throughout the duration of the enquiry. The Appellant had further opportunities to provide evidence when Directions were issued by this Tribunal. He failed to provide LoDs, as directed, and failed to comply with those Directions. Furthermore, the Appellant was unable to state what the nature of the evidence in the zipped files was and, of greater concern, he unequivocally stated that he no longer had any receipts to corroborate his claim to reimbursement expenses.
Having considered all of the information before us, cumulatively, we are satisfied that the appeal has no reasonable prospect of success. Accordingly, therefore, we strike out the appeal.
Right to apply for permission to appeal
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.
Release date: 17th JULY 2025
APPENDIX
ITEPA
Earnings
Section 62 ITEPA defines “earnings”, as follows:
“62 Earnings
(1) This section explains what is meant by “earnings” in the employment income Parts.
(2) In those Parts “earnings”, in relation to an employment, means—
(a) any salary, wages or fee,
(b) any gratuity or other profit or incidental benefit of any kind obtained by the employee if it is money or money’s worth, or
(c) anything else that constitutes an emolument of the employment.
(3) For the purposes of subsection (2) “money’s worth” means something that is—
(a) of direct monetary value to the employee, or
(b) capable of being converted into money or something of direct monetary value to the employee.
(4) Subsection (1) does not affect the operation of statutory provisions that provide for amounts to be treated as earnings (and see section 721(7)).”
Section 72 ITEPA deals with “sums to be treated as earnings”, as follows:
“72 Sums in respect of expenses treated as earnings
(1) If this Chapter applies to a sum, the sum is to be treated as earnings from the employment for the tax year in which it is paid or paid away.
(2) Subsection (1) does not prevent the making of a deduction allowed under any of the provisions listed in subsection (3).
(3) The provisions are—
section 336 (deductions for expenses: the general rule);
section 337 (travel in performance of duties);
section 338 (travel for necessary attendance); ….”
Reimbursed expenses
Section 289A ITEPA deals with “reimbursed expenses” and provides that:
“289A Exemption for paid or reimbursed expenses
(1) No liability to income tax arises by virtue of Chapter 3 of Part 3 (taxable benefits: expenses payments) in respect of an amount (“amount A”) paid or reimbursed by a person to an employee (whether or not an employee of the person) in respect of expenses if—
(a) an amount equal to or exceeding amount A would (ignoring this section) be allowed as a deduction from the employee's earnings under Chapter 2 or 5 of Part 5 in respect of the expenses, and
(b) the payment or reimbursement is not provided pursuant to relevant salary sacrifice arrangements.
(2) No liability to income tax arises in respect of an amount paid or reimbursed by a person (“the payer”) to an employee (whether or not an employee of the payer) in respect of expenses if—
(a) the amount has been calculated and paid or reimbursed in an approved way (see subsection (6)),
(b) the payment or reimbursement is not provided pursuant to relevant salary sacrifice arrangements, and
(c) conditions A and B are met.
(2A) No liability to income tax arises in respect of an amount paid or reimbursed by a person (“the payer”) to an employee (whether or not an employee of the payer) for expenses in the course of qualifying travel if—
(a) the amount has been calculated and paid or reimbursed in accordance with regulations made by the Commissioners for Her Majesty's Revenue and Customs,
(b) the payment or reimbursement is not provided pursuant to relevant salary sacrifice arrangements, and
(c) condition C is met.
(3) Condition A is that the payer or another person operates a system for checking—
(a) that the employee is, or employees are, in fact incurring and paying amounts in respect of expenses of the same kind, and
(b) that a deduction would (ignoring this section) be allowed under Chapter 2 or 5 of Part 5 in respect of those amounts.
(4) Condition B is that neither the payer nor any other person operating the system knows or suspects, or could reasonably be expected to know or suspect—
(a) that the employee has not incurred and paid an amount in respect of the expenses, or
(b) that a deduction from the employee's earnings would not be allowed under Chapter 2 or 5 of Part 5 in respect of the amount.
