DECISION
Introduction
1.
The applications before me relate to the costs of the appeal which was
itself withdrawn in the circumstances set out below. Put briefly, the appellant
claims that it succeeded in the appeal and is entitled to its costs incurred in
pursuing the appeal. In order to make that application it must first apply for
and obtain a direction of the tribunal disapplying rule 10 of the 2009 Tribunal
Rules and applying rule 29 of the 1986 VAT and Duties Tribunal Rules. The
respondents oppose those applications. If the appellant is successful in his
application to apply rule 29 of the 1986 Tribunal Rules the respondents say
that they should be awarded their costs of the appeal. If the appellant is
unsuccessful in his application to apply rule 29 of the 1986 Rules they say
that they should be awarded their costs of defending the appellant’s
applications for costs pursuant to rule 10(1)(b) on the 2009 Rules on the basis
that the appellant was unreasonable in pursuing the present applications.
2.
In order to determine the various applications it is necessary for me to
consider the underlying merits of the appeal and the extent to which the
parties were justified in maintaining their stances at the time of the original
assessments and throughout the course of the appeal against those assessments.
I shall therefore set out in some detail the circumstances in which the
assessments were made and the course which the appeal proceedings then took.
The background set out below is largely non-contentious dealing as it does
which the chronology of events which is not in disputed.
3.
The evidence before me on these applications comprised witness
statements from Lisa Jones and Beryl Jane Blades, both Higher Officers of HMRC.
They gave oral evidence and were cross examined by Mr Grierson. I also had 2 short
witness statements from Mr Chatterjee, the principal director of the appellant,
although Mr Grierson placed little reliance if any on those statements. Mr Grierson
also indicated he would seek to adduce evidence from Mr Alan Rashleigh, the
appellant’s representative during the course of the appeal proceedings. In the
event however that application was not pursued.
Background
4.
On 4 December 2007 Lisa Jones carried out a pre-arranged visit to the
appellant’s business premises. The appellant traded as an optician. During the
course of the visit she discussed the business activities and also was provided
with certain business records. There is an issue as to what records were
available to Ms Jones which I deal with below. Ms Jones noted that the
appellant was treating 33% of the value of its supplies as standard rated with
the balance being treated as exempt. In periods 01/05 to 07/05 the appellant
had been using a different bookkeeper and had treated 62.99% of the value of
its supplies as standard rated with the balance being treated as exempt.
5.
On 18 December 2007 Ms Jones wrote to the appellant indicating that it
did not appear to be using a recognised method for determining the split
between standard rated and exempt supplies. She did not accept the 33% figure
being used and invited the appellant to carry out calculations to support a
revised figure. She also indicted that the appellant did not appear to have
carried out a partial exemption calculation and invited him to do so. Ms Jones
invited the appellant to respond by 14 January 2008.
6.
In the absence of a response Ms Jones made assessments and on 31 January
2008 she sent these to the appellant. She stated that the assessments could be
amended at a later date if the appellant provided the information she had
requested. The assessments were based on a split of 62.99% standard rated supplies
and covered both under declared output tax and over claimed input tax. They
covered the periods 10/05 to 10/07 for output tax and 01/05 to 10/07 for input
tax.
7.
The total amount assessed was £68,723 and the appellant appealed to the
VAT Tribunal. The grounds of appeal included a challenge to best judgement. It
was said that the officer had failed to use information available to calculate
a proper apportionment and that the partial exemption calculations did not
comply with the legislation. In the circumstances it was said that the
assessment was grossly excessive.
8.
On 2 April 2008 a review officer wrote to Mr Rashleigh who was acting
for the appellant. The letter requested alternative calculations and also
copies of records in support of those calculations. This was repeated in a
letter dated 8 July 2008 in which Mr Rashleigh was recorded as having said that
he had prepared alternative calculations “to within 5%”. Mr Rashleigh
replied on 16 July 2008 saying that he had obtained the accounts for the year
ended 31 October 2007 and was commencing work preparing a proper apportionment
calculation.
9.
The appeal procedure continued. In March 2009 the respondents served a
witness statement from Lisa Jones and in April 2009 directions were agreed to
take the matter through to final hearing. From then on there was a period of
little progress because of the ill-health of both Mr Rashleigh and then Mr Chatterjee.
