Judgment summary
This decision concerns a set of procedural applications made by iHeat.me Ltd (the Appellant) in its appeal against HMRC's closure notice refusing its R&D tax credit claim.
The Appellant, unrepresented but assisted by the director's daughter, applied for costs under rule 10(1)(b), for HMRC's case to be struck out under rule 8(3)(c), for HMRC to be barred from further participation, and for summary determination of the appeal under rule 8(7) (paras 3-4). It had earlier applied for strike out under rule 8(1) and objected to HMRC's service of its list of documents (paras 5-6).
The Tribunal reviewed in detail the chronology of correspondence between the parties from July 2025 to March 2026, including two applications by HMRC for extensions of time to serve its statement of case, a without-prejudice settlement meeting on 12 September 2025, and the eventual service of HMRC's statement of case on 14 October 2025 (paras 28-92).
Judge Amanda Brown KC found that, whether considered individually or cumulatively, HMRC's conduct in the proceedings was capable of reasonable explanation and was not unreasonable, and refused all of the Appellant's applications (paras 61, 71, 91).
Background
The Appellant's notice of appeal was submitted on 22 April 2025 (para 28(1)). HMRC's involvement in the proceedings began on 1 July 2025, when the Tribunal notified the appeal to them, requiring service of HMRC's statement of case within 60 days, that is by 17:00 on 1 September 2025 (para 28(3)-(6)).
HMRC invited the Appellant to a without-prejudice settlement meeting, and after some changes in arrangements a meeting took place on 12 September 2025, at which three of four agenda items were resolved and further information was requested on the fourth (para 28(14)).
HMRC applied for extensions of time to serve its statement of case on 19 August 2025 and again on 25 September 2025, both applications referencing the settlement meeting process. Judge Morgan granted a shorter extension than requested on 3 September 2025, and Judge Bailey granted a further extension to 14 October 2025 on 26 September 2025 (paras 28(18)-(33)).
HMRC served its statement of case on 14 October 2025, at 18:57, which was after the 17:00 deadline required by rule 12 (para 28(34)). The Appellant served its Appellant's Statement of Case (ASOC) on 27 October 2025, which set out its substantive case and contained the Applications now before the Tribunal (paras 28(37), 3).
Core dispute
The core dispute was whether HMRC's conduct of the proceedings, including its failure to serve its first extension application on the Appellant, its statements about the settlement meeting in its extension applications, delays in remedying service errors, and the late service of its statement of case, amounted to unreasonable conduct justifying a costs order, or conduct serious enough to justify striking out HMRC's case, barring HMRC from further participation, or summarily determining the appeal in the Appellant's favour.
A further issue was whether HMRC's service of its list of documents after its statement of case impermissibly expanded the scope of its case (the LOD Application), and whether the meeting of 12 September 2025 gave rise to a legitimate expectation that only one issue remained in dispute, such that HMRC's case should be limited accordingly.
Court findings
The Tribunal applied the tests from Distinctive Care Ltd v HMRC, MORI, Ridehalgh v Horsefield and Cancino for unreasonable conduct under rule 10(1)(b), and found that each individual matter complained of, and the conduct viewed cumulatively, was capable of reasonable explanation and was not unreasonable (paras 61-71).
The failure to serve the 19 August 2025 extension application was an isolated administrative error which was not fully remediated until 8 September 2025, but this did not cause material prejudice because the Appellant's own unless order application achieved a similar effect and Judge Morgan was aware of the Appellant's position (para 64).
The Tribunal found that references to the settlement meeting in HMRC's extension applications were not misleading in intent or effect, given the ongoing exchange of correspondence and the Appellant's continued willingness to explore settlement even after stating discussions were over (paras 32, 65).
The two-hour delay in serving the statement of case was explained by the Tribunal's own administrative delay in notifying HMRC of the direction, and applying Martland, the delay was not significant and relief was appropriately given under rule 7 (para 66).
On the rule 8(3)(c) application, the Tribunal held that because the burden of proof lay on the Appellant to establish entitlement to the R&D tax credit, and the case involved disputed factual and expert issues, HMRC's case could not be said to have no reasonable prospect of success (paras 72-73).
On barring, the Tribunal found no breach of any unless order, so rules 8(1) and 8(3)(a) did not apply, and HMRC's conduct did not reach the threshold under rule 8(3)(b) of preventing a fair and just hearing (paras 76-81).
The Tribunal held it had no power to limit HMRC's case by reference to an alleged legitimate expectation arising from the without-prejudice meeting, since its jurisdiction under section 50 Taxes Management Act 1970 was limited to the correctness of the closure notice, not the fairness of HMRC's conduct as a free-standing public law complaint, and that HMRC was entitled to plead its case as in Fidex Ltd v HMRC (paras 83-85).
The LOD Application was found to be based on a misunderstanding of rule 27, which permits service of a list of documents within 42 days of the statement of case, as HMRC had done (paras 88-90).
Outcome
The Tribunal refused the Costs Application, the Rule 8(3)(c) Application, the Barring Application, the Summary Determination Application, the LOD Application and the Rule 8(1) Strike Out Application (para 91).
The Appellant conceded the Disclosure Applications made by HMRC (para 92).
The Tribunal directed that the appeal should progress swiftly towards a substantive hearing and made further case management directions to that end (para 93).
Major issues / areas of contention
- Whether HMRC's conduct in the proceedings, individually or cumulatively, was unreasonable under rule 10(1)(b) FTTTC Rules so as to justify a costs order
- Whether HMRC's case should be struck out under rule 8(3)(c) FTTTC Rules for having no reasonable prospect of success
- Whether HMRC should be barred from further participation under rule 8(7) FTTTC Rules due to alleged procedural unfairness
- Whether the appeal should be summarily determined in the Appellant's favour under rule 8(7) FTTTC Rules
- Whether HMRC's service of its list of documents after its statement of case impermissibly expanded its pleaded case (the LOD Application)
- Whether the without-prejudice meeting of 12 September 2025 gave rise to a legitimate expectation limiting the issues HMRC could argue
- Whether HMRC's late service of its statement of case required relief from sanctions under the Martland/Denton framework