Judgment summary
This decision concerns an application by Mark Gadsden for an order that HMRC pay his costs under Rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, following a substantive appeal decision released on 14 May 2026 in which the Tribunal found that his failure to pay Class 2 National Insurance contributions within statutory time limits was due to ignorance or error not caused by any failure to exercise due care and diligence (2-3).
The Appellant sought costs totalling £21,500 plus VAT, on the basis that HMRC had acted unreasonably by relying on witness evidence from Ms Crawford that was materially inaccurate, incomplete and misleading, and by continuing to defend an appeal that was, in light of existing authorities on reliance on professional advisers, unlikely to succeed (3-5).
HMRC opposed the application, submitting that the appeal concerned a fact-sensitive evaluative issue which they were entitled to contest, and that unsuccessful litigation conduct did not equate to unreasonable conduct within Rule 10 (6, 31-34).
The Tribunal reviewed the applicable authorities, including Distinctive Care Ltd v HMRC [2019] EWCA Civ 1010, Market & Opinion Research International Ltd v HMRC [2015] UKUT 12 (TCC), Willow Court Management Co (1985) Ltd v Alexander [2016] UKUT 290 (LC), Catanà v HMRC [2012] UKUT 172 (TCC), Shahjahan Tarafdar v HMRC [2014] UKUT 0362 (TCC), Revenue and Customs Commissioners v Jackson Grundy Ltd [2017] UKUT 180 (TCC) and Businessman v HMRC [2008] STC (SCD) 1151, before applying these principles to the facts.
Background
The substantive appeal concerned the Appellant's failure to pay Class 2 National Insurance contributions within statutory time limits. The Tribunal allowed that appeal, finding the failure was attributable to ignorance or error not due to any failure on his part to exercise due care and diligence, and directed that the contributions be treated as paid for contributory benefit purposes (2).
HMRC's defence in the substantive appeal relied in part on the proposition that the Appellant had been notified of deficiencies in his National Insurance record over a number of years through deficiency notices, supported by HMRC records and the evidence of Ms Crawford concerning HMRC practices and procedures (43).
At paragraphs [31]-[35], [72]-[73] and [81]-[84] of the substantive decision, the Tribunal recorded that Ms Crawford could not give direct evidence of the content of any deficiency notice issued to the Appellant, could not confirm how many notices were issued, could not explain aspects of the historical records, and accepted that historical records were capable of containing errors (44-45).
Core dispute
The application was founded solely on Rule 10(1)(b), the Appellant not contending that the case was allocated as Complex nor relying on the wasted costs jurisdiction (4).
The Appellant advanced two principal grounds: first, that HMRC's witness evidence on matters central to its case was materially inaccurate, incomplete and liable to mislead unless corrected through cross-examination; and second, that HMRC's case was so weak, given the evidence available and existing authorities on reliance on professional advisers, that it was unreasonable to defend the appeal (5).
HMRC denied that their conduct reached the threshold of unreasonableness required by Rule 10 and submitted that the application represented an attempt to convert a successful outcome on the merits into a costs award, contrary to the purpose of the standard costs regime (6).
Court findings
The Tribunal held that the focus of the Rule 10 enquiry must remain on the conduct of the proceedings themselves, not on the correctness of the underlying decision or the ultimate success of the appeal (36-41).
On the witness evidence, the Tribunal accepted that the Appellant had identified genuine and significant weaknesses in HMRC's evidential preparation, and that HMRC's response to the costs application did not substantially engage with the detail of those criticisms (47, 52). However, the Tribunal found no finding of dishonesty, bad faith, deliberate misrepresentation or knowing reliance on false evidence by Ms Crawford or HMRC (48, 51). Evidential weakness exposed through cross-examination was distinguished from unreasonable conduct in adducing that evidence (49-50).
On the decision to continue defending the appeal, the Tribunal found that none of the First-tier Tribunal authorities relied upon by the Appellant (Thomas, Arens, Murphy, Chilvers, Schonfield) was binding, and each involved a fact-sensitive evaluative exercise rather than a general rule favouring taxpayers who relied on accountants (64). The Tribunal considered that the detailed evaluation required in the substantive decision undermined the proposition that HMRC's defence was unreasonable, and distinguished the case from Jackson Grundy, where a position had become demonstrably untenable (66, 68).
Standing back, the Tribunal concluded that what occurred was the unsuccessful pursuit of a case capable of proper argument, rather than unreasonable defence or conduct of proceedings (74).
Outcome
The Tribunal concluded that the Appellant had not established that HMRC acted unreasonably in defending or conducting the proceedings within the meaning of Rule 10(1)(b) (75, 77).
As the threshold condition under Rule 10(1)(b) was not satisfied, the Tribunal held it had no jurisdiction to make an order for costs, and the application for costs was refused (76, 78).
Major issues / areas of contention
- Whether HMRC's witness evidence on deficiency notices was so inaccurate or misleading as to amount to unreasonable conduct under Rule 10(1)(b).
- Whether HMRC failed adequately to review its case once weaknesses in the witness evidence emerged.
- Whether HMRC acted unreasonably by continuing to defend the appeal in light of First-tier Tribunal authorities favourable to taxpayers relying on professional advisers.
- Whether the scope of the Rule 10 enquiry could extend to HMRC's pre-litigation decision-making or the correctness of the original decision under appeal.
- Whether the cumulative effect of the evidential weaknesses and continued defence crossed the threshold of unreasonable conduct required by Rule 10(1)(b).