On 11 September 2009 when Mr Chatterjee was recovering from his illness Mr
Rashleigh made an application for a short extension of previous standovers. One
reason given for that standover was “in view of the fact that the ‘standard
of bookkeeping’ is not what we had hoped, it is taking somewhat longer to
produce the necessary analysis”.
10.
On 10 November 2009 Mr Rashleigh sent copies of his calculations of the
output tax apportionment. The input tax calculation was left outstanding as it
would depend on acceptance of the output tax calculation. Mr Rashleigh’s calculations
were based on the appellant’s accounts for the years ended 31 October 2006 and
31 October 2007 from which he derived a figure of 53.62% to reflect the proportion
of standard rated supplies. This reflected Mr Rashleigh’s use of a full costs
apportionment method described in VAT Information Sheet 08/99 (Opticians:
Apportionment of charges for supplies of spectacles and dispensing). No
records were supplied to support the calculations.
11.
Following receipt of Mr Rashleigh’s calculations the appeal was stood
over by agreement pending consideration by HMRC. They immediately requested
detailed working papers to support the figure of 53.62% in a letter dated 20
November 2009 although it subsequently appeared that Mr Rashleigh did not
receive this letter. The appeal was then stood over by consent on a number of
occasions until September 2010 and very little appears to have happened during
this period until, on 16 September 2010 Mr Rashleigh forwarded some revised
schedules for consideration by HMRC. These schedules included the same output
tax calculations as the previous schedules but also input tax partial exemption
calculations. HMRC immediately wrote on 28 September 2010 to say that these
appeared to be the same calculations as previously sent.
12.
In response Mr Rashleigh stated that he had not received the letter
dated 20 November 2009. He gave a short explanation for some of the items in
his calculation and the appeal was stood over again. On 9 February 2011 Mr
Rashleigh re-sent the previous schedules with no further information. On 14
March 2011 he sent yet further schedules showing the same output tax figures
but this time also supported by an analysis in relation to input tax based on
Sage VAT reports of the appellant which he argued showed no input tax
assessment was necessary. Overall he argued that the assessment ought to be
reduced from £68,278 to £38,242
13.
By letter dated 14 April 2011 the review officer agreed a reduction in
the output tax assessment based on Mr Rashleigh’s figures. She did not agree to
any reduction in the input tax assessment. Unfortunately the figures stated in
her letter were incorrect. The total assessment should have been £49,396 but
the review officer mistakenly indentified the total as £28,359. An amended
assessment was issued in due course for the correct figure and Mr Rashleigh agreed
the amended assessment.
The claim for costs
14.
On 25 May 2011 Mr Rashleigh wrote to the tribunal stating that agreement
had been reached with the Commissioners. He also intimated in that letter that
he would be taking steps to submit a costs claim. That claim was lodged on 14
July 2011. He claimed that the amount assessed had been drastically reduced and
was in line with his original “rough calculations” at the beginning of the
appeal process. I should add that the appellant has never produced those rough
calculations nor identified what records they were based on. He stated that the
calculations which were eventually accepted were based on information available
to Ms Jones when she first issued the assessments. The costs claimed totalled
£6,473.40 and included 31 hours of Mr Rashleigh’s time described as “Preparation
of revised schedules to substantiate the reduction in the claim”.
15.
There followed correspondence directed towards Mr Rashleigh’s claim that
the appellant had been successful in the appeal and also that the 1986 Rules
should apply. That correspondence has been overtaken by the submissions made to
me on these applications. However the respondents rely on one particular letter
dated 12 January 2012. In that letter the respondents indicated their view that
the appellant had advanced no reasons as to why the 1986 Rules should apply and
therefore its application had no prospect of succeeding. They offered to
compromise on the basis that both parties withdraw their costs applications.
The offer was expressed to expire on 27 January 2012. The respondents also
indicated that if the offer was refused then their view was that the appellant
was acting unreasonably and they would rely upon that in their own costs
application.
Which rules as to costs
should apply?
16.
The parties agreed that the first matter for determination by me was
whether the 1986 Rules should apply to this appeal. It is well recognised that
in general the 2009 Rules apply to an appeal before this tribunal. However this
is subject to the Transfer of Tribunal Functions and Revenue and Customs
Appeals Order 2009 ("the Transfer Order"). Schedule 3
of the Transfer Order contains transitional provisions which apply in
relation to the new tribunal structure introduced with effect from 1 April
2009. Paragraph 7 (3) applies in relation to “current proceedings”
such as the present appeal which commenced before 1 April 2009. It provides as
follows:
"The tribunal may give any direction to ensure that proceedings
are dealt with fairly and justly and, in particular, may –
(a) apply any provision in procedural rules which applied to the proceedings
before the commencement date [1 April 2009]; or
(b)
disapply any provision of the [2009 Rules]."
