DECISION
1. This
is an application by the Appellant for leave to appeal out of time under
section 49 Taxes Management Act 1970 (as amended) ("TMA").
2. Section
49(2) (b) TMA provides that notice of appeal may be given after the usual 30
day time limit for an appeal if HMRC agree or – if HMRC do not agree – if the
Tribunal gives permission.
The facts
3. The
background facts and documentation were contained in a bundle produced by HMRC,
to which both parties referred. No witnesses were called.
4. The
Appellant's accounting period ended on 31 August, 2006. The due date for the
filing of the Appellant's return was 31 August, 2007.
5. HMRC
raised a determination on 18 August, 2008 and a discovery assessment on 5
September, 2008. The determination estimated the Appellant's taxable profits at
£54,783 resulting in corporation tax of £10,408.77. The discovery assessment
was issued after the Inspector discovered that in his opinion the original
determination probably underestimated the tax due, and assessed the amount of £21,895.73.
6. The
Appellant's corporation tax return was received (12 months late) in September
2008 and displaced the determination raised on 18 August, 2008.
7. On
10 October, 2008 HMRC notified its intention to enquire into the Appellant's
return for the year ended 31 August, 2006 and requested certain further
information in relation to the return, particularly as regards industrial
buildings allowances.
8. The
Appellant did not respond to HMRC's letter of 10 October, 2008. On 18 November,
2008 an HMRC officer telephoned the Appellant's accountants, Wilkins Kennedy
and left a message. The call was not returned. The officer called again and spoke
to a person called Danny who advised the officer that although the Appellant
had not gone into administration itself, other companies with which it was
connected had done so. The officer was informed that the Appellant was
"tinkering on the edge" and the officer was advised that Wilkins
Kennedy would not deal with the letter in order to prevent costs being incurred
for which they were unlikely to be paid. The officer was informed that Wilkins
Kennedy would contact the company secretary to see what the situation was at present
and to see if the company secretary could perhaps respond to the letter
herself.
9. No
response was received from the agent or the Appellant.
10. A so-called
"jeopardy assessment", to prevent a loss of tax to the Crown, was
raised under paragraph 30 Schedule 18 Finance Act 1998 on 19 November, 2008.
The net tax payable under this assessment was £4,581.85.
11. No appeal was
received within the time limit against the "jeopardy assessment" and,
therefore, the Inspector issued a closure notice under paragraph 32 (1)
Schedule 18 Finance Act 1998 on 8 December, 2008 in the same amount as the
"jeopardy assessment" for the year ended 31 August, 2006. The
Appellant had 30 days to make any amendments under paragraph 34 (1) and HMRC
were entitled to make necessary amendments. No such amendments were made by the
company and HMRC issued an amendment on 26 January, 2009. The time limit for an
appeal in respect of this amendment expired on 24 February, 2009. It is this amendment
which is the subject matter of this application.
12. Wilkins Kennedy
wrote to HMRC on 16 April, 2009 confirming that they continued to act for the
Appellant. They promised a full reply to HMRC's letter of 10 October, 2008 by
24 April, 2009 and asked that in the meantime HMRC refrain from pursuing the
outstanding assessment.
13. HMRC pointed out,
in a letter dated 20 April, 2009, that the 30 day time limit for an appeal had
expired.
14. Undaunted by
this, Wilkins Kennedy wrote to HMRC on 23 April, 2009 noting the telephone
conversation in November 2008 when they had informed HMRC that the Appellant
was in severe financial difficulties. The letter stated that the Appellant's
only income source had failed and it was likely that its main asset would be
seized by its bankers as part of a cross-group guarantee for funding. Wilkins
Kennedy stated that this position continued to prevail and at that time the
business did not have any form of regular income. The letter then continued by
discussing the claim for industrial buildings allowances, noting that another
claim had recently been agreed by HMRC on 24 May, 2007. The letter concluded by
stating:
"Given the current economic climate and support
for small business currently being promoted by the Government we would ask you
to reconsider the above case and to withdraw the jeopardy claim.
