Case Number: TC09597
By remote video hearing with the Judge sitting at Taylor House, Rosebery Avenue, London
Appeal reference: TC/2024/05011
VALUE ADDED TAX – hardship application under section 84(3B) Value Added Tax Act 1994 – winding-up petition against appellant – whether Tribunal has jurisdiction – yes – whether abuse of process for HMRC to assert that no hardship suffered – not decided – whether appellant would suffer hardship on facts of the case – yes – application allowed
Judgment date: 30 July 2025
Before
JUDGE ASHLEY GREENBANK
MR JULIAN SIMS
Between
CLEAR PAY PAYROLL LIMITED
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: Tristan Thornton, counsel
For the Respondents: Heather Sercombe, litigator, of HM Revenue and Customs’ Solicitor’s Office
DECISION
Form of hearing
The form of the hearing was V (video) with all parties attending by Microsoft Teams.
The documents to which the Tribunal was referred were contained in a hearing bundle of 131 pages. The Tribunal was also provided with a bundle of authorities comprising 184 pages.
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.
Introduction
This decision relates to an application by the appellant, Clear Pay Payroll Limited (“Clear Pay”), that the Tribunal should entertain its appeal against an assessment to value added tax (“VAT”) made by the respondents, the Commissioners for His Majesty’s Customs and Excise (“HMRC”), without Clear Pay having to pay or deposit the disputed amount of VAT with HMRC.
The relevant legislation is found in section 84 Value Added Tax Act 1994 (“VATA”). Under section 84(3), where the appeal is against a decision with respect to any of the matters mentioned in section 83(1)(b), (n), (p), (q), (ra), (rb) or (zb), it shall not be entertained unless the amount which HMRC have determined to be payable as VAT has been paid or deposited with HMRC.
This requirement is subject to subsection (3B) of section 84, which provides that an appeal may still be entertained if the requirement to pay or deposit the amount of the disputed VAT would cause the appellant to suffer “hardship”. Subsection (3B) provides, so far as relevant, as follows:
(3B) In a case where the amount determined to be payable as VAT… has not been paid or deposited an appeal shall be entertained if—
HMRC are satisfied (on the application of the appellant), or
the tribunal decides (HMRC not being so satisfied and on the application of the appellant),
that the requirement to pay or deposit the amount determined would cause the appellant to suffer hardship.
The facts
We have set out our findings of fact below. There is no material dispute about them.
Clear Pay ceased trading at some point in 2020 or 2021. The company’s accounts for the accounting period ended 30 November 2020 showed negative net assets of £194,490. The company was compulsorily deregistered for VAT with effect from 12 February 2021.
On 19 February 2021, HMRC issued an assessment made in respect of the VAT periods 05/19 and 02/20, in the amount of £357,907 (the “February 2021 VAT assessment”). HMRC agreed to conduct an internal review into that assessment on 8 March 2021. HMRC assert that the review concluded on 29 April 2022. Clear Pay assert that it was not notified of the outcome of the review until 12 August 2024.
Clear Pay also drew up accounts for the accounting period ended 30 November 2023. Those accounts showed positive net assets of £16,120 made up of investments of £25,000 less current liabilities of £8,880. Its bank account was closed in October 2023. The final bank statement showed that the company had £160.68 in its current account.
On 22 March 2024, HMRC presented a petition to the High Court to wind-up Clear Pay pursuant to sections 122(1)(f) and 123(e) of the Insolvency Act 1986 on the grounds that Clear Pay was unable to pay its debts as they fell due. The petition was adjourned.
The petition specified debts due to HMRC of £462,210.35, being the total amounts raised in assessments for VAT periods 05/19, 11/19, 02/20, 05/20, 08/20, and 02/21, together with interest and penalties (the “VAT assessments”). The bulk of the amount specified in the petition related to the February 2021 VAT assessment.
On 22 August 2024, Clear Pay’s representatives wrote to HMRC confirming that Clear Pay would be appealing against the VAT assessments. Their letter stated:
“As you are aware, HMRC are seeking a winding up order against the company in relation to these sums so must accept that the company cannot pay them without suffering hardship.”
