[2010] UKFTT 374 (TC)

TC00656

Appeal number: TC/2010/03006

Procedure – application for permission to appeal out of time – whether appellant believed valid appeal had been made – appellant not appealing to tribunal due to insufficiency of funds to obtain legal representation – whether appellant not aware of time limits

FIRST-TIER TRIBUNAL

TAX

                        LIGHTHOUSE TECHNOLOGIES LIMITED       Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: JUDGE ROGER BERNER                                                                                                 

Sitting in public at 45 Bedford Square, London WC1 on 5 August 2010

Mr S Dagunduro, Director, for the Appellant

David Bedenham, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       The Appellant applies to the Tribunal for permission to appeal out of time against an assessment and decision to deny VAT input tax recovery dated 22 January 2008.  The appeal to the Tribunal was made by notice of appeal dated 25 March 2010.  The assessment and refusal to repay input tax is in a substantial sum; the input tax adjustment is for £4,089,557.50, of which the amount assessed is £3,111,572.19.

2.       The proposed appeal arises out of the investigations by HMRC into missing trader intra-community (“MTIC”) fraud.  The decision relates to input tax claimed on the purchase of mobile phones, laptop computers, digital cameras, mobile DVD projectors and mobile DVRs in the VAT accounting period 06/06.

The facts

3.       The assessment and decision to deny input tax was notified to the Appellant by letter dated 22 January 2008.  That letter included as its final paragraph the following:

“You have the right of appeal against this decision to the VAT & Duties Tribunal and any appeal must be made within 30 days of the date of this letter.”

4.       On 21 February 2008 the Appellant wrote to HMRC (Officer Richard Taylor).  In that letter the Appellant said:

“We are appealing your decision and refer to the Livewire Tribunal ruling that rejected your argument that we knew or should have known about fraud in the supply chain upon which you have denied the company input tax.”

The reference here to Livewire is a reference to the decision of the VAT and Duties Tribunal in Livewire Telecom Limited (No 20533) which had been released on 10 January 2008.  In the same letter the Appellant asked for full access to the information on which the decision to deny input tax recovery had been based.

5.       It appeared from the evidence given by Mr Dagunduro to me that prior to his writing this letter to Mr Taylor he had sought legal advice from Dass, Solicitors, on 12 February 2008.  No meeting was held, but there had been an e-mail sent by the Appellant, a telephone conversation and a brief letter in reply from Dass.  Mr Dagunduro confirmed that he had asked Dass about the right of appeal.  Dass had given him certain information about the Appellant’s chances of succeeding in an appeal, including the information on Livewire, although Mr Dagunduro also said that he had himself seen references to some of the cases from his own online research.  The Appellant did not instruct Dass because of lack of funds to pay the costs.

6.       On 25 February 2008 Mr Taylor replied to the Appellant’s letter of 21 February 2008.  It is worth setting out the material parts of that letter in full:

“In order for your appeal to be taken forward and registered formally you must issue a written notification with immediate effect to the VAT & Duties Tribunal Offices stating that you wish to appeal and also outlining the reasons why you disagree with our decision.  This notification should be sent to the following address – VAT & Duties Tribunal Offices, 15-19, Bedford Avenue, London WC1B 3AS.

The VAT and Duties Tribunal are administered by the Lord Chancellors department and are completely independent of HMRC.  When they have received written notification from you of your intention to appeal they will also notify HMRC so that the matter can then proceed on a formal basis.  Further guidance on this process can be found in the VAT Public Notice 700, a copy of which can be found on the HMRC website … and at [tribunal website].”

7.       Mr Taylor followed up this letter with a further letter of 17 March 2008, in which he addressed the information request that had been made by the Appellant.  No reference was made in this letter to the appeal.

8.       Mr Dagunduro told me that in March or April 2008 he had consulted Vantis with regard to the appeal.  Although he showed Vantis a copy of the letter of 21 February 2008, Mr Dagunduro said that Vantis did not advise on the appeal process.  The discussion was about the engagement process, and again it was decided on costs grounds that the Appellant could not go forward.

9.       The Appellant replied to Mr Taylor’s letter of 17 March 2008 on 7 April 2008.  This letter also contains no reference to the appeal itself; it is concerned with the information request.

10.    On 14 April 2008 Mr Taylor sent a fax to Miss Edel Luchford, office manager of the Appellant, attaching a copy of his letter of 25 February 2008, and asking for confirmation of receipt of that letter and/or the date the Appellant had lodged its appeal with the Tribunal.

11.    This was followed up by Mr Taylor by letter dated 7 May 2008 in which he asked again for confirmation of the date on which the Appellant had submitted its appeal to the Tribunal.  In cross-examination, Mr Dagunduro accepted that he knew from this correspondence that the company was meant to make an appeal to the VAT and Duties Tribunal.  When asked why it had not done so, he said that he did not feel competent.