We respectfully ask that you give the above due
consideration and we look forward to hearing from you."
15. In subsequent
correspondence HMRC pointed out that the time limit for the appeal had expired.
Wilkins Kennedy protested that the Appellant would be forced to pay tax that
was not due.
16. On 9 June, 2009
Wilkins Kennedy, on behalf of the Appellant made a formal request under section
49 TMA for permission to appeal out of time on the following grounds:
"1.The Registered Office address of the Company
is 1 Nelson Street, Southend-on-Sea, Essex, being the offices of Wilkins
Kennedy. All correspondence has been forwarded to this address and as a
consequence, the client was unable to respond directly to HM Revenue &
Customs in connection with the ongoing queries.
2. Moreover, the sister Company and tenant of the
property owned by Pytchley Limited (Betterview Windows) went into
Administration in September 2008, which resulted in a considerable amount of
the Directors time being devoted to dealing with the consequences thereof. As
you will appreciate, the solvency was likely to be of a greater concern at that
time and the ongoing enquiry.
3. Unfortunately, due to the uncertainty surrounding
the financial position of the tenant and outstanding fees owed to this firm, we
temporarily suspended all work on behalf of Betterview Windows Limited, which
also incorporated work in respect of Pytchley Limited."
17. Again, Wilkins
Kennedy protested that the tax assessed was simply not due.
18. At the hearing,
Mr Kinder for the Appellant informed us that the director of the Appellant, Mr
Barry Noad, was unable to attend the hearing through ill-health. He also
produced doctors’ statements indicating that Mr Noad had been unable to work
for two periods of six months from July 2005 and from June 2006 as a result of
a stroke. Mr Kinder submitted that the sole director's poor health taken
together with the financial difficulties of the connected company, which
threatened to bring down the Appellant as well, constituted a reasonable excuse
for the delays in submitting returns, appeals and replying to correspondence.
19. Mr Kinder also
argued that the closing paragraphs of the Wilkins Kennedy letter of 23 April,
2009 constituted an informal notice of appeal, although he accepted that it would
still have been out of time.
20. Mr Davis for
HMRC submitted that the preoccupation of the director with the affairs of one
company did not constitute a reasonable excuse for neglecting the tax affairs
of another company. Mr Davis also noted that the doctors' statements related to
2005 and 2006 whereas the period in which the failure to submit a notice of
appeal concerned 2008 and 2009. He argued that the failure to appeal in time
had been intentional. Mr Davis rejected the contention that the latter of 23
April, 2009 constituted an appeal and, in any event, it was dealing with the
jeopardy assessment rather than the amendment which is the subject matter of
this application.
Discussion
21. As noted above,
section 49 TMA provides that notice of appeal may be given after the 30 day
time limit if HMRC agree or – if HMRC do not agree – if the Tribunal gives
permission. (Section 49 (2) (b) TMA). In seeking HMRC's agreement for an appeal
out of time, section 49 requires the taxpayer to satisfy HMRC that there was a
reasonable excuse for the delay, and that the request to appeal late was made
without unreasonable delay after the reasonable excuse ceased (section 49(5)
and (6)). No such conditions attach to the Tribunal's discretion to permit a
late appeal. The discretion of the Tribunal is at large: see R (on the
application of Browallia Cal Ltd v General Commissioners of Income Tax
[2004] STC 296).
22. As discussed
below, it is well-established, however, that this Tribunal will only give
permission where there is good reason to do so and where the interests of
justice would be served by granting permission, having regard to all relevant circumstances.
23. The normal
statutory 30 day time limit on appeals serves an important purpose of producing
finality and ensuring that HMRC can regard a taxpayer's affairs as closed off
in respect of certain years where no appeals have been lodged. Therefore,
permission to bring an appeal out of time should not be granted lightly.