(4A) Condition C is that—
(a) the payer or another person operates a system for checking that the employee has undertaken the qualifying travel in relation to which the amount is paid or reimbursed, and
(b) neither the payer nor any other person operating the system knows or suspects, or could reasonably be expected to know or suspect, that the travel was not undertaken.
(5) In this section “relevant”, in relation to an employee to whom an amount is paid or reimbursed for or in respect of expenses, means arrangements (whenever made, whether before or after the employment began) under which—
(a) the employee gives up the right to receive an amount of general earnings or specific employment income in return for the payment or reimbursement, or
(b) the amount of other general earnings or specific employment income received by the employee depends on the amount of the payment or reimbursement.
(5A) In this section “qualifying travel” means travel for which a deduction from the employee's earnings would be allowed under Chapter 2 or 5 of Part 5.
(6) For the purposes of subsection (2), a sum is calculated and paid or reimbursed in an approved way if—
(a) it is calculated and paid or reimbursed in accordance with regulations made by the Commissioners for Her Majesty's Revenue and Customs, or
(b) it is calculated and paid or reimbursed in accordance with an approval given under section 289B.
(7) Regulations made under subsection (2A)(a) or (6)(a) may make different provision for different purposes.
(8) Regulations made under subsection (2A)(a) may contain provision about calculating amounts that is framed by reference to rates (for expenses) published from time to time by the Commissioners for Her Majesty's Revenue and Customs.”
Section 336 deals with “deductions from earnings” and provides that:
“336 Deductions for expenses: the general rule
(1) The general rule is that a deduction from earnings is allowed for an amount if—
(a) the employee is obliged to incur and pay it as holder of the employment, and
(b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment.
(2) The following provisions of this Chapter contain additional rules allowing deductions for particular kinds of expenses and rules preventing particular kinds of deductions.
(3) No deduction is allowed under this section for an amount that is deductible under sections 337 to 342 (travel expenses).”
Section 338 deals with “travel expenses” and provides that:
“338 Travel for necessary attendance
(1) A deduction from earnings is allowed for travel expenses if—
(a) the employee is obliged to incur and pay them as holder of the employment, and
(b) the expenses are attributable to the employee’s necessary attendance at any place in the performance of the duties of the employment.
(2) Subsection (1) does not apply to the expenses of ordinary commuting or travel between any two places that is for practical purposes substantially ordinary commuting.
(3) In this section “ordinary commuting” means travel between—
(a) the employee’s home and a permanent workplace, or
(b) a place that is not a workplace and a permanent workplace.
(4) Subsection (1) does not apply to the expenses of private travel or travel between any two places that is for practical purposes substantially private travel.
(5) In subsection (4) “private travel” means travel between—
(a) the employee’s home and a place that is not a workplace, or
(b) two places neither of which is a workplace.
(6) This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).”
CTA 2010
Distribution
Section 1000(1) Corporation Tax Act 2010 (“CTA 2010”) deals with “distribution” and provides that:
“1000 Meaning of “distribution”
(1) In the Corporation Tax Acts “distribution”, in relation to any company, means anything falling within any of the following paragraphs.
Any dividend paid by the company, including a capital dividend.
Any other distribution out of assets of the company in respect of shares in the company, except however much (if any) of the distribution—
(a) represents repayment of capital on the shares, or
(b) is (when it is made) equal in amount or value to any new consideration received by the company for the distribution.
For the purposes of this paragraph it does not matter whether the distribution is in cash or not.
Any redeemable share capital issued by the company—
(a) in respect of shares in, or securities of, the company, and
(b) otherwise than for new consideration (see sections 1003 and 1115).
Any security issued by the company—
(a) in respect of shares in, or securities of, the company, and
(b) otherwise than for new consideration (see sections 1004 and 1115).
Any interest or other distribution out of assets of the company in respect of securities of the company which are non-commercial securities (as defined in section 1005), except—
(a) however much (if any) of the distribution represents the principal secured by the securities, and
(b) however much (if any) of the distribution represents a reasonable commercial return for the use of the principal.
