Judgment summary
This decision concerns an application by JST (UK) Limited for permission to appeal out of time against a closure notice issued by HMRC on 25 October 2017. The closure notice amended JST's corporation tax return for the accounting period ending 31 March 2013, denying relief for an exceptional administrative expense of £1,425,000 and giving rise to £342,000 of additional corporation tax (1, 2).
The matter had a lengthy procedural history, including a prior FTT decision promulgated on 16 August 2022, subsequent permission applications, an Upper Tribunal decision dated 27 May 2025, and a consent order of around 25 July 2025 remitting the matter to the FTT to determine the outstanding application for permission to appeal out of time (3).
Applying the Martland framework, the Tribunal found the eight-month delay serious and significant and found no good reason for it, both of which were common ground between the parties (16). The Tribunal went on to consider all the circumstances, including JST's reliance on its advisers, BDO, and concluded that permission to appeal out of time should be refused (55).
Background
JST entered into a service arrangement with its Japanese parent, JST Mfg Co Ltd (JST Japan), in 2002, under which JST provided market entry services in return for fees. Following a Japanese tax audit, the Japanese tax authorities disallowed deductions claimed by JST Japan for part of that period, and on 5 December 2012 JST Japan invoiced JST for repayment of £1,425,000 (22).
JST paid that sum on 18 January 2013 under duress, recording it as an exceptional administrative expense and treating it as deductible for corporation tax purposes (23). HMRC opened an enquiry into the return on 12 November 2014, examining whether the payment was incurred wholly and exclusively for the purposes of JST's trade (25).
HMRC clarified in a letter of 5 February 2016 that the Japanese disallowance was not a transfer pricing matter under Article 9 of the UK-Japan treaty and that mutual agreement procedure (MAP) discussions had closed on 7 November 2014 (26). By June 2017 HMRC considered the payment non-deductible, and on 6 October 2017 JST, through BDO, indicated it was prepared to accept the disallowance on terms including an assurance that any subsequent repayment would not be taxed again (28, 31).
The Closure Notice was issued on 25 October 2017, including an explanation of the 30-day right of appeal (34). JST did not appeal within that period, instead pursuing a restitution claim against JST Japan in Japan, which ultimately failed in the Japanese Supreme Court on 23 April 2018 (35, 36). JST wrote to HMRC on 27 July 2018 seeking to appeal the closure notice, which was treated as a late appeal (39). HMRC notified JST on 4 November 2019 that it would not accept the late appeal, and JST filed a notice of appeal to the Tribunal on 5 June 2020 (42, 43).
Core dispute
It was common ground that the delay in appealing, of about eight months (245 days), was serious and significant, and that there was no good reason for the delay for the purpose of stage 2 of the Martland test (16).
The core issue in dispute was whether, considering all relevant circumstances at stage 3 of the Martland framework, the late appeal should nonetheless be allowed. JST argued that it had relied on its advisers, BDO, who had not advised it of the possibility of lodging a protective appeal alongside its restitution claim in Japan, and that had it been so advised it would have appealed (32).
Court findings
The Tribunal accepted that JST would have appealed if BDO had advised it to do so, but found that BDO had not advised against an appeal, rather it had offered no advice either way, in circumstances where a settlement appeared to have been reached and JST had agreed to the closure notice being issued (33, 51(2)).
The Tribunal found there were no "warning signs" of adviser incompetence comparable to those in Katib, but held that a reasonable taxpayer would have understood the right of appeal explained in the closure notice, would have appreciated that a statutory appeal could be pursued alongside the restitution claim and MAP process, and would have sought advice on a protective appeal, which JST did not do (51(3)).
The Tribunal found some prejudice to HMRC in expanding the routes by which the assessment could be challenged, but accepted substantial prejudice to JST if the late appeal were refused (51(4), (5)). It found the underlying merits of the appeal were not clear cut, noting arguable characterisation issues around whether the payment was wholly and exclusively for the purposes of JST's trade or could be characterised as a distribution (51(6)).
The Tribunal held that JST had not provided a full account of exchanges and communications with BDO, as neither party had retained relevant records, which prevented the Tribunal from understanding why BDO had not advised JST to appeal (52). It concluded that the general rule that a litigant bears the consequences of its adviser's failings should not be disapplied on the facts of this case (53), and took into account the importance of litigation being conducted efficiently and of statutory time limits being respected (54).
Outcome
The Tribunal refused JST's application for permission to appeal out of time (55).
Major issues / areas of contention
- Whether the eight-month delay in appealing the closure notice was serious and significant (agreed that it was)
- Whether there was a good reason for the delay under stage 2 of the Martland test (agreed that there was not)
- Whether reliance on advisers, BDO, who did not advise on the possibility of a protective appeal, should displace the general rule that adviser failings are treated as the litigant's own
- Whether the absence of records of communications with BDO undermined JST's ability to establish why no appeal advice was given
- The balance of prejudice to JST and to HMRC in allowing or refusing the late appeal
- The strength of the underlying merits of JST's appeal regarding deductibility of the £1,425,000 payment