24. We also note
that Rule 5(3)(a) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber)
Rules 2009 ("the Tribunal Rules") gives the Tribunal discretion to
"extend or shorten the time for complying with any rule, practice
direction or direction, unless such extension or shortening would conflict with
a provision of another enactment setting down a time limit". Tribunal
Rule 20(4) allows the Tribunal to apply Tribunal Rule 5(3)(a) to permit an
extension of time for the filing of an appeal. In considering whether to
extend a time limit, the Tribunal is required to seek to give effect to the
overriding objective set out in Tribunal Rule 2.
25. We note that the
Taxes Management Act 1970 was amended with effect from 1 April 2009 to take
account of the creation of this Tribunal. The Act, prior to its amendment, included
similar provisions which gave the General and the Special Commissioners (the
predecessors to this Tribunal) discretion to extend the time limit for filing
appeals. It is clear, therefore, that case-law relating to the exercise of
discretion by the Commissioners to extend time limits is relevant to the
question whether the Tribunal should exercise its discretion in this case.
26. There has been
some divergences of view in the Tribunal whether the factors set out in Rule
3.9 (1) of the Civil Procedure Rules 1998("CPRs") should be taken
into account. We consider that we can legitimately refer to Rule 3.9 (1) since
the guidance contained in that Rule covers many of the same issues which we
would take into account in any event. The CPRs, in particular CPR Rule 3.9(1),
list the factors to be taken into consideration by the English courts in
exercising their discretion to extend time limits. The overriding objective
set out in Tribunal Rule 2 - the requirement to deal with cases fairly and
justly - is derived from the overriding objectives set out in Rule 1.1 of the
CPRs. We therefore take account of the approach taken by the courts under the
CPRs in considering whether and how to exercise our discretion.
27. CPR Rule 3.9(1)
provides:
(1) On an application
for relief from any sanction imposed for a failure to comply with any rule,
practice direction or court order the court will consider all the circumstances
including –
(a) the interests of the administration of justice;
(b) whether the application for relief has been made
promptly;
(c) whether the failure to comply was intentional;
(d) whether there is a good explanation for the
failure;
(e) the extent to which the party in default has
complied with other rules, practice directions, court orders and any relevant
pre-action protocol;
(f) whether the failure to comply was caused by the
party or his legal representative;
(g) whether the trial date or the likely trial date
can still be met if relief is granted;
(h) the effect which the failure to comply had on
each party; and
(i) the effect which the granting of relief would
have on each party.
28. In a recent
decision of this Tribunal (Marius Leliunga v HMRC [2010] UKFTT 229 (TC),
after setting out the statutory provisions referred to above and CPR Rule
3.9(1), the Tribunal conveniently summarised the relevant case law as follows:
"We were referred to the decision of the Court
of Session (Outer House) in Advocate General for Scotland v General
Commissioners for Aberdeen City [2005] TC 391, [2006] STC 1218 and a
decision of the High Court in R (oao Cook) v General Commissioners of Income
Tax [2009] EWHC 590, [2009] STC 1212. We derive from these cases the
principle that the Tribunal has to take account of all factors relevant to
allowing an extension to a time limit – which would include (but are not
limited to) the express statutory conditions in section 49(5) and (6) that
apply to HMRC. This is consistent with the approach taken in the CPRs. In
particular CPR 3.9(1)(d) addresses whether there was a good explanation for the
failure (in other words, was there a reasonable excuse), and CPR 3.9(1)(b)
addresses whether the application was made promptly (in other words was there
unreasonable delay). "
29. In R (on the
application of Cook) v General Commissioners of Income Tax [2007] STC 499
Burton J considered a case where the General Commissioners had misdirected
themselves by assuming that the taxpayer had to demonstrate a reasonable excuse
in order for the Commissioners to grant leave to appeal out of time under
section 49 TMA. The learned judge referred to the need for the Commissioners in
that case to carry out a balancing act:
"On the other hand, of course, there must be
balanced against that [an arguable appeal] the lack of explanation for the
delay and the prejudice, such as it may be established to be, on the part of
the Revenue. This balancing act was not one that was carried out by the
Commissioners, because they were told it was not appropriate for them to do so.
