In relation to the first issue, EPL contended that HMRC’s letter of 22 February 2017 was not a determination for the purposes of s. 222(4), because HMRC did not deal with all the issues raised by EPL in its letter of 23 November 2016.

The FTT considered R (Mrs Shirley Archer) v HMRC [2019] EWCA Civ 1021, in which Henderson LJ observed at §17 that:

That comment was made in the context of a discussion of whether the representations procedure in s. 222 is the primary remedy for a taxpayer dissatisfied with an APN, which should normally be exhausted before any judicial review proceedings are set in motion. At §§93–4 Henderson LJ held that it is, and that HMRC had:

As to the scope of the objections which may be raised under s. 222, Henderson LJ reiterated (at §95) that a broad and non-technical construction should be given to s. 222 “with the aim of enabling all objections to the application of the three conditions, or to the amount of the accelerated payment, to be covered if at all possible by the representations”.

The FTT agreed with EPL that HMRC had a duty to consider and respond to EPL’s objections that the APNs were ultra vires because of the lack of information regarding the way in which the designated officer made their decision. Those points were, the FTT considered, challenges to the “amount” of the APNs, giving the term “amount” the broad and non-technical construction required by Mrs Archer. The FTT found that HMRC’s letter of 22 February 2017 did not contain a response to all the points in EPL’s letter, and held that it was therefore flawed but nevertheless a “determination” under s. 222(4): Decision §§181–2.

The FTT observed that HMRC’s failure to take into account matters which should have been taken into account meant the determination might be vitiated by unreasonableness, in which case the APNs would be set aside: Decision §183. We consider that the FTT erred on this point. The determination logically followed the issue of the APNs, and whether it was valid or not had no impact on the legal status of the APNs. In our view, if HMRC’s letter was not a valid determination then the only consequence would be that the obligation to pay the APNs continued to be suspended by s. 223(5) FA 2014, and the payment period would not start to run again until there was a valid determination.

The FTT’s view that the next step would be an investigation as to whether HMRC’s determination might be vitiated by unreasonableness led the FTT to consider whether it had a judicial review jurisdiction or supervisory jurisdiction of a similar nature. The FTT discussed the UT’s decision in Birkett v HMRC [2017] UKUT 89 (TCC) and the Court of Appeal’s decision in Beadle v HMRC [2020] EWCA Civ 562. It concluded that it did not have jurisdiction to consider a public law challenge to the APNs, and therefore did not have jurisdiction to consider the ultra vires objections to the APNs contained in EPL’s 23 November 2016 letter: Decision §§184–191.

In the alternative, if it did have such jurisdiction, the FTT held that even if HMRC had considered all the representations made by EPL, the determination would inevitably have been the same and the penalties would have been upheld: Decision §§192–3.

EPL’s case on this issue is straightforward. It contends that if representations are made on multiple points in the same letter of representations, then s. 222(4) obliges HMRC to consider all those representations, at least in so far as they are valid representations (adopting the broad and non-technical approach referred to in Mrs Archer). Mr McDonnell submitted that there can be no s. 222(4) determination until HMRC have done that. If HMRC purport to confirm the APN having only considered some of the statutory representations, then that confirmation cannot amount to the required statutory determination pursuant to s. 222(4), because there are outstanding representations which HMRC have not determined. Alternatively, if the determination is flawed, whether because it is Wednesbury unreasonable or because relevant considerations have not been taken into account, it is void as a determination and is therefore not a determination within the meaning of s. 222(4). Mr McDonnell’s essential point was that a “determination” in s. 222(4) must refer only to lawful determinations. If there is not a valid and lawful determination, then on his submission the 30-day payment period under s. 55(8D) TMA cannot start to run.

HMRC’s position is that the FTT was correct to hold both that HMRC’s letter of 22 February 2017 was a “determination” for the purposes of s. 222(4), and that the FTT had no jurisdiction to consider public law challenges to the validity of that determination. Mr Brinsmead-Stockham submitted that HMRC’s letter satisfied the formal statutory requirements of s. 222(4) by determining that the APNs would be confirmed without amendment and notifying EPL of that fact. He also contended that the clear effect of Beadle was that the FTT did not have jurisdiction, in an APN penalty appeal, to consider public law arguments as to the validity of the APNs.