17.
The default position, described by Warren J in the Upper Tribunal in HMRC
v Atlantic Electronics [2012] UKUT 45 TCC, is that the 2009 Rules will
apply unless there is a direction of the tribunal pursuant to Paragraph 7(3)
above.
18.
In so far as costs are concerned, rule 10(1) of the 2009 Rules provides
as follows:
"(1) The Tribunal may only make an order in respect of costs… -
(a) …
(b) if the Tribunal considers that a party or their representative has
acted unreasonably in bringing, defending or conducting the proceedings; and
(c) if—
(i) the proceedings have been allocated as a Complex case under rule
23 (allocation of cases to categories); and
(ii) the taxpayer (or, where more than one party is a taxpayer, one of
them) has not sent or delivered a written request to the Tribunal, within 28
days of receiving notice that the case had been allocated as a Complex case,
that the proceedings be excluded from potential liability for costs or expenses
under this sub-paragraph.
(d) … "
19.
There is no doubt that the present appeal was not a complex case or
equivalent to a complex case. For present purposes therefore the only power to
award costs against a party under the 2009 Rules is if that party has acted
unreasonably.
20.
In contrast, the position under the 1986 Rules would be a general
discretion as to costs governed by Rule 29(1):
"A tribunal may direct that a party or applicant shall pay to the
other party to the appeal or application –
(a) within such period as it may specify such sum as it may determine
on account of the costs of such other party of and incidental to and
consequent upon the appeal or application; or
(b) the costs of such other party of and incidental to and consequent upon
the appeal or application to be assessed…by way of detailed assessment."
21.
I should also note that Rule 2(1) of the 2009 Rules identifies the
overriding objective of the 2009 Rules, namely “to deal with cases fairly
and justly”.
22.
Both parties agreed that Paragraph 7(3) of the Transfer Order
gives the tribunal a discretion as to the appropriate costs regime. In other
words whether to disapply Rule 10 of the 2009 Rules in favour of Rule 29 of the
1986 Rules. The principles to be applied in exercising that discretion and the
application of those principles to the facts of the present application were disputed.
Both agreed however that the overriding objective set out in Rule 2(1) of the
2009 Rules lay at the heart of the discretion.
Appellant’s Submissions
23.
Mr Grierson in his skeleton argument described the discretion of the
tribunal pursuant to Paragraph 7(3) as an absolute discretion. He noted
that Paragraph 7(3) made no reference to the stage at which a direction
under that paragraph should be applied for or given. It was therefore open to
the appellant to make an application to disapply Rule 10 of the 2009 Rules and
to apply Rule 29 of the 1986 Rules at the final hearing of an appeal. His
principal submissions as to why the tribunal should exercise its discretion to
apply the 2009 Rules were as follows:
(1)
Costs have been incurred by the Appellant both before and after 1 April
2009.
(2)
The appellant had an expectation that Rule 29 of the 1986 Rules would
apply to the proceedings.
(3)
It would be unfair if the Transfer Order operated retrospectively
in such a way as to frustrate the appellant’s expectation.
(4)
Issues of fairness and justice can only be determined once the appeal
itself has been finally determined.
(5)
The timing of the application in the present case, coming as it does
after the final determination of the appeal, does not count against the
appellant.
24.
In making his submissions Mr Grierson relied on an email from the
respondents’ solicitors to Mr Rashleigh dated 12 March 2012 in which there is
reference to certain guidelines published by the respondents in relation to the
2009 Rules. He relied upon the following paragraph which appeared in those
guidelines:
“Under the transitional
provisions to be contained in the [Transfer Order], current proceedings will
continue before the new tribunal. In these cases the tribunal will have a wide
discretion to determine whether the new Rules of Procedure for the Tax Chamber
or any procedural rules that were previously applicable should be applied to
the proceedings to ensure fairness.”
25.
He also relied on the absence of any reference in published material
from HMRC highlighting the need to make a “prospective application”. For these
purposes a prospective application is an application to apply the 1986 Rules
made during the course of proceedings but before they are finally determined.
26.