Browallia refers of course to the existence of prejudice. But the depriving
of a party of the opportunity of putting forward an arguably meritorious appeal
is itself an obvious prejudice and so the reference to lack of prejudice in
paragraph 12 of the judgment of Evans-Lombe J must carry with it the question of
whether the basic appeal was arguable."
30. Burton J held
that the General Commissioners had erred in law and remitted the case to the
General Commissioners.
31. The subsequent
decision of the General Commissioners was challenged by Mr Cook by way of
judicial review in R (on the application of Cook) v General Commissioners of
Income Tax (No 2) [2009] STC 1212. Dyson LJ (at page
1216), sitting as a judge of the Administrative Court, cited with approval the
judgment of Lord Drummond Young in Advocate General for Scotland v General
Commissioners for Aberdeen City [2006] STC 1218 where Lord Drummond Young
said (at paragraphs 21 - 24):
[21] In a sense a tension exists
between these two sections. On its face, s 49 might be thought to confer an
unrestricted power to reopen assessments by means of a late appeal. Section 33,
by contrast, is limited in its application, both by the six-year limit
stipulated in sub-s (1) and by the exclusion for generally prevailing practice
contained in the proviso to sub-s (2). If s 49 is unlimited in its application,
however, it provides an obvious route to circumvent the restrictions in s 33.
That might be thought contrary to the statutory scheme. A similar point can be
made in relation to s 29, dealing with discovery assessments, which is subject
to a broadly similar limitation for generally prevailing practice. This
difficulty arises, I suspect, because the assessment and appeal provisions that
are now contained in the Taxes
Management Act 1970 have their origins in a number of different
Finance Acts, passed over a long period, and no attempt has been made to
develop them into a coherent code using systematic concepts and terminology. It
must be said that on the whole the assessment mechanism seems to work well in
practice, but this is no doubt due to the good sense of inspectors of taxes and
tax advisers rather than the coherence of the statutory provisions. In the
present case, however, I have come to the opinion that the tensions are more
apparent than real. They can readily be resolved by a proper analysis of s
49(1), and I now turn to that analysis.
[22] Section 49 is a provision that
is designed to permit appeals out of time. As such, it should in my opinion be
viewed in the same context as other provisions designed to allow legal
proceedings to be brought even though a time limit has expired. The central
feature of such provisions is that they are exceptional in nature; the normal
case is covered by the time limit, and particular reasons must be shown for
disregarding that limit. The limit must be regarded as the judgment of the
legislature as to the appropriate time within which proceedings must be brought
in the normal case, and particular reasons must be shown if a claimant or
appellant is to raise proceedings, or institute an appeal, beyond the period
chosen by Parliament.
[23] Certain considerations are
typically relevant to the question of whether proceedings should be allowed
beyond a time limit. In relation to a late appeal of the sort contemplated by s
49, these include the following; it need hardly be added that the list is not
intended to be comprehensive. First, is there a reasonable excuse for not
observing the time limit, for example because the appellant was not aware and
could not with reasonable diligence have become aware that there were grounds
for an appeal? If the delay is in part caused by the actings of the Revenue,
that could be a very significant factor in deciding that there is a reasonable
excuse. Secondly, once the excuse has ceased to operate, for example because
the appellant became aware of the possibility of an appeal, have matters
proceeded with reasonable expedition? Thirdly, is there prejudice to one or
other party if a late appeal is allowed to proceed, or if it is refused?
Fourthly, are there considerations affecting the public interest if the appeal
is allowed to proceed, or if permission is refused? The public interest may
give rise to a number of issues. One is the policy of finality in litigation
and other legal proceedings; matters have to be brought to a conclusion within
a reasonable time, without the possibility of being reopened. That may be a
reason for refusing leave to appeal where there has been a very long delay. A
second issue is the effect that the instant proceedings might have on other
legal proceedings that have been concluded in the past; if an appeal is allowed
to proceed in one case, it may have implications for other cases that have long
since been concluded. This is essentially the policy that underlies the proviso
to s 33(2) of the Taxes Management Act. A third issue is the policy that it is
to be discerned in other provisions of the Taxes Acts; that policy has been
enacted by Parliament, and it should be respected in any decision as to whether
an appeal should be allowed to proceed late. Fifthly, has the delay affected the
quality of the evidence that is available? In this connection, documents may
have been lost, or witnesses may have forgotten the details of what happened
many years before. If there is a serious deterioration in the availability of
evidence, that has a significant impact on the quality of justice that is
possible and may of itself provide a reason for refusing leave to appeal late.
