Mohammad Ameen Mirza v The Commissioners for HMRC

Ground 1 is an allegation of a procedural irregularity in the FTT proceedings. Given that Ground 1 invites an examination of why Mr Mirza did not give oral evidence before the FTT, the Upper Tribunal permitted both sides to put forward witness evidence relating to the FTT proceedings.

HMRC relied on evidence in the form of a witness statement dated 17 May 2022 from Mr Mark Boyle, the HMRC litigator who represented HMRC before the FTT. Mr Boyle attended the hearing before us and Mr Nawaz cross-examined him.

Mr Mirza submitted no witness statement by the applicable deadline of 15 July 2022. On 21 August 2022, he applied for permission to rely on a late witness statement. However, the witness statement that he put forward focused on the advice he said he had received from his then accountant to the effect that he was entitled to pay his VAT liabilities by way of set off and his reliance on that advice. That evidence was not relevant to either ground on which Mr Mirza had permission to appeal. It did not explain why he gave no evidence to the FTT but rather set out the evidence that Mr Mirza says he would have given if asked. Accordingly, in a decision notice released on 22 September 2022, the Upper Tribunal refused Mr Mirza permission to rely on this witness statement. In that decision notice, the Upper Tribunal stated that it remained willing to consider an application to rely on a late witness statement from or on behalf of Mr Mirza dealing with the FTT proceedings and why he came to give no evidence in them but Mr Mirza made no such application. It follows that we had no witness evidence from Mr Mirza or anyone on his behalf.

We make the following findings of fact about the FTT proceedings so far as relevant to Ground 1.

Mr Mirza appealed to the FTT against the default surcharge for 02/19 on 4 August 2019. He appointed Mr Nawaz to act as his representative. Mr Nawaz is an accountant and not a lawyer. However, he appears frequently as an advocate before the FTT and the Upper Tribunal. Mr Mirza’s notice of appeal focused on the assertion that he was entitled to pay his VAT liability for 02/19 by way of set-off. It did not raise a defence of reasonable excuse.

HMRC served their Statement of Case on 28 October 2019. Following receipt of HMRC’s statement of case, the FTT’s usual practice is to issue “standard directions” that include provisions dealing with witness statements. For cases of lower complexity, such standard directions might provide for witness evidence to be given orally at a hearing. In more complex cases, the FTT might require witness statements to be exchanged. Yet in this case, for reasons that remain unclear, the FTT issued no standard directions that dealt with witness evidence at all.

It is possible, though we make no finding, that the reason no standard directions were issued was because, on 5 September 2019, the Company applied for the appeal to be sisted pending the determination of criminal proceedings. That application was listed for oral hearing. The FTT Judge refused it in a decision notice released on 15 October 2019. It is possible that, having determined the disputed application for a sist, the FTT lost sight of the need for standard case management directions.

On 30 March 2020, the FTT wrote to Mr Nawaz. Unfortunately, we do not have the full text of the FTT’s communication, but we can infer that it asked some questions because Mr Nawaz responded by email and started by saying that he was aware that the FTT needed an answer to various points that had been raised. Mr Nawaz copied that email to HMRC and said, in the fourth paragraph:

Later, we will deal with the significance or otherwise of this email. However, we pause to note that HMRC did not dispute that returns had been submitted, so on the email’s own terms no evidence from “the accountant” would be offered. We also note that since the email refers only to possible evidence from “the accountant”, read naturally it excludes the possibility of Mr Mirza himself giving evidence.

On 25 June 2020 the FTT wrote to both HMRC and Mr Mirza to say that it was considering hearing the appeal remotely by video link. It invited the parties to give the FTT information about the persons who would be attending the hearing and their access to IT equipment that would be needed if the hearing was remote. In response to a question about the “name and role of each person participating on the hearing on behalf of that party”, Mr Nawaz responded:

In its letter of 25 June 2020, the FTT offered the parties a test of the FTT’s video hearing equipment which both parties accepted. As part of the email exchanges fixing the test hearing, Mr Nawaz wrote to the FTT on 5 October saying:

The test hearing took place on 13 October 2020 and was attended by the FTT Judge, Mr Boyle (HMRC’s litigator with conduct of the case), some observers from HMRC’s side, Mr Nawaz and Mr Mirza. There was a dispute about what was said during the test hearing. Mr Boyle’s evidence was that, while the focus was on testing the video equipment, some other matters were discussed and that (i) Mr Boyle told the FTT Judge that he would propose to serve an amended schedule of defaults prior to the full hearing and (ii) the FTT Judge asked Mr Nawaz whether Mr Mirza would be giving evidence and Mr Nawaz responded that, while Mr Mirza would be attending, he would not give evidence.