If I understand Mr Grierson correctly, he criticised the decision of
Warren J in Atlantic Electronics as being generally too restrictive as
to the circumstances in which an application might be successful, and more
particularly as to the time at which such an application ought to be made.
27.
In making his submissions Mr Grierson invited me to make a direction
disapplying Rule 10 and applying Rule 29 to the proceedings as a whole. In the
alternative he invited me to make a split direction applying the 1986 Rules to
those costs incurred prior to 1 April 2009.
Respondents’ Submissions
28.
Mr Charles submitted that the default position was that the 2009 Rules
apply to this appeal and that it is for the appellant to persuade the tribunal
to depart from the default position. He submitted that it was neither fair nor
just in the circumstances to apply the 1986 Rules for the following reasons:
(1)
The majority of the work done in the appeal was after 1 April 2009.
(2)
The appeal concluded a significant period of time after 1 April 2009 and
whatever expectations the parties may have had have been substantially diluted by
the passage of time.
(3)
There were significant delays in bringing the appeal to a conclusion for
which HMRC were not to blame.
(4)
Applying the 1986 Rules after such a long period of delay would be to
sanction the appellant’s conduct which was the cause of the delays.
29.
Mr Charles relied on the principles and guidance set out by Warren J in Atlantic
Electronics. I set out below some of the passages to which I was referred.
Applying those principles and guidance to the present application he submitted
as follows:
(1)
The appellant’s failure to make an application within a reasonable time
of 1 April 2009 leads the parties to a ‘legitimate expectation’ that the
discretion to disapply the default position will not be exercised.
(2)
Because of that delay, the appellant should not ordinarily expect its
application to succeed.
(3)
The relevant policy in a standard case which substantially straddles 1
April 2009 is that of certainty.
30.
Mr Charles submitted that the policy of certainty identified by Warren J
was the most significant factor in the present application.
Reasons for Decision
31.
In Atlantic Electronics Warren J sitting in the Upper Tribunal
sought to identify the principles applicable to the exercise of discretion pursuant
to Paragraph 7(3) of the Transfer Order in the context of costs.
He also gave guidance as to the exercise of that discretion. In so far as he
identified the principles applicable to the exercise of that discretion the
decision is binding on me. In so far as he gave guidance as to the exercise of the
discretion it is not strictly binding but it is of course persuasive.
32.
Having considered the legislative framework in detail, at paragraphs 37
and 38 Warren J identified 2 policy considerations in the 2009 Rules as
follows:
“37. … One policy is to give the taxpayer in a Complex case a
choice as to the applicable costs regime, a choice which a taxpayer must make
at an early stage of the proceedings. If he does not elect to opt out, the
appeal falls, by default, within a costs shifting regime. The tribunal is not,
it is to be noted, left with a power, at the end of the proceedings, to decide
whether to apply a costs shifting regime or not. So, it seems to me, there is a
second policy which is to provide certainty about the applicable costs regime
at an early stage of the proceedings. There is, of course, a reason for this
second policy apart from merely putting the parties into a position so that
they know where they are. If a taxpayer was able to exercise his right of
election at a late stage, or even until the result of the appeal was known, he
would be able to elect for the regime which he knew was the more favourable to
him; this would amount, effectively, to one-way costs shifting which was
obviously never intended as I have said in paragraph 7 above.
38. … I rather doubt, therefore, that it can be said that
the default regime under the 2009 Rules reflects a policy which goes beyond
giving the taxpayer a choice and providing for certainty…”
33.
Warren J considered 3 examples of “current proceedings” to which
the transitional provisions apply. It is the third example which is relevant
for present purposes. That is a case where an appeal was commenced some time
prior to 1 April 2009 and straddles that date in a substantial way. In such
cases he identified a tension between the policy of the 2009 Rules and the
fairness and justice of consistently applying the 1986 Rules under which the
appeal had been commenced. One way of resolving that tension would be to apply
different costs regimes for work done in the periods before and after 1 April
2009 (see paras 45 - 47). He suggested that the time and money spent on
the proceedings before and after that date would be “a major factor in the
exercise of discretion”. The ultimate question, however, will be how the
interests of fairness and justice are best served. He described this question
in the following terms:
“48. … It is an easy question to ask, but almost intractable
difficulties are met in answering it. For instance, focusing only on work done
and expense incurred, does the appropriate costs regime depend simply on
whether more than half the time and effort and expense falls one side of that
date or the other? Or is there some other test? It cannot, I suggest, be right
to say that the matter is one for the discretion of the tribunal without laying
down some principles by which that discretion is to be exercised.”