[24] Because the granting of leave
to bring an appeal or other proceedings late is an exception to the norm, the
decision as to whether they should be granted is typically discretionary in
nature. Indeed, in view of the range of considerations that are typically
relevant to the question, it is difficult to see how an element of discretion
can be avoided. Those considerations will often conflict with one another, for
example in a case where there is a reasonable excuse for failure to bring
proceedings and clear prejudice to the applicant for leave but substantial
quantities of documents have been lost with the passage of time. In such a case
the person or body charged with the decision as to whether leave should be granted
must weigh the conflicting considerations and decide where the balance lies.'
32. We therefore
must conduct a balancing exercise, balancing the interests of the parties and
taking all relevant factors into account.
33. In our view, the
Appellant was dilatory in failing to respond to HMRC enquiries and assessments
in 2008 and 2009, but we do not accept HMRC's submission that the failure to
submit a notice of appeal within the relevant time limit was intentional. We
consider, looking at the facts in the round, that the Appellant's director was
distracted by the financial difficulties engulfing Betterview Windows and that
it is probable that these problems were compounded by ill-health. That said, we
do not consider that these factors would have constituted a "reasonable
excuse" within the meaning of section 49(5) TMA as regards HMRC's
consideration of the application for permission to appeal out of time. However,
as Browallia indicates, we are not limited in the exercise of our
discretion by the question of reasonable excuse -- the conduct of the parties
is not conclusive. The reason (or lack of a good reason) for the delay (or any
other conduct of the Appellant) is simply one factor which we take into
account, along with any mitigating factors (such as those discussed above) for
the delay.
34. We must also
look at the balance of prejudice between the parties -- this is effectively
looking at the final two factors in Rule 3.9 (1) CPR and adopting the approach
of Burton J and Lord Drummond Young.
35. Allowing a late
appeal can certainly prejudice HMRC. If the amount of tax at stake is very
large there could, in extreme cases, be a prejudice to the Exchequer in that it
would be unable accurately to budget for its income and to close its books. In
this case where the amount of tax involved, although important to the
Appellant, are relatively modest this seems to us a factor which results in
relatively small prejudice to HMRC. Nonetheless, there is an administrative
prejudice to HMRC in that, like any party to litigation, there is an interest
in finality. Mr Davis relied inter alia on this point. In addition, a
prejudice to HMRC will be found if it can be shown that documents and witnesses
are no longer available. There was no suggestion of this by Mr Davis.
36. In our view,
there is obvious prejudice to the Appellant because it would be deprived of the
opportunity of putting forward an arguably meritorious appeal. On behalf of the
Appellant it was said that a significant portion of the industrial buildings
allowances in dispute had in fact previously been agreed by HMRC. Mr Davis acknowledged
that had the appeal not been out of time some portion of these industrial
buildings allowances (perhaps after any necessary disallowances or adjustments)
may well have been accepted.
37. Weighing all
these factors in the balance, we were persuaded that the prejudice to the
Appellant of being unable to advance an arguably meritorious appeal outweighed
its dilatoriness and any prejudice to HMRC. For these reasons we granted
permission for the appeal to be heard out of time.
38. This document
contains full findings of fact and reasons for the decision. Any party
dissatisfied with this decision has a right to apply for permission to appeal
against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal)
(Tax Chamber) Rules 2009. The application must be received by this Tribunal
not later than 56 days after this decision is sent to that party. The parties
are referred to “Guidance to accompany a Decision from the First-tier Tribunal
(Tax Chamber)” which accompanies and forms part of this decision notice.
GUY BRANNAN
TRIBUNAL JUDGE
RELEASE DATE: 28 APRIL 2011
