First-tier Tribunal (Tax)

[2011] UKFTT 86 (TC)

TC00963

Appeal number TC/2010/07943

Application for leave to appeal out of time – whether reasonable excuse – factors to be taken into account in exercising Tribunal’s discretion to admit Notice of Appeal out of time.

FIRST-TIER TRIBUNAL

TAX

MARTIN & GAYNOR O’HEARNE PROPERTIES LTD Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: WDF COVERDALE (TRIBUNAL JUDGE)

Sitting in public in Leeds on 6^th December 2010

Mrs G O’Hearne of the Appellant Company in person

Mrs N Newham of HM Revenue & Customs for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.       This is an application by Martin and Gaynor O’Hearne Properties Ltd for permission to appeal out of time against a notice of completion of enquiry and a self assessment amendment showing capital gains tax due from the appellant company following the disposal of two properties. The matter has originally been listed on the basis that the application for permission to appeal out of time shall be heard first and then, if it is successful, the full hearing of the substantive appeal will go ahead immediately afterwards.

2.       The substantive issue in this case, however, concerns the valuation of two properties and the Tax Tribunal does not, therefore, have jurisdiction to hear the substantive issue; Section 46D(1) of the Taxes Management Act 1970 (as amended) provides that

“46D(1) In so far as the question in dispute on an appeal to which this section applies-

(a)        is a question of the value of any land or of a lease of land, and

(b)        arises in relation to the taxation of chargeable gains (whether under capital gains tax or corporation tax) or in relation to a claim under the 1992 Act,

the question shall be determined by the relevant tribunal.”

3.       With regard to the relevant tribunal Section 46D(3) defines this as follows

“46D(3) In this section “the relevant tribunal” means-

(a)        in relation to land in England & Wales, the Upper Tribunal;”

4.       It is therefore confirmed that today’s hearing relates only to the application to make a late appeal against the Notice of Completion of Enquiry issued on 20.02.2009 and the Self Assessment Amendment issued on 08.04.2009 under Section 49 of the Taxes Management Act 1970.

5.       The history of this matter commences with an enquiry by HMRC into the Tax Return for the year 2006/2007 by Martin and Gaynor O’Hearne Properties Ltd (“the company”). Two properties had been sold by the company to a Director and it was desired to ascertain the value of these properties. By letter dated 29.04.2008 HMRC advised the company of the intention to enquire into the Return and by letter of the same date addressed to the company’s accountants, M & M Accountancy Services Ltd, a preliminary enquiry was made about the two properties.

6.       HMRC requested a valuation of the properties from the District Valuer. Initial valuations were made in the sums of £70,000.00 and £80.000.00 respectively for the two properties as at the dates of sale 15.02.2007 and 24.01.2007.

7.       Thereafter there were discussions and negotiations between the District Valuer's office and Mr & Mrs O’Hearne who obtained their own valuations by Allied Surveyors which took into account a number of matters including an amount of work done to the properties before disposal.

8.       The final figure assessed by the District Valuer was £50,000.00 in respect of each of the two properties. This, however, was not agreed by the company. There was correspondence and exchanges of e-mails between the company and the District Valuer and it appears that the last word from the District Valuer's office to Mr and Mrs O’Hearne was an e-mail dated 13.02.2009 stating:-

“Dear Mr and Mrs O’Hearne

Thank you for your e-mail outlining your position on this matter.

As we are unable to agree on values for 40 Longford Place and 13 Marley View I am required to report the figures as being ‘unagreed’ to HM Revenue and Customs.

HM Revenue & Customs will then decide how to progress this matter (if at all). I would imagine that they will be in contact with you shortly to inform you of their position.

I trust this is satisfactory

Kind regards

Alison”

9.       At that point, therefore, the company knew that the valuations were not agreed and that the District Valuer was forwarding “unagreed” valuations to HMRC.

10.    Very soon thereafter, on 20.02.09, HMRC wrote to the company’s accountants, M & M Accountancy Services Ltd, confirming the valuations by the District Valuer and enclosing a calculation of the capital gain on the disposal for the year ended 31.03.2007. A schedule of charge and relief due in respect of Section 419 Liability was also enclosed and it was stated that a notice of the completion of the enquiry would be issued shortly, incorporating the capital gain charge and the liability and relief under Section 419. A copy of that letter from HMRC to M & M Accountancy Services Ltd dated 20.02.2009 is reproduced for the Tribunal together with its enclosures.