34.
He then went on to lay down a number of principles by reference to which
the discretion should be exercised which may be summarised as follows:
(1)
It is encumbent on the party who wishes to operate in a costs shifting
regime to make an application disapplying Rule 10 and applying Rule 29 (para
49)
(2)
Such an application ideally ought to be done within a reasonable time
after 1 April 2009. Passage of time, in light of the policy of certainty, will
make it more difficult to obtain a prospective direction (para 50).
(3)
The fact that either party could make a prospective application
confirming the default position under the 2009 Rules means less weight should
be attached to delay, but this must not be pressed to far. There is something
artificial and contrary to common sense to expect a party to make an
application to confirm the default position (Para 51).
(4)
The tribunal should not lose sight of the fact that in exercising its
discretion the tribunal must do what is fair and just in all the circumstances
(Para 52).
(5)
The parties have a reasonable expectation that the rules, including the
transitional rules, will be applied. Any expectation of the parties that the
discretion will be exercised in a particular way must arise from the
circumstances of the case and is not a separate factor to be taken into account
over and above those circumstances (Paras 53-56).
35.
In applying these principles Warren J made a number of observations as
to the weight or relevance of various factors. For example he suggested that
parties who wait and see how a case develops before making an application
should not ordinarily expect their application to succeed (Para 68). The fact
that one party has made clear throughout the proceedings that it would be
seeking a costs order is also relevant (Para 52). However these are matters
which must be taken into account and given appropriate weight depending on all
the circumstances of the application.
36.
I do not accept Mr Grierson’s criticisms of the decision of Warren J in Atlantic
Electronics. In so far as Warren J set out principles applicable to the
exercise of my discretion they are binding on me. In the light of those
principles, and with due respect to the guidance offered by Warren J, I set out
below the factors I consider to be most relevant to the exercise of my
discretion.
37.
The appeal commenced in March 2008. By April 2009 certainly some work
had been carried out by both parties although probably more by the respondents
than the appellants. The respondents had served witness statements in March
2009. It is not clear what work the appellant’s advisers had done by this stage
but I am prepared to accept that some costs had been incurred. A direction for
split costs could therefore be meaningful to both parties. However I do find
that most of the Appellant’s work was done after 1 April 2009 at a time when
the 2009 Rules applied in default of a direction otherwise.
38.
The appellant is said to have had an expectation that the 1986 Rules
would continue to apply. For the reasons given by Warren J I do not accept that
this expectation carries any weight above and beyond the circumstances which
are said to give rise to it. My understanding of Mr Grierson’s submission on
this point is that the expectation derived from the unfairness that would arise
if the Transfer Order were to operate retrospectively so as to deprive
the appellant of the benefit of the 1986 Rules. In my view, however, there is
no such unfairness on the facts of the present case. It was open to the
appellant to apply in April 2009 or, if the director and adviser were unable to
properly conduct the appeal at that time, when the opportunity first arose.
That appears to have been in the autumn of 2009. The opportunity to make a
prospective application to apply the 1986 Rules means that the Transfer
Order does not have a prejudicial retrospective effect in any material
sense.
39.
In my view the timing of the application does tell against the
appellant. The more time which has passed without any application, the more
weight is to be attached to the policy of certainty described by Warren J. That
is a policy which applies for the benefit of both parties and it does not, in
my view, require any specific prejudice to be asserted or established by the opposing
party. Even if the appellant was not consciously waiting to see if the appeal
was successful, it is seeking to claim success in the appeal after the event.
It can therefore make the application without any real risk that the Commissioners
would obtain their own direction for costs if the 1986 Rules were applied. I
appreciate that the respondents have made an application for their costs of the
appeal in those circumstances but as Mr Charles readily conceded at the outset
of his submissions without any prompting that application faces an uphill
struggle.
40.
It is clear from the decision in Atlantic Electronics that it is
generally desirable for a party to make a prospective application in relation
to costs rather than to wait until after the determination of the appeal. I
also note that this is not a case where either party after 1 April 2009 had
signalled an intention to seek costs if successful prior to the withdrawal of
the appeal.
41.