Any interest or other distribution out of assets of the company in respect of securities of the company which are special securities (as defined in section 1015), except—
(a) however much (if any) of the distribution represents the principal secured by the securities, and
(b) however much (if any) of the distribution falls within paragraph E.
Any amount treated as a distribution by section 1020 (transfers of assets or liabilities).
Any amount treated as a distribution by section 1022 (bonus issues following repayment of share capital).
(2) In the Corporation Tax Acts “distribution”, in relation to a close company, also includes anything treated as a distribution by section 1064 (certain expenses of close companies treated as distributions).
(3) See also section 1072 (which extends the meaning of “distribution” in relation to members of a 90% group).”
TMA
The Closure Notice
Section 9A TMA provides that:
“(1) An officer of the Board may enquire into a return under section 8 or 8A of this Act if he gives notice of his intention to do so (“notice of enquiry”) –
(a) To the person whose return it is (“the taxpayer”),
(b) Within the time allowed.
(2) The time allowed is –
(a) If the return was delivered on or before the filing date, up to the end of the period of twelve months after the day on which the return was delivered.”
Section 28A(1B) TMA provides that:
“(1) This section applies in relation to an enquiry under section 9A(1) of this Act.
(1B) The enquiry is completed when an officer of Revenue and Customs informs the taxpayer by notice (a “final closure notice”)-
(a) In a case where no partial closure notice has been given, that the officer has completed his enquiries, or
(b) In a case where one or more partial closure notices have been given, that the
officer has completed his remaining enquiries.”
Section 12B(1) TMA, relevantly, provides that
“12B Records to be kept for purposes of returns.
(1) Any person who may be required by a notice under section 8, 8A ... or 12AA of this Act ... to make and deliver a return for a year of assessment or other period shall—
(a) keep all such records as may be requisite for the purpose of enabling him to make and deliver a correct and complete return for the year or period; and
(b) preserve those records until the end of the relevant day, that is to say, the day mentioned in subsection (2) below or, where a return is required by a notice given on or before that day, whichever of that day and the following is the latest, namely—
(i) where enquiries into the return ... are made by an officer of the Board, the day on which, by virtue of section 28A(1B) or 28B(1B)] of this Act, those enquiries are ... completed; and
(ii) where no enquiries into the return ... are so made, the day on which such an officer no longer has power to make such enquiries.
(2) The day referred to in subsection (1) above is—
(a) in the case of a person carrying on a trade, profession or business alone or in partnership or a company, the fifth anniversary of the 31st January next following the year of assessment or (as the case may be) the sixth anniversary of the end of the period;
(b) otherwise, the first anniversary of the 31st January next following the year of assessment ...
or (in either case) such earlier day as may be specified in writing by the Commissioners for Her Majesty's Revenue and Customs (and different days may be specified for different cases).
(2A) Any person who—
(a) is required, by such a notice as is mentioned in subsection (1) above given at any time after the end of the day mentioned in subsection (2) above, to make and deliver a return for a year of assessment or other period; and
(b) has in his possession at that time any records which may be requisite for the purpose of enabling him to make and deliver a correct and complete return for the year or period,
shall preserve those records until the end of the relevant day, that is to say, the day which, if the notice had been given on or before the day mentioned in subsection (2) above, would have been the relevant day for the purposes of subsection (1) above.
(3) In the case of a person carrying on a trade, profession or business alone or in partnership—
(a) the records required to be kept and preserved under subsection (1) or (2A) above shall include records of the following, namely—
(i) all amounts received and expended in the course of the trade, profession or business and the matters in respect of which the receipts and expenditure take place, and
(ii) in the case of a trade involving dealing in goods, all sales and purchases of goods made in the course of the trade; ...”
