Late tax appeals: what you need to know
Taxpayers have 30 days to appeal a tax demand from HMRC at tribunal based on Maitland ruling but there are some exceptions to the tight deadline, explains Meg Wilson CTA, lead direct tax writer, Croner-i
Meg Wilson, CTA Senior technical writer - tax, Croner-i
When the tribunal considers whether to permit a late appeal or a late notification of an appeal it applies the principles set out in the Upper Tribunal case of Martland. This article looks at what this means in practice and other key cases to be aware of. It also reflects on recent tribunal decisions about late appeals and what we can learn from them.
When a taxpayer wishes to appeal against an HMRC decision they should respond within 30 days. The process for appealing differs depending on whether the decision concerns direct or indirect tax and the impact of the internal review process.
Where a taxpayer makes a late appeal to HMRC in respect of income tax, capital gains tax, stamp duty, stamp duty land tax, stamp duty reserve tax, inheritance tax or annual tax on enveloped dwellings, HMRC have a general discretion to accept the late notice of appeal. In respect of such taxes HMRC are obliged to accept a late notice of appeal where:
• the taxpayer makes a written request for the appeal to be accepted;
• HMRC are satisfied that there was reasonable excuse for not giving the notice before the relevant time limit; and
• HMRC are satisfied that the request was made without unreasonable delay after the reasonable excuse ended.
If HMRC do not agree to an appeal being made late, permission for the late appeal to be admitted can be sought from the tribunal (TMA 1970, s49).
Where a deadline for notifying an appeal to the tribunal is missed, the legislation generally allows for notification to be made late but only if the tribunal gives permission (TMA 1970, s49G(3), 49H(3); VATA 1994, s83G(6) and Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 20(4)).
Although different legislation is in play, the tribunal applies the same principles when it considers whether to permit a late appeal or a late notification of an appeal.
The tribunal decides each late appeal case on the specific circumstances and merits of the case. However, relatively recent case law provides guidance on the process to be followed and the factors to be considered when deciding whether to admit a late appeal.
In the principal case of Martland v R & C Commrs  BTC 525, the Upper Tribunal ruled that when the First Tier Tribunal (FTT) decides whether to use its discretion to permit a late appeal it does not involve a direct application of its overriding objective to deal with cases fairly and justly. That said, the principle embodied in the overriding objective is a broad one and does apply in such cases.
The Upper Tribunal also noted that when the FTT considers applications for permission to appeal out of time, the starting point is that permission should not be granted unless the FTT is satisfied on balance that it should be. In considering that question the Upper Tribunal said the FTT can usefully follow this three-stage process:
(1) establish the length of the delay;
(2) establish the reason (or reasons) for the default; and
(3) evaluate all the circumstances of the case.
If the delay is very short, and therefore likely to be ‘neither serious nor significant’, the FTT ‘is unlikely to need to spend much time on the second and third stages’, although they should still be considered.
The third stage involves a balancing exercise assessing the merits of the reason(s) given for the delay and the prejudice which would be caused to each of the parties by granting or refusing permission. This balancing exercise should consider the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected.
As part of the balancing exercise the FTT can consider any obvious strength or weakness of the applicant’s case; there is obviously much greater prejudice for an applicant to lose the opportunity of putting forward a really strong case than a very weak one. It is important however that this should not descend into a detailed analysis of the underlying merits of the appeal.
In BPP Holdings Ltd v R & C Commrs  BVC 36, the Supreme Court emphasised the importance of compliance with time limits.
In R & C Commrs v Katib  BVC 513, the Upper Tribunal noted the general rule that the failure of a taxpayer’s professional adviser is unlikely to amount to a ‘good reason’ for missing deadlines when considering the second stage of the evaluation required by Martland.
However, when considering the third stage of the evaluation required by Martland, it should be recognised that exceptions to the general rule are possible and that being misled by an adviser is a relevant consideration.
In this case, given the particular importance of respecting statutory time limits, the Upper Tribunal found that neither the taxpayer’s reliance on his accountant nor his own lack of tax experience displaced the general rule that the taxpayer should bear the consequences of his accountant's failings.
In doing so the Upper Tribunal stated that ‘it cannot be the case that a greater degree of adviser incompetence improves one’s chances of an appeal, either by enabling the client to distance himself from the activity or otherwise’.
These tribunal decisions from the last couple of months give a few pointers about how judges reach the decisions they do regarding whether to admit late appeals.
In Guerlain-Desai  TC 08795, the FTT gave permission for a late appeal against an HMRC amendment to a land transaction return. This decision was reached considering in particular that the point of law at stake (whether woodland was used for a residential or non-residential purpose) was arguable and not clear-cut, and the significant amount of tax involved.
In Cranham Sports LLP  TC 08794, the FTT refused a taxpayer’s application for permission to bring a late appeal in respect of an IR35 dispute. Even though HMRC were aware that the taxpayer did not agree with their view of the matter, the taxpayer’s accountant’s failure to realise that an appeal needed to be raised by a particular deadline did not justify admitting the late appeal.
In Uddin and Kazitula Ltd (in liquidation) v R & C Commrs  BTC 513 , the Upper Tribunal upheld decisions of the FTT, refusing to allow appeals to be made out of time.
In doing so the UT decided that when the FTT considers whether to allow an appeal from a company in liquidation to be made late there is no specific obligation for it to take into account the fact the company is in liquidation nor the general issues around insolvency processes.
It also found that the FTT had correctly considered the issue of the taxpayer being misled by his adviser in light of the Katib decision.
In Tolla  TC 08807, the FTT dismissed a taxpayer’s application for permission to make late appeals against various tax assessments and penalty determinations. While the FTT acknowledged this would lead to great hardship for the taxpayer, with him not able to appeal against almost £362,500 of tax and penalties, it found that applying the three-stage process in Martland no other outcome was possible.
In City Plant Ltd  TC 08815, the FTT refused permission for a late appeal, concluding the delay in giving notice of appeal was very serious and significant, there was no reasonable explanation for it, and the passage of time would have made it difficult to collect the necessary evidence meaning the parties would have been prejudiced.
In Horder v R & C Commrs  BTC 515, the Upper Tribunal upheld a decision of the FTT, refusing to allow an appeal to be made late against a notice of requirement to pay security for PAYE and NICs.
This decision was reached even though had the FTT allowed the taxpayer to appeal late he was very likely to have succeeded in his substantive appeal, and by not doing so the taxpayer was likely to be convicted of an offence.
In P.R.B. Trading Ltd  TC 08819, the FTT held that while only one of several appeals in this case was on time, all should be permitted to be heard late given the significant financial prejudice to the appellant and lack of significant prejudice to HMRC, who had given the impression they had continued to consider whether the assessments were correct even after the deadlines for appeal had passed.
To conclude, here are some key points to remember about late appeals and late tribunal notifications.
(1) to avoid relying on HMRC or the tribunal’s discretion to admit a late appeal ensure any appeal is made within the required time limit.
(2) be aware of the differences in procedures between direct and indirect appeals; the impact on deadlines of the internal review process; and the need to submit an appeal if alternative dispute resolution is being requested.
(3) even if discussions are ongoing with HMRC about an appealable decision, or a fully formulated appeal cannot yet be made, a protective appeal should be submitted.
(4) while there is no deadline for applying to the tribunal to admit a late appeal it should be done as soon as possible.
(5) if you are considering making an application for an appeal to be permitted late ensure you consider the case based on the principles set out in Martland.