I do not think that the email relied on by Mr Grierson takes the matter
any further. It merely acknowledges the discretion which Mr Charles accepts the
tribunal has to apply the 1986 Rules. It says nothing about the circumstances in
which the tribunal will exercise its discretion or the stance which the respondents
would take on an application such as the present. I do not regard it as
significant that HMRC did not highlight in their guidance the desirability of
making a prospective application.
42.
In balancing the interests of fairness and justice I do not take into
account any period of delay in the progress of the appeal itself during the
periods of illness of Mr Rashleigh and Mr Chatterjee. I do not regard the
Appellant as being “culpable” in respect of that delay. However there is still
a substantial period of time after 1 April 2009 during which the 2009 Rules
have applied in the absence of an application to apply the 1986 Rules.
43.
The first suggestion by either party that an application would be made to
apply the 1986 Rules as to costs was after the appeal had effectively been
settled in May 2011. At that stage in the chronology certainty was a
significant consideration in the exercise of discretion. By then both parties
had apparently proceeded for some 2 years on the basis of the default position.
44.
Weighing all these competing interests and circumstances I do not
consider it appropriate to make a direction disapplying Rule 10, either for the
proceedings as a whole, or in relation to those costs which were incurred prior
to 1 April 2009.
The Respondents’ Application
under Rule 10(1)(b)
45.
This is the principal application made by HMRC. It requires HMRC to
satisfy me that the appellant was unreasonable in proceeding with its
application for costs pursuant to the 1986 Rules. In particular the respondents
say that the application had no reasonable prospect of success and the
appellant ought to have accepted the open offer contained in their letter dated
12 January 2012.
46.
At the time of that letter Warren J had not delivered his decision in Atlantic
Electronics. It is true that there were two decisions of the First-tier
Tribunal (Atlantic Electronics itself and Hawkeye Communications Ltd
v HMRC [2010] UKFTT 636 TC) with which Warren J ultimately agreed. However
there was also a decision of the Upper Tribunal in SRI International v HMRC FTC/72/2010
released on 3 January 2012 in which Judge Sadler stated at paragraph 46 as
follows:
“I agree with Mr Ewart that
in most cases the proper time for a party to apply for a costs order is when
the proceedings have been determined in its favour. I also agree with him that,
in most cases, the proper time for that party, if it is engaged in proceedings
to which paragraph 7 applies, to apply for a direction under paragraph 7(3) so
that a costs order can be made, is when it can apply for a costs order. Only at
that point, when matters have been resolved, is the tribunal in a position to
assess whether such a direction is required, in all the circumstances of the
proceedings and their determination, to ensure that those proceedings are dealt
with fairly and justly. ”
47.
Whilst this passage appears to be inconsistent with the approach of
Warren J, I do not consider that it embodies a statement of general principle. It
is, in my view, restricted to the particular circumstances of that case where
there was an express finding that the appellant had, throughout the
proceedings, made clear its intention to seek costs if successful. That is not
the position in the present appeal.
48.
Notwithstanding the ultimate result and reasoning in Atlantic
Electronics it does appear from the submissions in SRI International
and the way in which they were dealt with by the Upper Tribunal that there was
a respectable body of opinion that an appellant in a transitional case might at
least hope to persuade a tribunal that the appropriate time to make an
application was at the conclusion of the appeal proceedings. It is now clear in
my view from Atlantic Electronics that delaying the application until
the conclusion of the proceedings is not usually an appropriate course and in
ordinary circumstances would make it much less likely that the tribunal will
grant such an application. Once Atlantic Electronics had been released
on 6 February 2012 the appellant ought to have realised that it was unlikely to
succeed in the application.
49.
The appellant continued with its application after the release of the
decision in Atlantic Electronics. However I would not characterise that as
unreasonable conduct such as to warrant an order for costs under Rule 10(1)(b).
Even after Atlantic Electronics there is a balancing exercise to be
carried out and the tribunal has a discretion as to whether the 1986 Rules
should be applied – see for example Eastenders Cash and Carry Plc v HMRC
[2012] UKFTT 219(TC). In that case, which is similar to the present,
neither the tribunal nor HMRC appear to have suggested that the appellant’s
application had no prospect of success.
50.
In all the circumstances I will not make a direction for costs pursuant
to Rule 10(1)(b) of the 2009 Rules.
Position if the 1986 Rules
had applied
51.
Given my decision that the 2009 Rules as to costs apply to this appeal I
shall deal with this aspect only briefly.