11.    It is HMRC’s case that the notice of completion of the enquiry was also copied to the company itself. It is also HMRC’s case that an amendment of the self-assessment, showing the additional tax due, was issued to the company and to the accountant on 08.04.09.

12.    If the company was to appeal against the amended assessment the time limit for doing so was 30 days from the date the amendment was sent namely 8.5.09.

13.    The next significant development appears to be in July 2010 when Mrs O’Hearne of the company and the company’s accountants evidently had telephone conversations with HMRC and Mrs O’Hearne wrote to HMRC on 30.07.10 indicating that the matter of valuations was still in dispute. HMRC replied on 26.08.2010 pointing out that the time limit for an appeal against the amended assessment expired on 8.5.09 and explained the basis for any application for leave to appeal out of time.

14.    Mrs O’Hearne replied by e-mail dated 14.9.2010 and there was a telephone conversation between Mrs O’Hearne and a Mr Cross of HMRC on 15.09.2010 followed by a letter from Mrs O’Hearne to Mr Cross on the same day. There was another e-mail from Mrs O’Hearne to Mr Cross on 16.09.2010 and Mr Cross replied by letter dated 20.9.10 giving a further explanation of the company’s right to appeal in respect of the refusal to accept the appeal out of time.

15.    The company’s formal notice of appeal is dated 6.10.10.

16.    In summary, therefore, the time limit for appealing was 8.5.09 and the first formal intimation of a desire to appeal was the letter from Mrs O’Hearne dated 30.7.10 which was received by HMRC on 02.08.10; this was some 15 months late.

17.    It is appropriate at this point to examine the extent to which Mrs O’Hearne, who appears to have dealt with matters on behalf of the company, was aware of the decision making processes being carried out by HMRC at the material times. She tells the Tribunal that she was not aware of the decisions made by HMRC on 20.02.09 and 08.04.09 (presumably she means that she was not aware of those decisions being made at the time that they were made). The decision and letter dated 20.02.09 was certainly sent to M & M Accountancy Services Ltd and there is a copy of that letter before the Tribunal. The letter had two enclosures. It is HMRC’s case that a copy was sent to the company also. Likewise there is, before the Tribunal, a copy of the amendment of the self assessment showing additional tax due which was evidently issued on 8.4.09 and, again, it is HMRC’s case that copies of this amendment were sent to both the company and to the accountant.

18.    Actual copies of the letters, in February and April 2009, purported to have been sent to the company, are not before the Tribunal and there is therefore some scope for the company to argue that they were not received. HMRC point out that none of these letters, to the accountant or to the company, were returned as “undelivered”.

19.    Clearly HMRC and the District Valuer were happy for the company to negotiate direct with the District Valuer on the matter of valuations. Correspondence and emails clearly disclose negotiations up to February 2009. Thereafter the most significant correspondence may have been the communications dated 20.02.2009 and 08.04.2009 addressed to the Accountants M & M Accountancy Services Ltd. Mrs O’Hearne tells the Tribunal that she told her accountant that it would be better if she personally liaised with HMRC direct and she says that the accountant told her that he advised HMRC to correspond direct with Mrs O’Hearne. HMRC have no record of any such communication.

20.    It would normally be expected that an accountant would communicate with his client when he receives a notice of completion of enquiry, a schedule of charge and relief due and an amendment to a self assessment showing additional tax due from the client. The Tribunal is satisfied that those items were received by the accountant and it may be that there is some issue between Mrs O’Hearne and the accountant as to whether information has been communicated properly by the accountant. However Mrs O’Hearne tells the Tribunal that she did not know, at the time, about any Closure Notice but, significantly, she says that the accountant did ring her and said that he had received something from HMRC which she assumes to have been the letter dated 20.02.09. It is not known to what extent the accountant thereafter did or did not advise his client of the nature of the communications being received from HMRC but the Tribunal is satisfied that Mrs O’Hearne's agent was aware of the relevant decisions in this case at the time that they were made and communicated by HMRC.

