Tribunal Allows Taxpayers’ Appeal Against HMRC’s Excessive Delay

In the case of Clive Kingdon & Ors v HMRC [2022] UKFTT 407 (TC), the First-tier Tribunal (FTT) allowed the appeals of taxpayers against discovery determinations and penalties imposed by HMRC. The case centered around the company’s acquisition of a partnership business that occurred earlier than when HMRC believed it did.

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History between Rota Rod and HMRC

The case involved income tax and was brought to the attention of the FTT in 2022. In 1993, three individuals, Clive Kingdon, Terry Stead, and Anne Kingdom established a partnership called Rota Rod. The following year, the partnership engaged the services of Christopher Lunn & Co (CLC) to act as its accountants. In 2003, the three individuals incorporated Rota Environmental Services Ltd (the Company) and transferred the partnership business to the company on the advice of CLC.

The Partnership’s return for 2005/2006 was amended by HMRC to reflect additional income earned by the partnership in that tax year. The taxpayers argued that the transfer of the partnership business to the company took place either on March 31, 2005 or April 1, 2005. Therefore, there was no partnership income for the 2005/06 tax year. However, HMRC believed that the transfer took place on August 2, 2005 and that the partnership’s profits between April 6, 2005 and August 1, 2005 should have been returned on the partnership’s return for that year. HMRC also imposed penalties on the taxpayers.

Delay caused by HMRC

The FTT remarked that in this instance, HMRC had excessively delayed the process. For instance, when the Company’s accountants wrote to HMRC in 2011, they did not hear back in a meaningful way until almost 7 years later, in February 2018. The Appellants’ oral testimony was of little use to the FTT because to the lengthy delay, and the documentation evidence was essentially nonexistent. 

The FTT stated that the Appellants were unable to recall all the specifics of the transfer due to the delay caused by HMRC, and as a result, were denied a fair trial. The documents that the Appellants used to support the earlier date of transfer were more recent than those that HMRC used. Therefore, such evidence was preferred to the HMRC-cited evidence. 

What did the FTT decide?

The FTT ultimately allowed the appeals of the taxpayers. The taxpayers submitted that the transfer of the partnership’s business took place in March/April 2005, while HMRC claimed it took place in August 2005. The FTT noted that there had been a significant delay on the part of HMRC in this case, which prevented the taxpayers from having a fair trial. The documents relied on by the taxpayers to demonstrate the earlier date of transfer were more contemporaneous than those relied on by HMRC and were therefore preferred. The FTT concluded that it was more likely than not that the transfer took place in March/April 2005.

Issues around delay and abuse of process have recently been revisited in the FTT. In this case, the FTT confirmed that it has jurisdiction to consider an argument of abuse of process on the basis of delay by HMRC. This decision may prompt other taxpayers to rely on such an argument in appropriate cases.

Download The Judgement here

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