52.
Mr Grierson submitted that Ms Jones’ assessments were incorrect and
unsustainable. The assessments were reduced from £68,723 to £49,396 and
therefore in relation to costs he says the appellant should be considered as
having succeeded on the appeal.
53.
It is true to say that the output tax elements of the assessments were
reduced by a significant amount. However the input tax elements of the
assessments were not reduced at all.
54.
I am not satisfied on the material before me that the information which
Mr Rashleigh used to justify a reduction in the output tax assessed was
available to Ms Jones at the time of her assessment. The information available
to Mr Rashleigh included the accounts for the year ended 31 October 2007. There
is no indication when those accounts were produced but it was common ground
that they would not have been available to Ms Jones. Ms Jones could not recall
whether she had the 2006 accounts at the time of her assessments but even if
she did I find as a fact that she did not have the 2007 accounts.
55.
I also take into account the admissions during the course of the appeal
that the standard of bookkeeping in the appellant’s business was not of the
required standard. Mr Rashleigh stated that based on what was provided he was
able to produce a “rough and ready calculation” in a short period of
time which proved to be within £1,000 of the final figure agreed. The rough and
ready calculation has not been provided to me. The records on which it was
based have not been specifically identified. In any event it ignores the fact
that the input tax element of the assessments remained in dispute until the appellant
conceded them in 2011.
56.
It was put to Ms Jones that the appellant’s 2006 accounts were available
to her. There was no reliable evidence that they were available and Ms Jones
couldn’t recall whether she had them. She said, and I accept, that what she
wanted was the original prime records of the business. It is clear that Ms
Jones had some records, but I find that what records she did have were
inadequate for the purpose. In my view she was entitled to expect adequate
underlying records and in the absence of such records and supporting
calculations she was entitled to make an assessment in the way she did
regardless of whether the 2006 accounts were available to her.
57.
It does appear that Ms Blades, the review officer, eventually agreed a
reduction to the assessments without sight of the underlying records. That was
done on the basis of Mr Rashleigh’s calculation based on the 2006 and 2007
accounts. It was common ground that the 2007 accounts were not available to Ms
Jones. In any event it does not follow from the reduction to the assessments
that Ms Jones’ assessments were unreasonable or unsustainable. On the basis of
the evidence produced I am certainly not in a position to say that the
assessments were unsustainable, nor that HMRC were acting unreasonably in
maintaining the assessments until the reduction was agreed in 2011.
58.
In those circumstances I would not regard the appellant as having been
successful. The appellant has not established that the assessment was excessive
based on material made available to the assessing officer at the time of the
assessment. Even if the 1986 Rules as to costs applied I would not have
directed HMRC to pay the appellant’s costs of the appeal, or any part of them.
59.
If the 1986 Rules had applied, HMRC seek their costs of the appeal. It
is fair to say that Mr Charles readily acknowledged that this application faced
an uphill struggle. In general under the 1986 Rules HMRC would not make an
application for costs unless the principles set out in the “Sheldon Statement” were
applicable. That statement reads as follows:
“the Commissioners have concluded that, as a general rule, they should
continue their policy of not seeking costs against unsuccessful appellants;
however, they will ask for costs in certain cases so as to provide protection
for public funds and the general body of taxpayers. For instance, they will
seek costs at those exceptional tribunal hearings of substantial and complex
cases where large sums are involved and which are comparable with High Court
cases, unless the appeal involves an important point of law requiring
clarification. The Commissioners will also consider seeking costs where the
appellant has misused the tribunal procedure – for example, in frivolous or
vexatious cases, or where the appellant has failed to appear or to be
represented at a mutually arranged hearing without sufficient explanation, or
where the appellant has first produced at a hearing relevant evidence which
ought properly to have been disclosed at an earlier stage and which would have
saved public funds had it been produced timeously.”
60.
If the Commissioners considered that the case was such that they would
seek costs pursuant to the Sheldon Statement they would normally indicate that
to the appellant at an early stage. I am entitled to take into account the
Sheldon Statement in exercising my discretion as to costs. I am not satisfied
that the circumstances are such as would justify a direction for costs against
the appellant.
Conclusion
61.
For the reasons given above I dismiss the appellant’s application for
costs and I dismiss the respondents’ applications for costs.
62.
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.
TRIBUNAL JUDGE
RELEASE DATE: 3 May 2012