The judgment in Beadle is indeed in our view the correct starting point. The case concerned an appeal against a penalty notice for non-payment of a Partner Payment Notice (PPN), but the court noted that for its purposes there was no material distinction between APNs and PPNs. The provisions on representations and penalties for PPNs are, in particular, in all material respects the same as those set out above for APNs. Mr Beadle, in that case, made representations challenging the validity of the PPN issued to him, including on grounds that the amount of the “understated tax” specified in the PPN was not due as a matter of law. His representations were rejected by HMRC; Mr Beadle did not pay the PPN within 30 days of notification of that determination; HMRC therefore issued a penalty for late payment. Mr Beadle appealed contending, among other things, that the amount payable under the PPN should have been zero, such that the penalty should also have been zero.

In the Court of Appeal, Simler LJ agreed with both the FTT and UT that the FTT had no jurisdiction to entertain Mr Beadle’s challenge to the PPN, approving (at §43) a passage set out at §45 of the decision of the UT in that case:

At §§48–9, Simler LJ commented in similar vein that

As Simler LJ explained, the purpose of the PPN regime is to deter marketed tax avoidance schemes by removing the cash flow benefit to taxpayers while those schemes are contested, irrespective of the validity of such schemes. The deliberate omission of statutory appeal rights is an indication that Parliament does not intend taxpayers to be able to make direct challenges to PPNs by way of appeals to the FTT, where the underlying tax dispute provides full appeal rights. By necessary implication, indirect challenges through penalty or other proceedings cannot have been intended either (§§49–50).

That reasoning applies with equal force to a determination by HMRC confirming an APN. If a taxpayer cannot challenge the validity of an APN/PPN by way of a penalty appeal, it would be completely illogical for the taxpayer to be able nevertheless to advance, in a penalty appeal, a challenge to a s. 222(4) determination confirming the APN/PPN and rejecting the taxpayer’s representations as to the validity of the APN/PPN. If the position were otherwise, a taxpayer could use the s. 222 representations mechanism to engender an appeal route otherwise denied for the reasons set out in Beadle.

It is, therefore, not open to the FTT to entertain a penalty appeal based on a contention that a s. 222(4) determination failed to take account of all of the relevant representations and was therefore not valid. We do not accept EPL’s submission that its challenge to the validity of the determination can be made without requiring the FTT to exercise a judicial review function. Its objection that HMRC’s determination failed to take account of and respond to all of the relevant representations on the “amount” of the APN is a classic judicial review challenge.

The FTT was therefore correct to say (Decision §191) that it had no jurisdiction to consider whether the determination should be set aside on the grounds that HMRC failed to address certain of EPL’s ultra vires objections. It is not, therefore necessary for us to address the correctness of FTT’s prior conclusion (Decision §§181–2) that the determination was flawed for failure to take into account those ultra vires objections. Whether or not HMRC’s determination should have taken account of and responded to those objections can only be determined by embarking on precisely the enquiry which, as is clear from Beadle, is not open to the FTT in an APN penalty appeal.

In the present case, HMRC’s 22 February 2017 letter responded to EPL’s representations expressed as being made pursuant to s. 222(2)(a) and (b), regarding Conditions A, B and C in s. 219, and the amounts specified in the APNs. The letter concluded with a clear confirmation of the APNs and their amounts. There is no dispute that the letter met the formal requirements of s. 222(4). The letter was therefore a determination within the meaning of s. 222(4), which triggered the 30-day period under s. 55(8D) TMA. Unless and until the determination is successfully challenged in a court of competent jurisdiction, it is presumed to be valid: Beadle §4.

EPL does not challenge the facts found by the FTT, but contends that the FTT erred in law in concluding on the basis of those facts that EPL did not have a reasonable excuse for the late payment of the APNs. HMRC submit that the FTT’s conclusions in relation to reasonable excuse were findings of fact and not capable of challenge save on the basis set out in Edwards v Bairstow [1956] AC 14.

After the hearing in this case and before this decision was released, EPL applied for the parties to be allowed to make submissions on the decision of the UT in HMRC v A Taxpayer [2023] UKUT 182 (TCC), which was released on 28 July 2023. We granted the application and also subsequently allowed EPL to reply to the submissions made by HMRC.

