Judgment summary
This is a decision on an application for permission to make a late appeal against Assessments raised under s 29 of the Taxes Management Act 1970 and Penalties issued under Schedule 24 of the Finance Act 2007, Schedule 55 of the Finance Act 2009 and Schedule 41 of the Finance Act 2008 (1).
The Assessments, raised on 23 March 2022, total £458,047.80 and relate to the 2009-10 to 2019-20 tax years (1). The Penalties, issued on 28 June 2022, total £197,867.32 (2)-(3). The underlying dispute concerns a Code of Practice 9 (COP9) investigation into under-declared rental income (4).
The Tribunal applied the Martland three-stage test as amplified in Katib and confirmed by the Court of Appeal in Medpro CoA, and refused the application (11), (179).
Background
The Appellant's father purchased a farm site and built units on it, renting them out, and also had rental properties on the land; the Appellant separately derived income from container storage rental (6). Following the death of the Appellant's mother in 2013 and the deterioration of his father's health (including dementia), the Appellant was granted Power of Attorney on 30 January 2019 and continued to run the business until July 2022; his father died in 2023 (6).
On 26 February 2020, HMRC wrote to the Appellant suspecting tax fraud in relation to rental income, offering a Contractual Disclosure Facility (CDF) (16)-(17). The offer expired without response, and HMRC proceeded to investigate (20). Ms Nyree Hearne, a bookkeeper, became involved from July 2020, initially in an information-gathering capacity, with a 64-8 authority (22)-(24). Pemberton Professionals Limited acted as agent at the outset but was later noted as removed from the Self-Assessment record in September 2021 (16), (27).
A settlement meeting took place on 16 February 2022, at which the Appellant confirmed satisfaction with the investigation's conduct and the figures (31). The Assessments were raised on 23 March 2022 and the Penalties on 28 June 2022 (32), (35). In January 2023 the Appellant's father died, and in November 2023 the Appellant received a bankruptcy-related letter, prompting him to seek insolvency advice from SPW UK LLP (37)-(38).
The Appellant appealed to HMRC on 18 April 2024, one year, eleven months and 27 days after the statutory deadline for the Assessments, and appealed to the Tribunal on 27 August 2024, a further three months and five days after HMRC's refusal letter of 22 May 2024 (9), (125).
Core dispute
The sole issue for determination, following the Court of Appeal's decision in Medpro CoA, was whether the Appellant had provided a good reason for the late appeal, applying the Martland three-stage approach (15).
The Appellant argued that his reliance on Ms Hearne, in circumstances where his original agent Pemberton had ceased to engage, meant he lacked competent professional support to understand the enquiry and appeals process, and that this justified a departure from the general rule that adviser failings do not amount to a good reason for delay (66), (128).
HMRC argued that the Appellant had chosen his own representation, understood the outcome of the enquiry, had provided no adequate explanation for the near two-year delay, and that the late appeal was prompted only by the escalation of bankruptcy proceedings (67).
Court findings
The Tribunal found the delay to be serious and significant, being one year, eleven months and 27 days late for the Assessments and one year and nine months late for the Penalties, followed by a further three months and five days before appealing to the Tribunal (125).
On the reasons for the delay, the Tribunal found that the Appellant had agents (Pemberton) at the outset of the investigation, received the opening letter, and signed a COMP1 form authorising HMRC to deal with Ms Hearne, whom he accepted was not a tax adviser (130)-(131). The Tribunal found the Assessments and Penalties were properly served under s 7 of the Interpretation Act 1978 and were deemed received, and rejected the Appellant's assertion of non-receipt (134)-(136). The Tribunal found Ms Hearne had in fact received the Penalties and communicated with HMRC accordingly (137)-(139).
Applying Katib, the Tribunal held that failures by an adviser are generally treated as failures by the litigant, and found the Appellant had provided no account of communications with Pemberton or Ms Hearne and had taken no steps to follow up (146), (150), (154). The Tribunal found the Appellant did not disclose any health condition to HMRC that prevented engagement, noting he held Power of Attorney for his father during this period (155)-(158). The Tribunal found ignorance of the law and appeal rights was not a good reason, citing Hesketh, Spring Capital and Lau (163)-(167). The Tribunal found the bankruptcy proceedings, not any adviser failing, triggered the eventual appeal (162), (167).
At the third stage, the Tribunal balanced the prejudice to the Appellant against the public interest in finality of litigation and the importance of statutory time limits, concluding the balance favoured refusal (171)-(178).
Outcome
The Tribunal held that no good reason for the failure to make a timely appeal had been provided (170). Balancing the prejudice to the Appellant against the prejudice to HMRC and the public interest in finality of litigation, the Tribunal found the balance fell firmly in favour of refusing an extension of time (178).
The application to make a late appeal was refused (179).
Major issues / areas of contention
- Whether the Appellant had provided a good reason for the late appeal against the Assessments and Penalties, applying the Martland three-stage test (15).
- Whether reliance on Ms Nyree Hearne, described initially as an information-gathering bookkeeper, could displace the general rule that adviser failings are treated as failures of the litigant (66), (128), (146).
- Whether the Assessments and Penalties were properly served on the Appellant given his assertion of non-receipt (134)-(139).
- Whether the Appellant's mental health or personal circumstances constituted a reason excusing the delay, given no such matters were raised with HMRC at the time (155)-(158).
- Whether the length of the delay, exceeding the 30-day statutory time limit by nearly two years for the Assessments, was serious and significant (124)-(125).
- The relevance of the conflicting Upper Tribunal authorities in Medpro UT and the subsequent Court of Appeal decision in Medpro CoA confirming the Martland/Katib approach (14), (119)-(122).