12.    Mr Taylor gave evidence, which was not challenged by the Appellant, that he had a telephone conversation with Mr Dagunduro on 13 June 2008.  Mr Dagunduro had called Mr Taylor in response to a call from Mr Taylor seeking a response to the letter of 7 May 2008.  From his own recollection, and this was confirmed by reference to a “progress log” entry for 13 June 2008, Mr Dagunduro informed Mr Taylor that the Appellant intended not to lodge a formal appeal.  Mr Dagunduro had taken legal advice, which had explained the costs implications, and the Appellant could not at present afford the fees.  The Appellant would therefore wait until there had been further cases, and based on those an appeal might be lodged in due course.

13.    On 23 July 2008, Mr Taylor wrote to the Appellant with a full response to the specific information requests made by the Appellant.  This letter does not refer to the appeal.

14.    There was no further relevant correspondence between HMRC and the Appellant until 10 March 2010.  From the perspective of HMRC, the absence of enforcement proceedings in the meantime was explained by there being a standard inhibition in the HMRC system on enforcement to allow an appeal to be made.  The letter of 10 March, however, informed the Appellant of the outstanding debt to HMRC of £3,109,410.26, and stated that if the Appellant did not take action within seven working days HMRC would wind up the company.  From the Appellant’s perspective, Mr Dagunduro confirmed that the Appellant had taken no action with respect to an appeal in this period, even though, on its case, it would have had an entitlement to recovery of almost £1 million of input tax.

15.    The Appellant lodged an appeal with this Tribunal on 25 March 2010, and it is this appeal for which permission is sought to make the appeal out of time.  Mr Dagunduro was asked why this appeal had now been made, and not previously.  His answer was that the company had been forced to appeal – clearly by the threat of winding-up – and at this stage he had had the assistance of an accountant.

Discussion

16.    As Mr Bedenham rightly pointed out, at all relevant times there was a time limit on the making of an appeal of 30 days from the making of the HMRC decision or assessment.  When the notification of 22 January 2008 was made, the time for appealing was set out in rule 4 of the Value Added Tax Tribunals Rules 1986 (SI 1986/590).  Those time limits have been prescribed by law, and accordingly it is for the Appellant to show a good reason why the Tribunal should exercise its discretion to allow an appeal to be made outside those time limits.  The exercise of such a discretion is a very material one, as it gives to the Tribunal a jurisdiction that it otherwise would not have.

17.    The appeal for which permission is sought here is considerably out of time.  I nevertheless have to consider, in the context of the overriding objective of the Tribunal as set out in rule 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, to deal with cases fairly and justly, all the circumstances.  This involves a balancing exercise having regard to the respective interests of the parties.  Furthermore, having regard to the correlation between the overriding objective with that in Rule 1.1 of the Civil Procedure Rules (“CPRs”), in the exercise of my discretion I should have regard to the list of factors set out in CPR 3.9(1) to be considered by the court when exercising discretion (amongst other things) to extend any time limit.  So far as material in this case, those factors are:

(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;

…

(f) whether the failure was caused by the party or his legal representative;

…

(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.

18.      The factors I must consider include consideration of the reasons, if any, for the delay in making the appeal, but also all material factors, including whether the Appellant has a prima facie case, whether there would be any prejudice to HMRC if the appeal were permitted to be made out of time, and whether there would be demonstrable injustice to the Appellant were I not to allow the appeal to proceed.  These are principles derived from the decided cases, in particular R (on the application of Browallia Cal Ltd) v General Commissioners of Income Tax [2004] STC 296 and R (on the application of Cook) v General Commissioners of Income Tax [2007] STC 499).

19.    In MTIC cases the burden of proof is on HMRC to prove, on the balance of probabilities, a number of factors.  I can make no comment on the possible merits of any appeal by the Appellant, and it is not for me to do so, but it is clear that, on this basis, there is prima facie an appealable matter.

20.    I turn to consider whether the Appellant has any, or any compelling, reasons why the appeal was not made in due time, or was not made earlier than it was.  Mr Bedenham argued that the Appellant’s reasons were not consistent, and were certainly not compelling.  He referred to the reasons put forward by the Appellant as follows:

(1)        In the notice of appeal the Appellant said: “We have not been able to make the appeal due to our inability to pay the legal cost/charges being quoted by the various legal firms we have approached.”  Mr Bedenham argued that this could not reasonably be put forward by the Appellant.  The VAT and Duties Tribunal offered a simplified appeals procedure that was readily available to an appellant in person.  Indeed the Appellant itself had demonstrated that fact by the making of the instant appeal and application to the First-tier Tribunal, which had assumed the role of the former tribunal.  I agree.  Insufficiency of financial resources to fund legal representation cannot in my view be a valid reason for failing to appeal on time.  It was open to the Appellant, which on its own evidence researched questions around its appeal on the internet, to access the relevant forms and procedure and to make the appeal without legal representation.

(2)        The Appellant argued that at the relevant time Livewire had been largely undecided.  This is not a valid reason.  As Mr Bedenham pointed out, the tribunal decision in Livewire had been issued on 10 January 2008.  The Appellant was aware of that fact.  There is also nothing in the grounds set out in the appeal now sought to be made that could not have been put forward in February 2008.

