Judgment summary
This is an appeal against a decision of the First-tier Tribunal (Tax Chamber) in Bharat Patel v HMRC [2023] UKFTT 00296 (TC), which refused Mr Patel permission to notify late appeals against a series of VAT assessments for periods between June 2012 and December 2015 (1)-(2).
Applying the three-stage Martland approach, the FTT found the delays, common ground to be at least a year outside the 30-day statutory time limit, were serious and significant, and refused permission (2). Mr Patel appealed on two grounds: first, that the FTT should have treated the merits of his section 73(6) VATA time-limit argument as very strong; second, that the FTT erred in treating the dispute as "closed" for prejudice purposes given that validity could still be raised in collection proceedings, relying on Lord Advocate v Shanks [1992] STC 928 (3).
The Upper Tribunal (Judge Swami Raghavan and Judge Kevin Poole) dismissed the appeal on both grounds (50).
Background
Mr Patel traded as Bromley Shopfitters in the building trade and failed to submit VAT returns from June 2012 to September 2015 (5). HMRC corresponded with him from May 2014 seeking to inspect records, visited his premises in December 2014 without obtaining full records, and continued to request information through 2015 and 2016 (6)-(10).
HMRC issued a series of assessment letters between 27 June 2016 and 17 October 2016 denying VAT credit and assessing VAT due for periods including 06/12, 09/12, 06/13, 09/13, 12/13, 03/14, 09/14, 03/15, 09/15 and 12/15 (11)-(12), (14).
Mr Patel was served with a statutory demand in January 2018 and submitted a notice of appeal to the FTT on 14 February 2018, which the FTT treated as the date the relevant appeals were made (13). The FTT found the VAT appeals were all at least a year late, a serious and significant delay, and found the reasons for delay (non-receipt of the assessment letters) to be weak on the balance of probabilities (18)-(19). Only the VAT assessments for the pre-2015 periods (06/12, 09/12, 06/13, 09/13, 12/13, 03/14 and 09/14) remained in issue on this appeal, with income tax penalty appeals and the later 2015 VAT periods no longer pursued (14).
Core dispute
The dispute concerned whether the FTT erred in law at stage 3 of the Martland framework in two respects.
First, whether the FTT should have found that Mr Patel's underlying case, that the pre-2015 VAT assessments were made outside the one-year time limit in section 73(6)(b) VATA because the last relevant evidence was provided to HMRC by around the December 2014 meeting, was so obviously strong that it should have carried significant weight in the balancing exercise (22), (25).
Second, whether the FTT erred in finding prejudice to HMRC in reopening a dispute it regarded as "closed", given the appellant's argument (based on Lord Advocate v Shanks) that an out-of-time VAT assessment is a nullity whose validity could still be challenged in collection proceedings even without an FTT appeal, such that the matter could not properly be treated as closed (3), (37)-(39).
Court findings
On Ground 1, the Upper Tribunal held that the FTT was only required to form a general impression of the merits without a detailed investigation, per Martland and Hysaj (27). The way the time-limit point was argued before the FTT (that HMRC could and should have made a best-judgment assessment earlier) was materially different from the argument now advanced (that the one-year period under section 73(6)(b) ran from the last evidence communicated, namely the December 2014 meeting) (29)-(32). Even taking the argument as now put, the Tribunal held the FTT was not bound to conclude the merits were overwhelmingly strong, since subsequent non-engagement in 2015/2016 could itself amount to evidence of facts under Rasul v HMRC, and it remained open to HMRC to argue the officer's view on sufficiency of evidence was not irrational (33)-(35). The FTT's conclusion that the case was not obviously overwhelmingly in the appellant's favour was within the range of conclusions reasonably open to it (36).
On Ground 2, the Tribunal held that Shanks was deployed before the FTT for a different proposition (that time limits for appealing did not apply to a void assessment), not for the proposition that HMRC could not treat the matter as closed for prejudice purposes; the FTT's failure to address Shanks in the manner now advanced was therefore not an error of law (42). Even assuming the time-limit argument could be raised in collection proceedings, this did not render the prejudice to HMRC minimal, since a full tribunal appeal could extend to quantum issues beyond the narrow validity point, and HMRC would still need to prepare for and defend such an appeal (43)-(46). The stage 3 exercise did not require the FTT to determine how litigation might unfold in another court (45), (47).
By way of postscript, the Tribunal added that even if either ground had succeeded, it was unlikely the outcome would have been different, given the unchallenged findings on serious and significant delay and weak reasons for delay (51)-(53).
Outcome
The Upper Tribunal dismissed the appeal, upholding the FTT's refusal of permission to notify the late VAT appeals (50).
Major issues / areas of contention
- Whether the FTT erred in its Martland stage 3 evaluation by failing to treat the appellant's section 73(6) VATA time-limit argument as an obviously very strong merits factor.
- Whether the argument on the one-year time limit as advanced before the Upper Tribunal differed materially from the argument as put to the FTT, and whether that affected the assessment of error.
- Whether non-engagement or non-attendance by the taxpayer in 2015 and 2016 could amount to further 'evidence of facts' for the purposes of section 73(6)(b) VATA, per Rasul v HMRC.
- Whether the FTT erred in its assessment of prejudice to HMRC by treating the dispute as 'closed', in light of Lord Advocate v Shanks and the possibility of challenging an out-of-time assessment's validity in collection proceedings.
- Whether the availability of a validity challenge in collection proceedings reduced the prejudice to HMRC of having to defend a late tribunal appeal, including on quantum.
- Whether, even if either ground of appeal succeeded, the outcome of the stage 3 balancing exercise would have been different given the unchallenged findings on serious and significant delay and weak reasons for delay.