The relevant question in A Taxpayer was whether certain circumstances were “exceptional circumstances beyond [the person’s] control” preventing a taxpayer from leaving the UK (so as to cause the normal statutory residence test day limits to be exceeded) for the purposes of paragraph 22(4) of Schedule 45 to the Finance Act 2013. The UT in A Taxpayer held that the FTT’s decision that the circumstances in that case were “exceptional” was a mixed finding of fact and law, with the question as to whether or not the circumstances were “exceptional” being a question of law to be answered by reference to the primary findings of fact.

EPL contended that the issue in A Taxpayer is directly analogous to the question in this case as to whether or not an excuse is “reasonable”. Both are questions of law, to be answered by reference to the primary findings of fact found by the FTT. In EPL’s submission, the question of law in this case is whether the primary facts found are or are not capable of amounting to an objectively reasonable excuse, i.e. capable of satisfying the objective requirement of reasonableness.

HMRC’s primary response was that the decision in A Taxpayer is not relevant here because it concerned different legislation with different wording, i.e. “exceptional circumstances” as opposed to “reasonable excuse”. Further, HMRC pointed out that the UT in A Taxpayer expressly stated at §54 that the two concepts were not the same:

HMRC maintained that the meaning of the phrase “reasonable excuse” is a question of law, and that a finding by the FTT as to whether a particular taxpayer had a “reasonable excuse” in the particular circumstances of any given case is a finding of fact.

The passage in A Taxpayer relied on by EPL is at §110, where the UT observed:

We agree with that observation, but note that (as HMRC said) the UT in A Taxpayer was not concerned with the meaning of “reasonable excuse” but a different concept and legislative provision. In our view, the observation at §110 does not add anything to the comments of the UT in Perrin v HMRC [2018] STC 1302:

As in Perrin, there is no challenge to the findings of fact by the FTT in this case. That being the case, the question is whether the FTT misinterpreted the phrase “reasonable excuse” or, having interpreted it correctly, misapplied the concept to the facts which it had found, which are both questions of law.

The starting point in that regard is, as the FTT set out at §197, the approach set out by the UT at §81 of Perrin:

As to the third of those steps, the FTT noted the judgment in Beadle, in which the Court of Appeal (at §§57–9) found that a reasonable belief that the PPN was invalid or allegedly invalid could not form a reasonable excuse for failure to pay within the payment period.

The FTT then referred to the decision of the UT in Sheiling Properties v HMRC [2020] UKUT 175 (TCC), cited by counsel for EPL, in which the UT distinguished between “procedural invalidity” and “substantive invalidity”, holding at §78 that the policy considerations driving the APN code are less persuasive in determining the reasonableness of a belief where the taxpayer’s belief is that “what purports to be on its face an APN is not an APN at all”. At §81 of Sheiling the UT said that in assessing the objective reasonableness of a belief that the APN was procedurally invalid, the FTT should identify whether the taxpayer believed that the APN was “obviously procedurally invalid” as opposed to merely arguably so, giving as an example an “obvious or gross error” in the notice such as where the decimal point was incorrectly placed in the statement of the amount to be paid. It commented at §84 that if the alleged ground of procedural invalidity required detailed submissions by the parties on competing legal arguments, that was by definition “not a gross or obvious error, and, as such, is considerably less likely to be objectively reasonable in this context.”

Having considered those cases, the FTT’s decision was as follows:

The FTT then considered the Perrin four-step approach, and decided as follows:

In case it was wrong on that point and Mr Jones’s faith in the success of the judicial review was reasonable, the FTT went on to consider the fourth step in Perrin, i.e. when that reasonable excuse ceased and whether EPL remedied the failure without unreasonable delay. The FTT found that it was clear that EPL could not have believed that the judicial review had any reasonable prospects of success after the Court of Appeal’s judgment in Rowe on 12 December 2017. EPL failed to make the payments without unreasonable delay after that date and so was liable for the penalties: Decision §§215–6.

The FTT next considered whether EPL had a reasonable excuse on the basis that HMRC had accepted that EPL should have interim relief in its letter dated 28 November 2017, on the terms set out at §25 above. Those terms were (essentially) that HMRC would not enforce payment under the APNs or associated penalties until the High Court had disposed of the judicial review claim. HMRC specifically reserved the right, among other things, to issue further APNs and penalties for failure to pay any APN (including any further APN).