21.    Mrs O’Hearne tells the Tribunal that between April and July 2010 the accountant told her that the company did not owe any money to HMRC. The Tribunal has no specific information about what information was or was not passed from the accountant to Mrs O’Hearne but clearly such information would be incorrect in the light of the notice of completion of the enquiry and the self assessment amendment.

22.    Mrs O’Hearne confirms to the Tribunal that the accountant did not forward to her the letter from HMRC dated 20.02.2009. She says that she did not get to know about the amendment sent by HMRC to her accountant on 08.04.2009.

23.    There is clearly considerable confusion in Mrs O’Hearne’s mind about any authority for the company’s accountant to act for the company in dealings with HMRC. At first she tells the Tribunal that HMRC have no authority to speak to her accountant about these matters but she admits that her accountant has told her that there was authority for the accountant to deal with HMRC. In so far as Mrs O’Hearne herself has had conversations with HMRC these conversations have evidently been in connection with collection of the tax due rather than the arithmetical calculation of the amendment of the self assessment.

24.    Mrs O’Hearne tells the Tribunal that her accountant gave authority for HMRC to communicate direct with the company in a telephone call but she was not present when that telephone call was made. Mr Newham, on behalf of HMRC, advises the Tribunal that the company’s accountant may have given authority for the District Valuer to liaise direct with Mrs O’Hearne and the company but, as far as HMRC are concerned, the authority was for the accountant to deal with HMRC as agent for the company. There was correspondence between the accountant and HMRC concerning the valuations. The letter of 20.2.09 was certainly sent to the accountant. Mrs O’Hearne confirms that tax returns were sent to the accountant and indeed “everything” goes to him.

25.    Importantly, Mrs Newham advises the Tribunal that there was a written authority in the form of a form 64-8 on HMRC’s file and this authorised communication with the accountant as agent for the company. No other authority has been received. If there is authority to communicate with an agent such as an accountant then HMRC will always deal solely with the agent. HMRC do not accept partial authorities. This is not inconsistent with conversations direct with the accountant/company/District Valuer.

26.    In summary, Mrs Newham points out that the appeal in this matter is some 15 months late and HMRC have had no reason to believe that notices have not been received by the appellant and that the appellant’s agent, the accountants, were definitely aware of the valuations. She observes that there is evidently some misunderstanding between Mrs O’Hearne and the agent. HMRC’s position is that if the agent felt that less tax was due the agent himself would have been expected to appeal on behalf of the company.

27.    The Tribunal’s conclusion is that even if there is some doubt about whether the company received communications from HMRC dated 20.02.2009 and 08.04.2009, nevertheless these communications were sent to the company’s agent who was properly authorised by the company to deal with HMRC and accordingly the company had imputed knowledge of the contents of those communications at the times that they were sent.

28.    The Tribunal is therefore left to make a decision on an application for leave to appeal some 15 months out of time.

29.    Appeals out of time are governed by Section 49(1) of the Taxes Management Act 1970 which provides:

“(1) An appeal may be brought out of time if on an application for the purpose an inspector or the Board is satisfied that there was a reasonable excuse for not bringing the appeal within the time limited, and that the application was made thereafter without unreasonable delay, and gives consent in writing; and the inspector or the Board, if not satisfied, shall refer the application for determination by the Commissioners”.

30.  The matter of “reasonable excuse” has been considered in a number of cases. In R (Browalia Cal Ltd) v General Commissioners of Income Tax [2004] STC 296 reference was made to a wide discretion on the part of the General Commissioners (now the Tribunal) and at paragraphs 12 to 14 Evans-Lombe J said:

“12. It is submitted before me by the taxpayer that section 49, when properly construed, confers upon the General Commissioners, on reference to them of an application to an inspector for permission to lodge an appeal out of time, a wider discretion than that which the Inspector himself had. The discretion is not confined, as the Inspector’s discretion is confined, to determining whether there was a reasonable excuse for the failure to lodge the appeal within that time, but would also embrace such considerations as the lack of any prejudice to the Commissioners as a result of failing to lodge an appeal in time, and demonstrable injustice to the taxpayer if such an appeal is not permitted to be lodged out of time.

