[2011] UKFTT 277 (TC)

TC01139

Appeal number:TC/2010/01160

Leave to appeal out of time -- section 49 Taxes Management Act 1970 -- factors to be taken into consideration -- leave to appeal granted

FIRST-TIER TRIBUNAL

TAX

PYTCHLEY LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: GUY BRANNAN (TRIBUNAL JUDGE)

NICHOLAS DEE

Sitting in public at Audit House, London EC4 on 15 April 2011

 Michael Kinder of Wilkins Kennedy for the Appellant

Jonathan Davis, Presenting Officer, HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

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.

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:

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:

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.

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:

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:

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.