Also on 22 August 2024, Clear Pay also appealed against the VAT assessments. In its Notice of Appeal, Clear Pay indicated that it was awaiting HMRC’s decision in relation to financial hardship.
On 23 October 2024, HMRC sent an email to the Tribunal advising that an application for hardship had been received and was being dealt with by the hardship review team.
On 29 October 2024, Clear Pay received a letter from HMRC’s Hardship Review Officer requesting that certain information and documentation be provided in support of Clear Pay’s application. The information request was in a standard form and mostly applicable to companies with a continuing business. For example, it requested copy of any draft or unaudited financial accounts/statements for the period following the latest published accounts, copies of current trade debtor and creditor listings together with explanation of any aged trade debtor balances that had not been collected, a full cash flow forecast of the business requirements over a period of at least the next twelve months, and details of the running costs of the business and how much money the company needed to operate the business.
On 30 October 2024, Clear Pay’s representatives responded by email to HMRC’s letter asserting that, as HMRC had made a winding up petition to the High Court on the basis that they believed that Clear Pay was unable to pay its debts as they fell due, it would be contradictory for HMRC not to accept that payment of the amount subject to the appeal could be made without Clear Pay suffering hardship. Neither Clear Pay nor its representatives sought to provide any of the information referred to in the information request.
By an email dated 13 November 2024, HMRC’s Hardship Review Officer sent a reminder letter to Clear Pay dated 14 November 2024 requesting the same information and documentation as that contained in the letter dated 29 October 2024.
On 13 November 2024, Clear Pay’s representatives sent an email to the Hardship Review Officer requesting that the points raised in their correspondence of 30 October 2024 be addressed. The Review Officer responded that the process of hardship needed to be followed, and that his request therefore stood.
On 29 November 2024, Clear Pay’s representatives sent a letter to HMRC. In that letter Clear Pay’s representatives asserted that it must be accepted by HMRC that to pay the amount of tax in dispute would cause Clear Pay to suffer hardship given the petition to wind up Clear Pay was on the basis that Clear Pay was unable to pay its debts as they fell due, and with specific reference to the VAT assessments.
In a letter dated 5 December 2024, HMRC rejected Clear Pay’s application. The letter stated that HMRC “are not satisfied that your company would suffer hardship if required to pay or deposit the amount of tax in dispute”. The decision was expressed to relate to the appeal against the February 2021 VAT assessment. The reason given for the refusal of the application was that Clear Pay had “failed to provide the required information to support [its] hardship application therefore not demonstrating why hardship would apply if the outstanding amount was to be paid prior to a tribunal hearing”.
The issues before the Tribunal
There are three issues before the Tribunal:
First, whether the Tribunal has jurisdiction to hear the hardship application (the “jurisdiction issue”);
Second, whether it is an abuse of process for HMRC to submit in these proceedings that Clear Pay will not suffer hardship if it is required to pay or deposit the amount of the VAT (the “abuse of process issue”);
Third, assuming that the Tribunal does have jurisdiction, whether, in all the circumstances of this case, Clear Pay will suffer hardship if it is required to pay or deposit the amount of the VAT (the “substantive issue”).
We will address the issues in turn.
The jurisdiction issue
The parties’ submissions
The first issue is unusual in that it is the appellant, Clear Pay, that questions the jurisdiction of the Tribunal. In summary, Mr Thornton’s submission is this:
HMRC have made submissions in relation to the winding-up petition to the High Court that Clear Pay is unable to pay its debts as they fall due (and specifically that Clear Pay is unable to pay the amount of VAT, interest and penalties assessed).
The test for hardship is clearly met if the taxpayer has no resources with which to pay the sum assessed (Massala Exotic Ltd v HMRC [2023] UKFTT 00621 (TC) (“Massala”) at [16]). By its own actions, HMRC have confirmed that HMRC are satisfied that the test for hardship is met.
If that is the case, subparagraph (a) of section 84(3B) is met and subparagraph (b) – which permits the Tribunal to determine the hardship issue – cannot apply.