13. I accept that submission. It seems to me that this is a proper construction of the Act. It is apparent from subsection1 of section 49 that it contemplates two stages, the first stage being an application to the Inspector who can, if he can discern a reasonable excuse, properly allow an appeal to be lodged out of time thus saving the necessity of reference to the General Commissioners for that permission to be granted; but that if he does not find that there was reasonable excuse, the second stage then arises, which is a reference of the application by the Inspector to the General Commissioners for them to determine.

14. The section does not purport to guide the General Commissioners in any way as to how that discretion to permit appeals to be lodged out of time should be exercised. It seems to me, therefore, to follow that the General Commissioners’ discretion is at large and they can consider the sort of matters which I have referred to which an Inspector of Taxes had no power to take into account.”

In R on the application of Philip Cooke v General Commissioners of Income Tax and another [2007] STC 499 at paragraph 27Burton J said:

“27. On the other hand, of course, there must be balanced against that 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 is not one that was carried out by the Commissioners, because they were told that 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 judgement of Evans-Lombe J must carry with it the question of whether the basic appeal was arguable. In any event, Evans-Lombe J clearly did not mean the examples that he gave of the matters which would fall within the discretion of the Commissioners but not within the original discretion of the inspector was exclusive, and the merits are obviously an important part of that consideration. Although the Commissioners’ letter in the protocol correspondence asserted consideration of the merits, it is quite plain that they did not in the end consider them”.

31.    In this particular case, however, it is not going to be possible to consider the merits of the main appeal relating to the valuations of the properties because if this matter does proceed to a full hearing it will be heard by the Upper Tribunal in accordance with Section 46D of the Taxes Management Act 1970 as mentioned at the beginning of this Decision. All other factors can, however, be considered.

32.    In The Commissioners of Inland Revenue for Judicial Review of a Decision of the General Commissioners of Income Tax (Hugh Love) [2005] CSOH 135, at paragraphs 22 to 24 Lord Drummond-Young said:

“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 section 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 actions 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 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 Section 33(2) of the Taxes Management Act. A third issue is the policy that 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 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 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.”

33.    In R (on the application of Cook) v General Commissioners of Income Tax and another (No 2) [2009] STC 1212 (“Cook No 2”) Dyson LJ (as he then was) agreed, at [18], that the analysis and the judgment of Lord Drummond Young provided valuable guidance as to the correct approach to Section 49 of the Taxes Management Act 1970.

34.    The Tribunal today now applies the facts of this case to the considerations set out by Lord Drummond Young in the Hugh Love case. The Tribunal finds that there is no reasonable excuse for the company not observing the time limits for appeals in this case. They had an imputed awareness, through their agent, of the decisions against which they may have wished to appeal and reasonable diligence by the company and/or its agents could have avoided a late appeal.

35.    Once the excuse has ceased to operate, the company becoming aware of the possibility of an appeal, have matters proceeded with reasonable expedition? The first intimation from Mrs O’Hearne that the company would wish to continue to challenge HMRC decisions and make an appeal was in the letter dated 30.07.2010 and it would seem that the dispute has been treated by the company as a live issue from then until the formal notice of appeal dated 6.10.10.

36.    If a late appeal is allowed to proceed it is unlikely that there will be prejudice to one or other party. Valuations are matters of record and can be done retrospectively.

37.    The public interest requires finality in litigation and other proceedings and it is right to say that matters should be brought to a conclusion within a reasonable time without the possibility of being reopened. There has been a very long delay in this case. Parliament has enacted a time limit for appeals and this should, generally, be respected.

38.    The quality of evidence has probably not been affected by delay because valuations are matters of record.

39.    The Tribunal’s attention has been drawn to the helpful case of David C Pledger v HMRC [2010] UKFTT 342 in which it is observed that the Tribunal has discretion, conferred by Section 49(2) of the Taxes Management Act 1970, as to whether to permit a late appeal. Reference is made to the case of Ogedegbe v HMRC LON/2009/0200 and the comment of the President of the First-Tier Tribunal (Tax Chamber) Sir Steven Oliver who said:

“While this Tribunal has got power to extend time for making an appeal, this will only be granted exceptionally.”