(3)        At the hearing, Mr Dagunduro submitted that he thought that the appeal had been made to HMRC by his letter of 21 February 2008.  Having considered all the evidence, I cannot accept that as a submission, or as a matter of fact.  The Appellant had been given clear guidance by HMRC in its notification of 22 January 2008 that the right of appeal was to the tribunal, and legal advice had been obtained before the letter of 21 February.  The 21 February letter is written in terms that suggest, not that the letter comprises the appeal, but that an appeal was being made in the appropriate manner.  Even if I had accepted the Appellant’s argument on this, there could have been no doubt, and Mr Dagunduro accepted this, that he (and thus the Appellant) knew by virtue of the correspondence from Mr Taylor in February, April and May 2008 that there was no valid appeal unless it were made to the tribunal.  Mr Dagunduro’s telephone conversation with Mr Taylor on 13 June 2008 makes it clear that the failure to make the formal appeal at that time was an intentional act on the part of the Appellant.  The continued failure by the Appellant to make the appeal to the tribunal promptly upon becoming aware of the necessity to do so would invalidate any reason for earlier failure, were that itself to have been valid.

21.    In the notice of appeal, the Appellant also submits as a reason for the appeal being made late that, although Mr Taylor had advised that the appeal be made to the VAT and Duties Tribunal, the Appellant was not aware of the “deadline or timeframe” for the appeal.  I do not accept that.  Mr Dagunduro himself acknowledged that he had been aware of the fax and letters in this respect from Mr Taylor, which had referred to the immediate need to make the appeal, and the 30-day time limit was clearly referred to in the notification dated 22 January 2008.  I find, first, that the Appellant was aware of the time limits for the making of the appeal, or, if not, the Appellant ought to have been aware, applying a reasonable taxpayer test, of those time limits.  Even though it appears from the telephone conversation with Mr Taylor in June 2008 that Mr Dagunduro was under the impression that a formal appeal might be lodged later, given the information available to the Appellant that was not in my view a conclusion that a reasonable taxpayer could have reached.

22.    My conclusion therefore is that the Appellant has failed to persuade me that it had a valid reason or a good explanation for not making the appeal in a timely fashion.  The failure to do so was that of the Appellant and not of any other person, and such failure was, at least from June 2008, an intentional failure on the part of the Appellant.

23.    The burden of showing why the Tribunal should exercise its discretion to permit a late appeal falls on the Appellant, and for the reasons I have given I do not consider that there is any valid explanation for the failure to appeal on time that warrants my permitting the appeal to be made late.  In the absence of any valid reason, it could not in my view avail the Appellant to argue that HMRC would not suffer prejudice.  However, even in this respect I consider that there would be prejudice to HMRC were I to allow this appeal to proceed.  Each of HMRC, the Exchequer and the rest of the taxpaying public are entitled to be able to rely on the legal certainty that appeal time limits provide.  As Mr Bedenham argued, HMRC is entitled to rely on the fact that an appeal has not been made in managing its resources and conducting investigations.  Where an appeal has been delayed to the extent it has in this case, there is in my view a real risk that evidence that would otherwise be available will become no longer available, or will be or become stale, and memories of witnesses in respect of events many years in the past may become unreliable.  In those circumstances it would not in my view be in the interests of justice to permit the appeal to be made late.  It would be prejudicial to HMRC to allow a late appeal to proceed.  That prejudice could be outweighed only if there were compelling reasons why permission to make a late appeal should be granted.  No such compelling reasons exist in this case.

24.    It is also the case that the fact that a considerable amount of money is at stake is not a material consideration.  The same rules as to appeals and the time at which they must be made apply irrespective of the amount at issue, and the same considerations must be applied to whether to give permission for a late appeal in every case.

25.    I fully appreciate the adverse effect my decision not to grant permission for this appeal to proceed will have on the Appellant and its business.  I have taken that into account in reaching my conclusion.  But that does not mean that it would be in the interests of justice for me to give permission.  The Appellant had the opportunity to appeal at the appropriate time, it was very fairly advised of the appeal rights by HMRC, not only in the original notification, but also on a number of subsequent occasions and it sought legal advice at around the material time, only to reject that option on costs grounds, and conducted its own research on the internet.  Nevertheless, even at a time when the Appellant admits that it knew it had to make the appeal to the tribunal, it made a conscious decision not to appeal at that time, and it did nothing further for more than 20 months until it received the letter from HMRC indicating that they would seek to wind up the company.  In spite of the adverse effect it will have on the Appellant in not being able to conduct an appeal against the assessment and denial of input tax recovery, I do not consider that in these circumstances there is demonstrable injustice to the Appellant.

26.    Whilst I have sympathy for the discomfort and distress that Mr Dagunduro told me that he had suffered, that is not a factor that I can take into account in considering the exercise of my discretion in this case.  There is nothing in the circumstances of this case to warrant my giving permission for an appeal now to be made out of time.  It would not in my view be in the interests of justice for me to grant permission.

Decision

27.    For the reasons I have given, I refuse the Appellant’s application for permission to appeal out of time.

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.

ROGER BERNER

TRIBUNAL JUDGE

RELEASE DATE: 11 August 2010