Mr Nawaz challenged that evidence in cross-examination and suggested to Mr Boyle that the test hearing was concerned just with a test of the video equipment and nothing further. We were faced, therefore, with a straightforward disagreement on recollections from a hearing that took place almost exactly two years ago. We accept Mr Boyle’s evidence set out in paragraph 29 above for the following reasons:

Mr Nawaz served a skeleton argument in advance of the substantive hearing. That skeleton argument, like the notice of appeal, focused on the argument that Mr Mirza had validly paid his VAT liability for 02/19 by set off. There was no express argument that Mr Mirza had a “reasonable excuse”. Paragraph 9 of the skeleton argument did assert that “there were reasonable grounds for the Appellant not to make any payment and that should obviate the need for a payment and as such there is no justification for the Default Surcharge”. However, even that passage sets out an argument that no payment was needed. It does not go on to assert expressly that, even if a payment was needed, Mr Mirza had a reasonable excuse for not making it consisting of a reliance on professional advice.

The substantive hearing took place on 20 October 2020, by video as the FTT had indicated. Mr Nawaz and Mr Mirza attended that hearing on Mr Nawaz’s side. Mr Boyle, and another HMRC litigator, attended on HMRC’s side.

We were provided with a transcript of the hearing before the FTT. The hearing started at 10.05 am and finished at 11.08 am.

The FTT Judge made a number of interruptions when Mr Nawaz was making his submissions. Towards the beginning of the hearing, she provided her own summary of the law on HMRC’s duties when considering a claim for a VAT repayment which drew, in part, on her experience as the judge at first instance in DCM (Optical Holdings) Limited v HMRC which went on appeal to the Inner House of the Court of Session reported at [2020] CSIH 60. (On 12 October 2022, shortly before the Upper Tribunal hearing, the Supreme Court released its judgment in the appeal from the judgment of the Inner House which left the Inner House’s judgment undisturbed.) At another point, the FTT Judge asked Mr Nawaz questions about what happened when HMRC had seized the Seized Cash and the legal authority underpinning that seizure. That led to Mr Nawaz and the FTT Judge sharing their (differing) views on how such seizures were normally effected with that exchange not being obviously rooted in documentary evidence relating to the particular seizure.

During the hearing, it was Mr Boyle, representing HMRC, who first mentioned the concept of “reasonable excuse” saying that “we can look at the reasonable excuse behind this”. In his submissions to the FTT, Mr Nawaz expressly advanced the argument that, even if Mr Mirza was not entitled in law to pay his VAT liability by set-off, there was nevertheless a reasonable excuse because it was reasonable for him to rely on advice that set-off was possible. That argument had not been trailed in Mr Mirza’s notice of appeal or Mr Nawaz’s skeleton argument, but no-one suggested that he was precluded from advancing it (indeed, as we have noted, Mr Boyle said that he was content for the question of reasonable excuse to be considered).

However, even though Mr Nawaz made submissions that Mr Mirza had a genuine and reasonable belief that he could pay his VAT liability by set off, he referred to little, if any, evidence to underpin those submissions. There was a letter from Mr Mirza’s former accountants to HMRC dated 25 April 2019 which expressed the view that no default surcharge could be imposed for 02/19 given that HMRC held the Seized Cash and were obliged to settle the Repayment Claims. However, as we have noted, Mr Mirza did not give oral evidence and therefore did not himself say even that the idea of set-off was in his mind when he declined to pay his VAT liability. Since Mr Mirza did not give evidence, he was not cross-examined on what he made of HMRC’s assertion that they were continuing to issue default surcharges when VAT liabilities went unpaid and whether or not that dented any belief he held in the validity of a set-off. In short, the case on reasonable excuse was advanced almost entirely in the form of assertions that Mr Nawaz made during the course of his oral submissions.