40.    The Tribunal has a general obligation to give effect to the overriding objective, expressed in Rule 2 of the Procedure Rules, to deal with cases fairly and justly when it “exercises any power under these Rules” or “interprets any rule or practice direction” (Rules 2(3)(a) and (b)). This includes “ensuring, so far as practicable, that the parties are able to participate fully in the proceedings” and “avoiding any delay, so far as compatible with proper consideration of the issues” (See Rule 2(2)(c) and (e)). This general obligation must be borne in mind when the Tribunal exercises its case management power under Rule 5 of the Procedure Rules (Rule 2(3)(a)).

41.    Rule 5(3) of the procedure provides:

“(3)….the Tribunal may by direction-

(a)         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;

….”

If the language of Rule 5 were interpreted on its own, the Tribunal would take the view that it had no application in relation to the question of whether permission for a late appeal should be granted - it is headed “Case management powers”, rule 5(1) confers a power on hte Tribunal to “regulate its own procedure” and Rule 5(2) authorises the Tribunal to “give a direction in relation to the conduct or disposal of proceedings”. Rule 5 as a whole therefore appears on its face to be concerned only with how a case is dealt with once an appeal has actually been validly made, rather than whether a late appeal should be allowed to start at all. However Rule 20 of the Procedure Rules (headed “Starting appeal proceedings”) states (emphasis added):

“(1) Where an enactment provides for a person to make or notify an appeal to the Tribunal, the appellant must start proceedings by sending or delivering a notice of appeal to the Tribunal within any time limit imposed by that enactment.

….

(4) If the appellant provides the notice of appeal to the Tribunal later than the time required by paragraph (1) or by an extension of time allowed under rule 5(3)(a) (power to extend time) -

(a) the notice of appeal must include a request for an extension of time and the reason why the notice of appeal was not provided in time; and

(b) unless the Tribunal extends time for the notice of appeal under rule 5(3)(a) (power to extend time) the Tribunal must not admit the notice of appeal.”

The emboldened words clearly indicate an intention on the part of the draftsman that an extension of time for bringing an appeal could be granted under (and only under) the authority of rule 5(3)(a), irrespective of the presence (or indeed absence) of any discretion to extend the time limits contained in the relevant statute.

42.    The position therefore appears to be that the apparent statutory discretion under S49 of the Taxes management Act 1970 to permit notice of appeal to be given out of time (which was amended to its current “wide ranging” form by the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009, which was made on 18.01.2009 and came into force on 01.04.2009) is in legal terms overlaid by the “extension of time” provisions of the Procedure Rules (which were made on 05.02.2009 and also came into force on 01.04.2009) and must be applied in accordance with the overriding objective set out in the Procedure Rules.

43.    In the light of the above, the Tribunal has adopted the approach that its discretion in permitting any part of the present appeal to proceed “out of time” is to be applied purely in line with its obligation under Rule 2(3) of the Procedure Rules to deal with cases “fairly and justly”. In doing so, it has taken into account:

(1)   the guidance given in the case of Ogedegbe (mentioned at [39]);

(2)   the factors listed in Rule 2(2) of the Procedure Rules; and

(3)   (where relevant) the fact that rules at the time  when the decisions were first appealable would have required the Appellant to show a reasonable excuse for the delay in appealing and no unreasonable delay in bringing the appeal after the excuse ceased.

44.    The matters of reasonable excuse for the delay in appealing and unreasonable delay in bringing the appeal after the excuse ceased have been addressed comprehensively above. The Tribunal on this occasion does indeed apply the Procedure Rules and endeavours to ensure, so far as practicable that the parties are able to participate fully in the proceedings. There is, however, a need to avoid delay and the delay in this case has been particularly long (some fifteen months).

45.    The Taxes Management Act 1970 clearly displays a policy of insistence that appeals proceed in a timely manner. This appeal has not been pursued by the company in a timely manner and accordingly the application for leave to appeal out of time is refused.

46.    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.

WDF COVERDALE

TRIBUNAL JUDGE

RELEASE DATE: 25 January 2011