Judgment summary
This decision concerns an application by HMRC for costs under rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, following the Appellant's withdrawal of his application for permission to make a late appeal (4). In the alternative, HMRC sought a wasted costs order against the Appellant's representatives, Morr & Co LLP, under rule 10(1)(a) (1).
The Tribunal, having heard oral submissions from both parties and considered the documentary evidence, was not satisfied that HMRC had discharged the burden of establishing unreasonable conduct by either the Appellant or his representatives (5). The application for costs was accordingly refused (37).
Background
On 30 September 2022, the Appellant lodged a notice of appeal together with an application for permission to make a late appeal in respect of assessments and closure notices relating to his participation in a remuneration trust arrangement (6). HMRC objected to the application (6).
On 5 April 2023, the Tribunal notified the parties of the decision in Northwood v HMRC [2023] TC 08778, which it considered relevant, and invited the parties to indicate how they wished to proceed (7). On 19 April 2023, the Appellant confirmed he wished to continue, and Morr & Co LLP were instructed in June 2023 and assumed conduct of the matter (8). The application was listed for hearing on 9 January 2026 (8).
Skeleton arguments were exchanged on 2 January 2026, with HMRC contending that the Appellant's arrangements were materially indistinguishable from Northwood and had no realistic prospect of success (9). On 6 January 2026, HMRC filed further evidence responding to an issue in the Appellant's skeleton argument concerning receipt of the review conclusion letter, and later that day the Appellant notified withdrawal of the appeal, citing his personal financial position (10). The hearing was vacated, and HMRC made the present costs application dated 14 January 2026 (10, 11).
Core dispute
HMRC contended that, following notification of Northwood in April 2023, it should have been apparent that the proceedings had no realistic prospect of success, and that continued pursuit of the appeal, culminating in a withdrawal shortly before the hearing, amounted to unreasonable conduct under rule 10(1)(b) (11).
In the alternative, HMRC sought a wasted costs order against Morr & Co LLP, contending the firm acted improperly, unreasonably or negligently by continuing to pursue the proceedings after taking over conduct, by failing properly to engage with the implications of Northwood, and by raising additional matters shortly before the hearing which caused HMRC to incur further costs (12).
The Appellant disputed these contentions, submitting that the withdrawal was prompted by financial considerations and the personal impact of continuing litigation, that Northwood was not determinative, and that there were potentially material distinctions between the two cases (13).
Court findings
Applying the framework in Tarafdar v HMRC [2014] UKUT 362 (TCC), the Tribunal considered the reason for withdrawal, whether the proceedings could have been withdrawn earlier, and whether it was unreasonable not to have done so (17, 24).
The Tribunal accepted that concerns regarding the financial and personal impact of the litigation formed at least part of the reason for withdrawal, even if merits-related concerns also played a part (23). Although opportunities to withdraw earlier existed following Northwood in April 2023 and thereafter (24), the Tribunal found that HMRC had not established that the proceedings were so obviously hopeless following Northwood that no reasonable litigant would have continued them (25, 26).
The Tribunal noted that the Appellant had identified matters not present, or not obviously identical, to those in Northwood, including issues relating to the validity of the discovery assessment for the year ended 5 April 2013 (disclosure, time limits, carelessness), and that Northwood's factual findings on sham, personal benefit and control of trust funds were based on the evidence in that case, not binding on the Appellant's own evidence (28). Accordingly, HMRC had not shown that continuation of the proceedings fell outside the range of reasonable conduct (29, 31).
On the wasted costs application, the Tribunal found no basis to conclude that Morr & Co LLP acted improperly, unreasonably or negligently, noting they did not commence the proceedings and could not be criticised simply for forming a different view of the merits from HMRC (34). The Tribunal also noted reservations regarding causation and the scope of costs claimed, given HMRC's costs schedule required amendment during the hearing (35).
Outcome
HMRC's application for costs under rule 10(1)(b) was refused (37). The alternative application for a wasted costs order against Morr & Co LLP under rule 10(1)(a) was also refused, with the Tribunal finding no basis for such an order (36).
The Tribunal clarified that this conclusion turned on the particular facts and issues in this case, and specifically on HMRC's failure to establish that the appeal was materially indistinguishable from Northwood; it should not be read as suggesting continued pursuit of similar remuneration trust litigation could never amount to unreasonable conduct (32).
Major issues / areas of contention
- Whether the Appellant acted unreasonably in bringing or conducting the late appeal proceedings for the purposes of rule 10(1)(b) of the Tribunal Rules
- Whether the withdrawal of the appeal shortly before the hearing, following the Northwood decision, amounted to unreasonable conduct
- Whether the Appellant's representatives, Morr & Co LLP, acted improperly, unreasonably or negligently so as to justify a wasted costs order under rule 10(1)(a)
- Whether Northwood v HMRC [2023] TC 08778 was determinative of the Appellant's case such that continuing the proceedings was unreasonable
- Whether the reason given for withdrawal (the Appellant's personal financial position) was genuine or a late reassessment of the merits
- Whether causation and the scope of costs claimed by HMRC were properly established