Successful Case Study: Reduction in penalty in out of time appeal

We advised our client in its VAT assessment dispute, appealing a penalty for our client’s alleged failure to notify HMRC of VAT due, in the sum of £80,355.24. In response to our grounds of appeal disputing the penalty, we successfully obtained a reduction in the penalty of £38,264.24 on the basis that the failure to notify HMRC of the tax due was non-deliberate. If you are seeking advice in relation to a penalty assessment from HMRC or an appeal to the Tribunal, get in touch with our tax team.

Our client instructed accountants to file VAT returns with HMRC. Due to an administrative error, these were not filed and HMRC issued a VAT assessment and a penalty in the sum of £80,355.24 which represented 42% of the assessment sum. The penalty range applied by HMRC will be based on the behaviour of the taxpayer i.e. deliberate failure to notify and the disclosure i.e. prompted or unprompted. In this case, HMRC had decided our client’s failure to notify HMRC of the tax due was deliberate.

When our client realised its accountants had failed to rectify matters or submit an appeal to HMRC in time, they instructed us for legal advice. We submitted an out of time appeal against HMRC’s assessment and penalty.

In response to our appeal, HMRC have reconsidered the penalty charged to our client and reduced this from £80,355.25 to £38,264.24 i.e. a successful reduction of £42,091.

Can I appeal to the Tribunal out of time?

The First Tier Tribunal have the judicial discretion to permit tax appeals made out of time to proceed. The time limit to bring a VAT appeal to the FTT in 30 days and a late appeal will only be permitted in exceptional circumstances.

How do I appeal a penalty?

If a taxpayer disagrees with HMRC, the taxpayer has the following options:

Stage 1: Request a HMRC review: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer.

Stage 2: Appeal to the Tax Tribunal: A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible.

When will the First-tier Tax Tribunal (FTT) allow a late appeal?

A late appeal can be made if the FTT grant permission (VATA 1994, s. 83G(6)). However, case law suggests that permission will only be granted in exceptional circumstances and permission will not be granted unless the FTT is satisfied on balance that it should be allowed using a discretionary balancing exercise (Wan (t/a Wan’s Chinese Takeaway) [1997] BVC 2,364).

Factors the FTT take into account in allowing a late appeal:

1.      The length of the delay in making an appeal

If the delay is very short, then the FTT may consider the breach to be neither “serious nor significant”; however, this is not a carte blanche to allow all short delays to be granted, the following two stages will be considered by the FTT.

If the delay is too long, then the FTT may dismiss any application for an extension of time for appeal. For example the FTT dismissed an appeal made 3 years after the expiry of the 30-day limit (Meah (t/a Raj Dharbar Takeaway) [2014] TC 03829).   

2.      What was the reason for the delay?

The FTT will assess whether there is a reasonable excuse for the delay, for example, where the appellant was not aware that there were grounds for an appeal or before legal advice has been sought.  

3. Was the delay caused by the actions of HMRC?

Many appellants assume that by entering into correspondence with HMRC over the disputed tax liability stops the clock running and submits reasons why the debt is disputed. This does not constitute an appeal and does not stop the clock running. If HMRC fail to respond to the taxpayer or fail to notify the taxpayer that correspondence does not constitute an appeal, may be grounds the FTT takes into account in granting permission for an out of time appeal.

4.      Once the taxpayer is aware of an appeal, did the appeal progress expeditiously?

It is important to progress an out of time appeal as soon as you become aware of it. Every day that is delayed will need to be explained to the FTT. Therefore it is imperative to seek legal advice as soon as possible.

5.      Will there be prejudice to the taxpayer or to HMRC is allowed or refused?

The FTT will take into account all circumstances of the case and will assess whether a late appeal will prejudice HMRC in any way.

6.      Are there public interests considerations if an out of time appeal is allowed or refused?

The FTT might consider a delay of years might be consideration to denying an appeal as it is not in the public interest to allow litigation over a long period of time. The FTT might not allow permission if it affects other proceedings.  Another consideration is whether the length of time has affected the credibility of the evidence available.

Successful hardship application for appeal to proceed without payment of disputed tax

Where a company or an individual has received an assessment from HMRC for payment of tax and this is the subject of an appeal to the First Tier Tax Tribunal, HMRC can request that payment of the assessment be made in full prior to the Tribunal hearing the appeal under section 84 of the VAT Act 1994. It is for the taxpayer to demonstrate that payment of the disputed tax would cause them to suffer financial hardship and each case will be considered on the basis of the facts.

To date, we have been successful in making hardship applications on our clients’ behalf.

HMRC requested information from our client to assess its hardship application within 30 days. We work with our clients to obtain and assess the information requested by HMRC to identify any gaps or weaknesses where HMRC may oppose an application for hardship and we carefully prepare witness evidence in support of an application for hardship, all of which can be prepared on an urgent basis.

In the event HMRC oppose a hardship application, the Tribunal will consider the same therefore it is important to seek legal advice from the outset and carefully prepare evidence in the required form to achieve a successful outcome.

In this case, in light of the information provided and arguments we made on behalf of our client that the company would suffer hardship if required to pay the disputed sums before its appeal was determined, HMRC granted the company’s application.

Expert London HMRC Tax Appeal Lawyers

If you need HMRC Tax Disputes advice, we are available to aid you at every stage of the HMRC appeals process. Members of our legal team have first-hand experience and working knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations, throughout the HMRC internal review process and in front of the Tax Tribunal. Our team specialises in successfully challenging HMRC decisions, submitting out of time appeals, and will assist you in every aspect including developing a strategy.

We are experts in adeptly presenting evidence and employing bespoke arguments combining the facts of your case, previous cases and current legislation to ensure your appeal is a successful one. We provide urgent advice and representation to clients from our unique expert team of established tax and duties specialist solicitors and barristers with a proven track record of delivering authoritative results. Just call us on 0207 1830 529, or email [email protected].