Mr Nawaz mentioned in his submissions that there were a “couple of cases quoted in the bundles” that would be of assistance. He placed particular reliance on the following exchange between him and the FTT Judge:

The two cases to which Mr Nawaz was referring were Rowland v Revenue & Customs Commissioners [2006] STC (SCD) 536 and Clean Car Company Ltd v Customs and Excise Commissioners (Decision Number 5695 of 1991). We understand why Mr Nawaz wished to refer to Rowland in particular because it dealt with a situation where a taxpayer had been found to have a “reasonable excuse” consisting of reliance on advice from a professional adviser, even though that advice was incorrect. We do not, however, accept that in the passage quoted above the FTT Judge prevented Mr Nawaz from referring to the cases. Mr Nawaz himself suggested that the FTT Judge would be familiar with the law so that reference to the authority might not be necessary. The FTT Judge simply accepted that suggestion and asked if there was anything else arising. Mr Nawaz had an opportunity to take the FTT Judge to his authorities had he wished to.

At no point did the FTT Judge suggest in terms that the FTT would benefit from hearing oral evidence from Mr Mirza. But she did conclude the hearing by addressing Mr Mirza directly to ask whether he was “happy that everything has been said”. After a delay during which it was realised that Mr Mirza was on mute he said “Yes, ma’am, yes”.

On balance, for the reasons set out below, we have concluded that the fact that the FTT’s decision was reached without hearing Mr Mirza’s first-hand witness evidence involved no procedural irregularity.

We agree with Mr Nawaz that it is regrettable that the FTT issued no directions regulating the provision of witness evidence. If Mr Mirza had not been professionally represented, he would not have realised that witness evidence was even possible, still less how it should be given. That certainly had the potential to result in a procedural irregularity.

However, Mr Mirza was professionally represented, by Mr Nawaz. Mr Nawaz was certainly aware of the possibility that Mr Mirza might give oral evidence in support of his case. As noted in paragraph 25 above, by 30 March 2020, Mr Nawaz had considered whether Mr Mirza should give oral evidence and had concluded that he should not or need not. His response to the FTT Judge’s question at the test hearing on 13 October 2020 demonstrated that he remained of that view.

Mr Nawaz submitted that the desirability of oral evidence from Mr Mirza would have emerged from a discussion of the “two cases in the bundles” (particularly Rowland). Therefore, he submitted that the FTT Judge’s act of shutting down discussion of those cases was a procedural irregularity that prevented the witness evidence from being given. We do not accept that submission since, as we have explained, the FTT Judge did not shut down discussion of those cases.

Mr Nawaz rightly referred to the overriding objective in Rule 2 of the FTT’s rules of procedure of dealing with cases fairly and justly. One aspect of that overriding objective involves “avoiding unnecessary formality and seeking flexibility in the proceedings”. We quite accept that a different judge might have concluded that the overriding objective could have been furthered by saying expressly to Mr Nawaz that some evidence was needed to make good his submissions on reasonable excuse. However, there is no single right way to conduct a hearing such as this. We do not consider that it was incumbent on the FTT Judge to intervene in this way given that Mr Mirza was professionally represented and that just a week before at the test hearing, Mr Nawaz had demonstrated that he had considered the question of witness evidence and concluded that none need be given. There was HMRC’s position to consider as well: having been told that Mr Mirza would not be giving evidence, they might have objected if it was suggested that this position should change at short notice. A different judge might have pressed Mr Nawaz on whether it truly was the best course of action for his client not to give evidence, but the FTT Judge was not obliged to do so.

Some additional support for the above conclusion comes from the fact that the FTT Judge did close the hearing by asking Mr Mirza if he was happy that everything had been said. We acknowledge that this question did not bring out the point that Mr Nawaz lacked evidence to make good on the submissions he had made. But it did at least offer Mr Nawaz a final chance to reconsider the position on witness evidence.

We should not, however, be taken to suggest that the FTT Judge’s conduct of the hearing was beyond reproach. We do consider that Mr Nawaz should have been given more time to develop his submissions without interruption. We do not consider that it was helpful for the FTT to provide, unrequested, its own summary of the law which amounted, in effect, to a summary rejection of Mr Mirza’s case on set-off. Nor do we consider that it was right for the FTT to engage in a debate with Mr Nawaz about how seizures of cash normally work since that approach itself risked blurring the line between evidence and submission. However, ultimately we have concluded that those defects in the procedure were not sufficient to amount to a procedural irregularity that prevented Mr Mirza from giving evidence. The true position, as we have explained, is that the decision that Mr Mirza would not give evidence was reached independently of, and separately from, the hearing before the FTT Judge.

We dismiss Mr Mirza’s appeal on Ground 1.