In such circumstances, the correct response of the Tribunal is to decline jurisdiction in respect of this application, and make a finding of fact that HMRC are satisfied that the test for hardship is met.
HMRC made no submission on this issue.
Discussion
At the hearing, we advised the parties that we would hear the parties’ arguments on all issues and reach a decision on the jurisdiction issue as part of our final decision (and simply not proceed to determine the other issues if we found that the Tribunal did not have jurisdiction).
Having said that, we will resist Mr Thornton’s invitation to decline jurisdiction in this case. In our view, the Tribunal does have jurisdiction to hear the application. Our reasons are set out below.
As a starting point – and although we were not taken to any authorities by the parties – as we understand the relevant case law, any question as to the jurisdiction of the Tribunal is essentially a question of statutory construction. The Tribunal is a creature of statute, and its jurisdiction is entirely statutory. It has no inherent judicial review jurisdiction. See for example, the decision of the Upper Tribunal in Birkett (t/a Orchards Residential Home) v HMRC [2017] UKUT 89 (TCC) at [30].
Section 84(3B)(b) provides that, on an application by the appellant, the Tribunal has jurisdiction to decide whether the requirement to pay or deposit the amount determined would cause the appellant to suffer hardship. However, the Tribunal only has that jurisdiction if, following an application by an appellant, HMRC are not “so satisfied”.
In the present case, it is clear that HMRC are not satisfied that the appellant would suffer hardship if it was required to pay or deposit the amount of the disputed VAT. HMRC say so in their letter of 25 December 2024, and they are actively contesting this application entirely on the basis that they are not satisfied that Clear Pay would suffer hardship.
Mr Thornton points to HMRC's petition to the High Court as evidence that HMRC must be satisfied that Clear Pay would suffer hardship. He submits that HMRC’s petition to the High Court is inconsistent with its opposition to this application and that we should make a finding of fact to that effect.
We reject that submission.
The test for hardship in section 84(3B) VATA is very different from the grounds for which a company may be wound up by the court under section 122(1)(f) Insolvency Act 1986. We will discuss the test for hardship in more detail later in this decision notice, but, simply by way of example, section 122(1)(f) focuses on the position of the company alone in determining whether it is unable to pay its debts whereas the test for hardship in section 84(3B) requires a broader review and, in appropriate circumstances, can encompass a review of the resources available to other connected persons (see, for example, HMRC v Elbrook (Cash & Carry) Limited [2017] UKUT 181 (TCC) (“Elbrook”) at [25]). It is not, at least in theory, inconsistent for HMRC to pursue its petition in the High Court for winding up of the company on the grounds in section 122(1)(f) Insolvency Act 1986 and, at the same time, to oppose an application to this Tribunal that the company would suffer hardship if it were required to pay the amount of the disputed VAT before the Tribunal may entertain its appeal.
In any event, the statute provides a straightforward process for hardship applications by which an appellant may first make an application to HMRC and, if that is refused, an application to this Tribunal. Whilst we accept that it must be open to the Tribunal, when assessing its own jurisdiction, to consider whether HMRC are “satisfied” that the requirement to pay or deposit the amount of the disputed VAT would cause the appellant to suffer hardship, in the vast majority of cases, the Tribunal will simply accept at face value HMRC’s confirmation that it is not so satisfied. A lengthy enquiry into HMRC’s process in arriving at that position is neither appropriate nor warranted. Indeed, in a case where HMRC has refused an application and is opposing the application to the Tribunal, we struggle to envisage the circumstances in which the Tribunal should not simply accept jurisdiction and proceed to hear the application. If the Tribunal were then to refuse the application, but the appellant was able to show that the previous actions of HMRC gave rise to a legitimate expectation that they were satisfied that the hardship test was met, that would be a matter for judicial review – and not a matter over which this Tribunal has jurisdiction.
