In the case in question, HMRC alleged that company sales had been supressed and issued tax assessments and penalties in the region of half a million pounds. Shortly after the tax assessments were issued, the company went into liquidation.
This presented an obvious issue in the company meeting the strict 30-day deadline in which to submit appeals against the assessments. The appeals were in fact submitted over 16 months late after the director finally secured permission for conduct of the appeal from the liquidator after providing a suitable indemnity.
While HMRC has the discretion to accept a late appeal, in this case, it refused.
An application was therefore made to the First Tier Tribunal (FTT) asking for a direction that HMRC consider the late appeal. A three-stage approach in considering the application was adopted by the FTT as follows:
The FTT denied the application on the basis that insufficient evidence was presented by the parties concerning the reasons the company had not appealed in a more timely fashion.
An application was made to appeal the decision to the Upper Tribunal (UT). The Appellant argued that the FTT failed to consider the practical realities and consequences that arise when a company is put into liquidation, which led to an unjust result.
Examples of the considerations that ought to have been made by the FTT were raised at the UT, and included:
The Appellants stated that being able to work through the above in a 30-day window was “vanishingly slight”.
This is a sympathetic position for Insolvency Practitioners to be in. Nonetheless, the Upper Tribunal rejected the appeal, noting that:
The main reason the Appellant failed is that insufficient evidence was presented at the FTT which is the fact finding tribunal, hence the place where all of the relevant facts should be heard. While plenty of delays could have occurred for the generic reasons listed, the Appellant did not adequately describe the particular facts and circumstances that delayed the appeals in the case in question at the relevant time. The UT commented:
The UT therefore ruled that the FTT did not make a mistake in failing to consider the particular circumstances of companies in liquidation more generally.
In a liquidation a director’s powers cease and a liquidator takes on a director’s powers. Accordingly, a liquidator needs time to fully understand the affairs of a company and what comprises its assets and liabilities. In many instances, the recoverable value of assets cannot be immediately quantified, with assets coming to light sometime after an appointment, potentially requiring lengthy litigation, that may determine whether a distribution to creditors is paid, or not. It would be remiss of a liquidator to incur costs to review the claims of different classes of creditor (including HMRC) if it is unclear whether a distribution will be made to them. Doing so would reduce funds held for the benefit of creditors.
The 30-day timeframe is restrictively short as a liquidator is often without cash to pay the costs of seeking specialist tax advice to establish the grounds of an appeal or to enter into a “protective” appeals process. In this case the claim was assigned to a director by the liquidator and the majority of professional costs would have been incurred by them. If the appeal had been taken by a liquidator, this would be preceded by a period of review and the instruction of specialist tax accountants and tax solicitors. Each of those professionals would require payment. On paper, there is mileage in making an appeal to prevent the need to expend additional funds on multiple hearings and make a late appeal, but can the costs be covered, and can those costs be justified at an early stage of the liquidation process?
The Upper Tribunal stated that legislators would have created a carve out for liquidators. This assumes that those drafting the legislation considered the implication of the time limit at that stage. Is it not a duty of the Tribunal process to create balance where there is imbalance?
One thing is certain for cases that are destined for the tribunal, it is of vital importance to submit all the relevant facts and evidence at the appropriate time, otherwise there is no second bite of the cherry. This case emphasises the need for facts specific to the particular taxpayer and circumstances to be presented at an early stage rather than seeking to rely on delays for generic (albeit practical) reasons and underlines the importance of seeking appropriate advice.
If you would like to discuss any of the above, please contact our Tax Resolutions or Recovery Solutions teams.
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