HMRC sought to strike out and dismiss the taxpayer’s appeal in Phu Hung Ltd v HMRC  UKFTT 00224 (TC) however the First-tier Tribunal (“FTT“) has ruled against HMRC. The FTT concluded that HMRC was unable to prove that the taxpayer’s appeal over a VAT registration date lacked a reasonable chances of success.
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HMRC’s Decision and PHL’s Appeal
The dispute between Phu Hung Ltd (“PHL“) and HMRC arose when HMRC issued a review decision in August 2021, affirming a previous decision to change the effective date of registration for Value Added Tax (VAT) for PHL. The reviewing officer, in the review decision, took into account the relevant background information, including the discussions between the original officer and PHL’s representative. Initially, PHL registered for VAT in July 2019, with an effective date of 1 May 2019. However, the reviewing officer upheld the decision to modify the effective date of registration to 1 July 2017, based on PHL’s turnover figures that displayed a consistent increase until June 2019, followed by a more significant increase thereafter.
Displeased with HMRC’s decision, PHL chose to file an appeal. In their grounds of appeal, PHL acknowledged that their record-keeping had been insufficient in the past but contested HMRC’s calculation methodology. They proposed an alternative approach that would yield an effective date of registration of 1 August 2018.
HMRC’s Attempt to Strike Out the Appeal
Initially, HMRC applied to the FTT to strike out PHL’s appeal, arguing that PHL had not paid the disputed VAT amount and had not applied for hardship relief. However, HMRC later withdrew the hardship relief issue. They caused a delay in the Tribunal proceedings by taking such action which is a growing and unfair tactic deployed by HMRC Solicitor’s Office litigators.
Subsequently, HMRC claimed that PHL’s grounds of appeal were insufficient and requested directions from the FTT to compel PHL to provide better grounds of appeal. Additionally, HMRC sought an extension of time to file its formal statement of case pleading (perhaps the real reason for the delaying applications?). The FTT rejected HMRC’s application, finding it unnecessary and unwarranted.
Dismissal of HMRC’s Application
The FTT dismissed HMRC’s application to strike out PHL’s appeal. The tribunal concluded that HMRC had failed to demonstrate, on the balance of probabilities, that PHL had no prospects of success in their appeal. Moreover, the FTT highlighted that if PHL could provide evidence supporting their turnover figures, their appeal could potentially succeed. Additionally, as the appeal was still in its early stages and no directions had been issued for the parties to present evidence, HMRC’s application was premature. Alongside dismissing the application, the FTT directed HMRC to promptly file and serve its statement of case.
FTT’s Approach to Strike Out Applications
This decision serves as a reminder of the FTT’s approach when considering strike out applications. The FTT does not conduct a “mini-trial” and places the burden on the applicant to demonstrate that the opposing party has no reasonable prospects of success. In cases where factual determinations and examination of documentary and/or witness evidence are necessary, a strike out application is unlikely to succeed if the proceedings have not advanced sufficiently to allow the parties to present such evidence or at least confirm that no such evidence will be presented.
What does the case highlight?
In the Phu Hung Ltd v HMRC case, HMRC’s attempt to strike out PHL’s appeal failed. The FTT rejected HMRC’s application, emphasising that HMRC had not shown that PHL had no reasonable prospects of success. This decision highlights the importance of evidence and the progression of proceedings in strike out applications. It serves as a valuable precedent for future cases and reminds parties involved in tax disputes to present their evidence adequately to support their claims.
Download the Phu Hung v HMRC Judgment:
Commencing Proceedings at the First Tier Tax Tribunal
To commence proceedings, the Appellant must notify the appeal to the Tax Tribunal. An appellant or their legal representative can appeal to the Tax Tribunal online or fill in a T240 notice of appeal form. Proceedings will commence once the Appellant has sent a notice of appeal to the tribunal within the specific time limits as set out by the particular Act. The First Tier Tribunal Rules 2009 sets out that the notice of appeal must include:
“(a) the name and address of the appellant;
(b) the name and address of the appellant’s representative (if any);
(c) an address where documents for the appellant may be sent or delivered;
(d) details of the decision appealed against;
(e) the result the appellant is seeking; and
(f) the grounds for making the appeal.”
“The appellant must provide with the notice of appeal a copy of any written record of any decision appealed against, and any statement of reasons for that decision, that the appellant has or can reasonably obtain.”
Following this step, the First Tier Tax Tribunal will give notice of the proceedings to HMRC (rule 20(5), FTR 2009). If the notice of appeal is served out of time, a request for an extension of time must be included with the notice (rule 20(4), FTR 2009). The Tax Tribunal has discretion whether to admit late appeal notices by generally considering:
- the purpose of the time limit;
- the length of the delay;
- whether there was a good explanation for the delay; and
- the consequences for the parties of an extension or non-extension of time.
In any event, it is recommended that legal advice is sought as soon as you become involved in a HMRC dispute to prevent a situation where a potential claim becomes time-barred.
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