The abuse of process issue
The parties’ submissions
Mr Thornton’s second submission has similar roots. He says that it is an abuse of process for HMRC to submit before this Tribunal that the test for hardship is not met in circumstances where it is taking an inconsistent position in other proceedings against the appellant (Malik and others v Malik [2019] EWHC 1843 (Ch) per Falk J at [41]-[48]). Mr Thornton suggested that, in these circumstances, the appropriate action for the Tribunal to take was either to direct that HMRC could not make submissions which were inconsistent with its submission to the High Court in the winding up proceedings under the Tribunal’s general case management powers in rule 5 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”) or to bar HMRC from taking part in these proceedings under rule 8 of the Tribunal Rules.
In support of his submission, Mr Thornton referred us to various authorities including Johnson v Gore Wood & Co [2002] 2 AC 1, Foulser and another v HMRC [2013] UKUT 38 (TCC) and Shiner and another v HMRC [2018] EWCA Civ 31.
HMRC made no submissions on this issue.
Discussion
At the hearing, we announced our decision that we would hear all relevant arguments on all the issues before us. If it became necessary as part of our decision to consider the abuse of process issue, we would do so. If, having done so, we were to find in Clear Pay’s favour – i.e. that we should restrict HMRC's submissions in any way – then we would exclude the relevant submissions from our consideration of the substantive issue.
For reasons that will become apparent, it has not been necessary for us to determine the abuse of process issue in reaching our decision on the substantive issue and we do not do so.
The substantive issue
We now turn to the substantive issue.
The parties’ submissions
Mr Thornton, on behalf of Clear Pay, referred us to the decisions of the Upper Tribunal in Elbrook (at [16]-[31]) and the First-tier Tribunal (“FTT”) in Massala (at [8]) as appropriate summaries of the case law on the application of the test for hardship in section 84(3B) VATA.
He submitted that the test was clearly met in this case:
Clear Pay ceased trading some time ago;
the most recent balance sheet of Clear Pay for the accounting period ended 30 November 2023 showed that it had limited resources (net assets of £16,120);
the company’s bank account had been closed;
HMRC submitted in the winding-up proceedings that Clear Pay was unable to pay its debts as they fell due by reference to its inability to pay the amount of VAT, interest and penalties assessed; and
there was no evidence that there were material other funds available to Clear Pay from other sources.
Ms Sercombe for HMRC submitted that the burden was on the taxpayer to show hardship. Clear Pay had not provided any information in response to requests from HMRC’s Hardship Review Officer.
Discussion
Mr Thornton referred us to the decisions of the Upper Tribunal in Elbrook and the FTT in Massala as appropriate summaries of the case law on the application of the test for hardship. The passage from the decision of the FTT to which he referred (Massala [8]) is a summary of the principles as set out in Elbrook (at [16]-[31]) taken from the decision of the FTT in NT ADA Limited v HMRC [2019] UKFTT 0333 at [33], where the FTT said this:
In HMRC v Elbrook (Cash & Carry) Limited [2017] UKUT 181 (TCC) at [16] to [31], the Upper Tribunal recently provided a useful review of the legal principles in this area. From it, I derive the following points (references are to paragraphs in the Upper Tribunal's decision):
The purpose of the provisions is to strike a balance between the abuse of the appeals mechanism by employing it to delay paying disputed tax and the stricture of having to pay or deposit the disputed sum as the price of entering the appeal process; the relief afforded by the "hardship" provisions should not be applied so as to operate as a fetter on the right of appeal ([19]).
The Tribunal should not concern itself with the merits of the underlying appeal ([20]).
The test is an "all or nothing" one, in which it is not relevant that the appellant might be able to pay or deposit some amount less than the whole disputed sum ([31]).
The test is to be applied to the position at the date of the hearing ([26]). This means that the Tribunal should not "speculate as to what might become available to the appellant in the future" ([22] & [26]). It should focus on "immediately or readily available resources" ([21]).
The fact that the appellant may have the necessary cash or other readily available resources may not be determinative, if hardship would result from using it (or them) in paying the disputed sum ([22]).
Available borrowing resources may be considered, but generally only from existing sources, e.g. unused facilities or new facilities immediately available with minimal formality ([23]).
Potentially available borrowing from new sources, for example if the appellant owns property capable as acting as security for a new loan, will only exceptionally be considered as "immediately or readily available", for example where arrangements for borrowing are at an advanced stage ([24]).