The FTT found that Mr Mirza was not entitled in law to pay his VAT liability by set-off. Mr Mirza has no permission to challenge that conclusion. We therefore proceed on the assumption that the FTT’s conclusion was correct. It follows that, by Ground 2, Mr Mirza asserts that the FTT applied a flawed approach in determining whether Mr Mirza had a reasonable excuse consisting of genuine reliance on incorrect advice.

There are some indications in the Decision that the FTT might have been following a flawed approach. At [57], after considering the Upper Tribunal’s decision in Katib, the FTT concluded shortly that “… if the appellant’s then advisor did not know about Tradecorp or did not advise him about that, that is not a reasonable excuse.” There is perhaps a suggestion in that paragraph that Katib is authority for a broader proposition that all defaults of an adviser are to be attributed to the client so that reliance on incorrect advice is incapable of constituting a reasonable excuse. If that is the conclusion that the FTT was drawing at [57], it was incorrect. Reliance on incorrect advice is capable of being a reasonable excuse. Of course the taxpayer will need to show that the advice was indeed relied on as part of the process of establishing that the excuse relied upon was “genuine” in the sense set out in Perrin. The taxpayer will also need to establish, taking into account all relevant attributes of that taxpayer, that reliance on the incorrect advice was reasonable. The mere fact that advice is incorrect does not render all reliance on that advice necessarily unreasonable.

However, we do not need to reach a settled conclusion on what precisely the FTT meant at [57] of the Decision. As we have explained in our discussion of Ground 1, there was insufficient evidence (as distinct from submission) before the FTT to the effect even that advice on the availability of set-off had driven Mr Mirza’s decision not to pay his VAT liability for 02/19. Still less was there any sufficient evidence for the FTT safely to conclude that even if Mr Mirza had relied on such advice it was reasonable for him to do so. At various points in his submissions before us, Mr Nawaz asserted that Mr Mirza was illiterate and not equipped to look critically at advice he received. But the FTT was referred to no evidence to make that submission good. Nor, since Mr Mirza gave no evidence, could he be questioned as to why he thought it was possible for him to apply set-off when HMRC seemed to issue him with a default surcharge on those occasions when he did. If a reasonable taxpayer in Mr Mirza’s position would have realised that set-off could not properly be applied, despite professional advice to the contrary, any defence based on reasonable excuse would fail. We respectfully consider that the following passage from the decision of the Upper Tribunal (Joanna Smith J and Judge Cannan) in Archer v HMRC [2022] UKUT 61 (TCC) is just as applicable to Mr Mirza’s situation as it was to the taxpayer in that case:

In saying this, we should not be taken as endorsing the entirety of the FTT’s reasoning that we have summarised in paragraph 16. We are not sure precisely how the FTT reached its conclusion that Mr Mirza’s outstanding liabilities “vastly exceeded” the Seized Cash, a proposition that Mr Mirza strenuously denied. However, the short point is that even if the FTT did make an error of law of the kind asserted as Ground 2, that could not affect the outcome since any correct application of the law would lead to the conclusion that the evidence before the FTT was insufficient to establish that Mr Mirza had a reasonable excuse.

We accordingly dismiss Mr Mirza’s appeal on Ground 2.

Mr Mirza's appeal is dismissed.

During the hearing before us, Mr Nawaz explained that Mr Mirza remains bemused at the fact that despite HMRC, on his view, owing him a large sum in the form of the Repayment Claims they are continuing to charge him default surcharges for non-payment of, what he considers to be, much smaller amounts of VAT owed to HMRC. We do not want either Mr Mirza or his family, who travelled a long way to attend the hearing before us, to be left wondering why the Upper Tribunal has not made any findings on an issue that is puzzling him.

The Upper Tribunal only has permission to deal with the specific grounds of appeal that are before us. Mr Mirza was refused permission to appeal on the grounds that he was permitted to pay his VAT liability by way of set-off because the Upper Tribunal was not satisfied that these grounds of appeal were sufficiently arguable to have a realistic prospect of success. It follows, therefore, that questions of whether HMRC should have paid Mr Mirza the Repayment Claims, and whether, when they did not, he was entitled to pay his VAT liability by way of set-off, were not before the Upper Tribunal. As a result, the Upper Tribunal simply had no power to consider these issues and Mr Nawaz likewise had no permission to put forward arguments on them and he, quite rightly, did not seek to do so.