Applying the approach required by Perrin, the FTT found that Mr Jones did not understand the meaning of the term “interim relief” and that EPL had not proved that Mr Jones had any understanding that, as a result of interim relief being agreed, no penalties would be chargeable for the failure to pay the APNs. The FTT also held that, even if Mr Jones had believed that the interim relief order meant he did not have to pay the APNs, that would not have formed a reasonable excuse because that belief was not objectively reasonable, since the interim relief agreed by HMRC merely stayed enforcement and did not change the APN payment dates or preclude penalties for failure to pay on time, and EPL’s legal advisers did not advise him that the interim order had changed the date by which payment was legally due: Decision §§240–3.

Mr McDonnell submitted, relying on Sheiling, that the FTT erred in law in concluding that a belief that the APNs were invalid “cannot form an objectively reasonably excuse” because it is not “an obvious or gross error”. He contended that the UT in Sheiling had not held that only gross or obvious errors could give rise to a reasonable excuse.

Mr Brinsmead-Stockham argued that Sheiling was wrongly decided on this point, since it was inconsistent with Beadle. His submission was that the effect of Beadle was that any form of collateral challenge to the substantive validity of an APN could not form the basis of a reasonable excuse in an APN penalty appeal, with “substantive validity” for these purposes including all collateral challenges which assert that the conditions for issuing an APN are not satisfied.

We recognise that the scope of the approach set out in Sheiling may need to be explored in a future case. In its recent judgment in William Archer v HMRC [2023] EWCA Civ 626, the Court of Appeal noted that there was uncertainty as to the scope of the cases where non-payment of an APN might be reasonable, and expressly did not decide whether the Sheiling distinction between substantive and procedural invalidity was correct (§78d). Nor do we consider it necessary to determine that in this case. That is because, irrespective of whether a belief of the taxpayer in the invalidity of the APN on particular grounds might in principle form an objectively reasonable excuse, in the present case the FTT found as a matter of fact that Mr Jones did not have any understanding of the merits of the claim, and specifically did not have any knowledge of the designated officer points. In other words EPL’s decision not to pay the amounts specified in the APNs did not, as a matter of fact, rely on a belief as to the invalidity of the APNs on the designated officer grounds. Instead, Mr Jones simply relied on a belief that the judicial review would succeed based on trust in the expertise of his advisors. That was, the FTT found, not reasonable for a person in Mr Jones’ position; and in any event that belief was not tenable after 12 December 2017 (when the Court of Appeal’s judgment in Rowe was handed down).

Mr McDonnell submitted that the FTT erred in concluding that Mr Jones’s status as an “intelligent and experienced businessman” indicated that EPL’s reliance on legal advice and trust in its legal advisers could not ground its reasonable excuse defence. His submission was that it was not relevant to take into account whether Mr Jones, as a layman, understood the legal issues or not. All that needed to be established was that he believed that the judicial review would succeed.

At §19 of William Archer, Whipple LJ emphasised that reasonableness is to be determined in each case depending on the facts, citing with approval §161 of Barrett v HMRC [2015] UKFTT 329 (TC) which noted that reasonableness

Perrin §81 likewise makes clear that the Tribunal should take into account the experience and relevant attributes of the taxpayer in deciding whether what the taxpayer did was reasonable. The FTT found, as a matter of fact, that it was not reasonable for a person in Mr Jones’ position to make a decision not to pay based on uninformed faith in his advisors. That was a finding of fact which the FTT was entitled to make on the evidence before it. We do not consider there to be any error of law in the FTT’s application of the concept of a reasonable excuse in this regard.

In William Archer, on which Mr McDonnell placed heavy reliance, the Court of Appeal considered that Mr Archer had a reasonable excuse for non-payment of the amount set out in APNs, following the issue of closure notices disallowing the losses claimed by Mr Archer pursuant to two marketed tax avoidance schemes. Whipple LJ found that although there was no evidence before the court as to Mr Archer’s belief as to the merits of the judicial review proceedings, it was open to the court to draw an inference that the judicial review proceedings were the reason for non-payment, and this was all that was required (§§69 and 92–5).