The potential sale, outside the ordinary course of business, of assets properly purchased for the purposes of the appellant's business, might cause hardship even if the assets are not currently being used in the business ([25]).
There is no hard and fast rule that "regard can never be had to the resources of connected (but legally independent) entities where… there is common control and the evidence suggests a free flow of resources to meet the needs or requirements of any one entity at the expense of the other or others of them from time to time" ([25]).
Although the test is to be applied by reference to the circumstances at the date of the hearing (see [33(4)] above), that does not mean that events leading up to that time are necessarily ignored. The Tribunal can take into account "whether the appellant is himself responsible for putting himself in a position where he cannot pay…, and that would include by delaying the hearing so that at the time of the hearing he cannot pay… without hardship" ([27], endorsed at [28]). The basis for this is that the "real cause" of the appellant's inability to pay without hardship may be his own prior actions.
The Tribunal should make its assessment on the basis of the most up-to-date available information. The burden lies on the appellant to establish hardship, so it is normally incumbent on the appellant to adduce the necessary evidence to satisfy the Tribunal ([29]). Absence of contemporaneous accounting evidence may justify the Tribunal in placing little, if any, weight on an oral assertion that the appellant is unable to afford to pay.
Within the above parameters, the decision of the Tribunal is a value judgment on the basis of the evidence before it ([16]).
HMRC did not suggest that this summary does not encapsulate the relevant principles. We gratefully adopt it.
Applying those principles, we conclude that Clear Pay would suffer hardship if it was required to pay the amount of the disputed VAT before its appeal could be entertained. Our reasons are set out in the following paragraphs.
From the evidence before us at the hearing, Clear Pay is in no position to pay the amount of the disputed VAT.
It had limited funds in its bank accounts when they were closed in October 2023.
The company’s most recent accounts for the period ended 30 November 2023 show that it had limited net assets.
The improvement in the accounting position from the accounts for the period ended 30 November 2020 would appear to be primarily a result of some restructuring involving the release of shareholder debts and not from the result of any continuing commercial activity.
We have seen no evidence that there are other funds or resources available to Clear Pay or that could be made available from other sources.
The test for “hardship” is an “all or nothing” test. Clear Pay cannot pay the disputed amount of VAT in full. It is irrelevant that may have some limited funds that might be applied in part payment.
The test is applied at the date of the hearing. In reaching our conclusion, we have taken into account the evidence that is before us. It is irrelevant that Clear Pay has not responded to HMRC’s requests for information as part of their review.
If the requirement to pay the disputed VAT before an appeal can be entertained was maintained in this case, Clear Pay would, in effect, be denied its right to appeal. In the balance between the abuse of the appeal process and the risk of the requirement to pay the disputed VAT before an appeal can be entertained acting as a fetter on genuine appeals, in this case, in our view, the balance lies in favour of permitting this appeal to proceed.
The burden of proof in this application is on the taxpayer. We are satisfied that Clear Pay has met that burden. HMRC has not challenged any of the evidence that has been put to us. Other than their assertion that Clear Pay did not respond to the Hardship Review Officer’s requests for information (which is not relevant), HMRC have not attempted to meet the case that has been put on Clear Pay’s behalf.
In relation to the final point, we do note – as will be apparent from our comments on the jurisdiction issue and the abuse of process issue – that HMRC have not engaged with any of the arguments that have been advanced by Clear Pay. HMRC have not at any stage, whether before or during the hearing, sought to address the questions raised by Clear Pay as to the apparent inconsistency in HMRC’s approach to the winding up petition in the High Court and this application. There may be good reasons, but we have not heard them. HMRC cannot say that they were given no notice of the submissions that Clear Pay intended to make in support of this application. Even though there was no direction requiring him to do so, Mr Thornton provided a skeleton argument to HMRC and the Tribunal well in advance of the hearing.
Disposition
For the reasons that we have set out above, we grant this application. We direct that Clear Pay’s appeal shall be entertained without Clear Pay having to pay or deposit with HMRC the amount of the disputed VAT.
Right 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 Rules. 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: 30th JULY 2025