FA 2007
The Penalties
Schedule 24 FA 2007 contains the relevant penalty legislation and provides:
“PENALTIES FOR ERRORS
Error in taxpayer’s document
1 (1) A penalty is payable by a person (P) where –
(a) P gives HMRC a document of a kind listed in the Table below, and
(b) Conditions 1 and 2 are satisfied.
(2) Condition 1 is that the document contains an inaccuracy which amounts to, or leads to –
(a) an understatement of a liability to tax,
(b) a false or inflated statement of a loss, or
(c) a false or inflated claim to repayment of tax.
(3) Condition 2 is that the inaccuracy was careless (within the meaning of paragraph 3) or deliberate on P’s part.
(4) Where a document contains more than one inaccuracy, a penalty is payable for each inaccuracy.
…
Degrees of culpability
3. (1) For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is –
(a) “careless” if the inaccuracy is due to failure by P to take reasonable care,
(b) “deliberate but not concealed” if the inaccuracy is deliberate on P’s part but P does not make arrangements to conceal it, and
(c) “deliberate and concealed” if the inaccuracy is deliberate on P’s part and P makes arrangements to conceal it (for example, by submitting false evidence in support of an inaccurate figure).
(2) An inaccuracy in a document given by P to HMRC, which was neither careless nor deliberate on P’s part when the document was given, is to be treated as careless if P –
(a) discovered the inaccuracy at some later time, and
(b) did not take reasonable steps to inform HMRC.
…
Paragraph 4 of Schedule 24 FA sets out the standard amounts of penalty for the different categories of inaccuracy. For a ‘category 1’ inaccuracy (which applies in the present case) the penalty payable (subject to any reduction for disclosure) is: for a “careless inaccuracy” 30% of the potential lost revenue (“PLR”), for a “deliberate but not concealed inaccuracy” 70% of the PLR, and for a “deliberate and concealed inaccuracy” 100% of the PLR, as follows:
4. (1) This paragraph sets out the penalty payable under paragraph 1.
(2) If the inaccuracy is in category 1, the penalty is—
(a) for careless action, 30% of the potential lost revenue,
(b) for deliberate but not concealed action, 70% of the potential lost revenue, and
(c) for deliberate and concealed action, 100% of the potential lost revenue.
…
(5) Paragraph 4A explains the 3 categories of inaccuracy. 4A. (1) An inaccuracy is in category 1 if— (a) it involves a domestic matter…”
Paragraph 5 of Schedule 24 FA 2007 provides the meaning of “potential lost revenue”, as follows:
“The potential lost revenue” in respect of an inaccuracy in a document (including an inaccuracy attributable to a supply of false information or withholding of information) or a failure to notify an under-assessment is the additional amount due or payable in respect of tax as a result of correcting the inaccuracy or assessment.”
Paragraphs 9 and 10 provide for “reductions in penalties” where the person has disclosed, inter alia, inaccuracies to HMRC. A person discloses an inaccuracy by (para 9(1)):
“(a) telling HMRC about it,
(b) giving HMRC reasonable help in quantifying the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment, and
(c) allowing HMRC access to records for the purpose of ensuring that the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment is fully corrected.”
Paragraph 9(2) distinguishes between disclosure that is “unprompted” and disclosure that is “prompted”, as follow:
“Disclosure—
(a) is ‘unprompted’ if made at a time when the person making it has 25 no reason to believe that HMRC have discovered or are about to discover the inaccuracy, the supply of false information or withholding of information, or the under-assessment, and
(b) otherwise, is ‘prompted’.”
Paragraph 11 provides that HMRC may reduce a penalty if they think it right to do so because of “special circumstances”.
Paragraph 14 states that HMRC may “suspend” all or part of a penalty for a careless inaccuracy subject to compliance with specified conditions but there is no power to suspend a penalty for a deliberate inaccuracy.
Paragraphs 15 and 16 relate to the bringing of appeals against penalties.
Paragraph 17(2) provides that, on appeal, the FtT may affirm HMRC’s decision, or substitute for HMRC’s decision another decision that HMRC had power to make.