Importantly, however, Whipple LJ expressly distinguished Mr Archer’s situation from the APN cases such as Beadle and the FTT’s judgment in the present case, where the “pay now, argue later” principle was engaged, such that there are specific policy reasons for removing the cashflow advantage to taxpayers while the disputed tax avoidance schemes are contested. While Mr Archer had received an APN, his representations in relation to that APN had gone completely unanswered by HMRC. Absent any response, the FTT and UT had found that no payment was due under the APNs issued to Mr Archer. Whipple LJ held that in those circumstances the “pay now, argue later” principle did not apply. The reasoning in cases such as Beadle and the present case was therefore not helpful (William Archer §§31 and 79–81).

William Archer was therefore, as Whipple LJ expressly found, a decision taken in a different context, in which the court proceeded on the basis that a taxpayer with a reasonable case would not have to pay the tax until after the appeal was determined. The present appeal, by contrast, falls squarely within the category of cases in which the APN has been confirmed by a determination by HMRC, where the starting point under Beadle is (as set out above) that a reasonable excuse for failure to pay will not be established on the basis of a belief (however reasonable) that a judicial review will succeed in establishing the invalidity of the APN.

In the latter category of case, while the Court of Appeal in William Archer recognised that there may in principle be cases where non-payment of the amount due under an APN might be reasonable, such cases will necessarily turn on an assessment of their particular facts. It follows that the FTT was entirely correct to ask itself whether the particular facts of the present case, on the evidence before it. made it objectively reasonable for EPL to decide not to pay.

In relation to the remaining question of whether the existence of an agreement between EPL and HMRC to provide for interim relief could form the basis of a reasonable excuse, Mr McDonnell submitted that the terms of the interim relief agreement did not prevent HMRC from issuing penalty notices, but equally those terms did not mean that EPL did not have any reasonable excuse. He contended that nobody would expect payment to be made while an interim relief order was in place, and it was therefore illogical that there should be any liability for penalties in those circumstances. It must follow, he said, that EPL had a reasonable excuse for not paying while the interim relief was in position.

Mr Brinsmead Stockham pointed out that the FTT found that Mr Jones did not have any belief in relation to the interim relief, which was (again) fatal to EPL’s reliance on this point as a reasonable excuse. He also submitted that the FTT had found that, given the specific terms of the interim relief, it would not have been objectively reasonable for Mr Jones to believe that HMRC would not issue penalties.

We do not consider that there was any error of law in the FTT’s conclusion that the existence of interim relief did not support a reasonable excuse for failure to pay the APNs. That conclusion was based on the FTT’s findings of fact that Mr Jones did not understand the meaning of “interim relief” or that, as a result of the agreement with HMRC, there would be no penalties chargeable if EPL failed to pay by the due date. In the absence of any findings of fact that Mr Jones believed that the effect of the interim relief order meant that the judicial review would succeed, or that EPL was no longer liable to pay by the due date, or that EPL would escape liability for penalties for non-payment if the judicial review claim failed, the FTT was bound to find that EPL did not have a reasonable excuse.

Further, we consider that the FTT was correct to conclude at §243 that it was plain from the terms of the interim relief that it merely stayed enforcement of the APNs and did not prevent HMRC from issuing penalties. In those circumstances, and since EPL was not advised that the interim order had changed the due date for payment, any belief to the contrary would not have been objectively reasonable. (In this respect, again, we note that the Court of Appeal in William Archer expressly noted that the facts of the present case were different from the situation of Mr Archer, where the Administrative Court had made an order granting interim relief which was silent on whether HMRC were entitled to impose penalties for non-payment: William Archer §38.)

In conclusion on this issue, we are satisfied that the FTT correctly interpreted the statutory phrases “reasonable excuse” and “without unreasonable delay” and applied them appropriately to the facts which they found. In the absence of any error of law, the FTT’s decision that EPL did not have a reasonable excuse for its failure to pay the APNs by their due dates must stand.

For the reasons given above, EPL’s appeal is dismissed.

Any application for costs in relation to this appeal must be made in writing and served on the Tribunal and the person against whom it is proposed that the order be made within one month after the date of release of this decision as required by rule 10(5)(a) and (6) of the Tribunal Procedure (Upper Tribunal) Rules 2008.