TC09539 - [2025] UKFTT 00599 (TC)

At an early stage on the first day of the hearing, Mr Rivett made an application to admit into evidence a copy of an email dated 20 June 2007 to Dr Farjo from a partner at AHT’s then accountants, UHY Hacker Young. The email reported on a telephone call between the partner and an HMRC officer who was a policy advisor on social reliefs. The telephone call concerned the extent of the VAT exemption for medical services. The email reported that the officer had confirmed that HMRC adopt a wide interpretation to the definition of medical and surgical treatment in registered hospitals and clinics, and that (apart from beauty procedures using lasers and IPL machines) "the exemption from VAT remained appropriate irrespective of the purpose of the treatment". Mr Millington did not object and we gave our consent to the admission of this email exchange into evidence.

Mr Rivett, rightly, has not suggested that AHT has any legitimate expectation to hold HMRC to the statements made in this email exchange. The information given by UHY Hacker Young to HMRC does not even begin to meet the requirements set out in R v Inland Revenue Commissioners, ex parte MFK Underwriting Agencies Ltd [1990] 1 WLR 1545, and in any event, we do not have jurisdiction to determine questions of legitimate expectation in the circumstances of this appeal. However, the email exchange does go to the issue of whether AHT had a reasonable excuse for its failure to register for VAT, given that the professional advice it received was that its services were VAT exempt.

During the course of the second day of the hearing, we asked Mr Millington to consider with his clients whether they wished to pursue the penalty assessment, and to revert back to us at the commencement of the hearing on the following (third) day. Mr Millington was unable to obtain instructions on this issue overnight, nor over the lunch adjournment on day three. At the end of day three he informed us that HMRC's position had not changed since the start of the hearing – a penalty assessment had been issued, the relevant evidence would need to be heard, and the Tribunal would need to adjudicate on the issue.

We had directed that the hearing should commence on day four at 09:30 – starting with the evidence of Mr Olatoye. The hearing in fact had to start later than 09:30 because Mr Olatoye did not arrive at the hearing centre in sufficient time to clear security before the time the hearing was due to commence. When the hearing commenced, Mr Rivett told us that at 09:28 he had asked whether Mr Millington had received instructions on this issue, and was told that he had not. Only after Mr Olatoye arrived (late) in the court room was Mr Millington able to confirm that HMRC had decided not to pursue the assessment for penalties, and the penalty assessment would be withdrawn. Mr Rivett noted that because of the lateness of the withdrawal, he had had to spend time the previous evening preparing to cross-examine Mr Olatoye in relation to the penalty assessment.

We invite AHT to consider whether it wishes to make an application for costs incurred in consequence of the failure of HMRC to notify its intention to withdraw the penalty assessment until after the commencement of the hearing on day four, and to make submissions on whether HMRC's failure to notify the withdrawal until minutes before Mr Olatoye was due to give evidence constitutes unreasonable conduct for the purposes of Rule 10(1)(b) of the Tribunal’s procedure rules. We draw the attention of the parties to the requirements of Rule 2(4)(b) which requires parties to co-operate  with the Tribunal generally. As regards the procedure to be adopted for any application for costs, we draw the attention of the parties to paragraphs (3) and (4) of Rule 10, and direct that the time limit in paragraph (4) shall be varied to read 28 days after the date on which this decision notice is released.

JUDGE ALEKSANDER: […] in terms of reasonable excuse and mitigation, if the taxpayer took reasonable care in seeking advice as to their liability, maybe that advice was wrong, but it was obtained from what was a competent professional having given full disclosure, that would be a strong indication that they have a reasonable excuse and acted as a prudent and reasonable taxpayer. One of the points I am going to suggest you might want to consider overnight with your clients is in the light of Dr. Farjo's evidence, whether you want to pursue the penalties.

MR. MILLINGTON: Understood.

MR. MILLINGTON: Yes, before calling Mr. Olatoye, the Commissioners have considered the tribunal's position relating to the factual issue and reasonable excuse. The Commissioners will not invite the tribunal to make a determination on the penalty issue and that penalty will be withdrawn in the light of the observation in the factual evidence. I do not intend to dwell on this issue, but if I may at this stage make the following submissions, the Commissioners have been subject to implicit and perhaps latterly explicit criticism for the position this week in respect of the penalty following questions about the factual evidence.

JUDGE ALEKSANDER: Yes.

MR. MILLINGTON: The penalty was issued a number of years ago. It is the appellant's responsibility to demonstrate that there is a reasonable excuse, either to the satisfaction of the Commissioners or the tribunal. The Commissioners, in their skeleton argument, were perfectly entitled to ask the relevance of the document addressed to Hacker Young and how that related to a reasonable excuse. It was not until Friday of last week that the Commissioners were sent an e-mail which placed that letter in context. Judge, you will remember that I did not seek to prevent that document from going before the tribunal.

JUDGE ALEKSANDER: Yes.

MR. MILLINGTON: Mindful, of course, that the tribunal would want all available evidence, particularly in the context of a penalty decision and the effect that that would have on the taxpayer. You expressed some views on the panel's view of the reasonable excuse having heard the evidence of Dr. Farjo on that issue. Since then, the Commissioners have considered their position, but it is unfortunate that the document that explained the relevance of a letter in the bundle was produced so late in the day. To that extent, whilst the Commissioners have now withdrawn the penalty in light of the tribunal's comments on the evidence it has heard, in my submission, any criticism of the Commissioners for the issuing of the penalty and proceeding with this penalty to the tribunal must be seen in light of the late disclosure of that evidence. So, the decision has now been taken, and appropriate persons have been consulted.

JUDGE ALEKSANDER: Thank you. Is there anything you want to say in response to that?

MR. RIVETT: I hesitate to be ungracious, sir, but I am afraid that just in fairness to the number of people who have been up all night, all week, exhausted, stressed, frightened about the future of their business and the context in which this has been answered, and I mean this with no disrespect to my learned friend, he is counsel, he is not his clients, at 28 minutes after nine this morning, so two minutes before this officer, who I have been busily preparing to cross-examine, using my time in a very pressured court week to prepare for the cross-examination, I asked my learned friend, "Can you tell me what the position is on this penalty?" My learned friend, as is his position, said, "I cannot; I do not have instructions on that point." His witness turned up ten minutes late depriving us of yet more time this morning.

JUDGE ALEKSANDER: I understand that that may be due to the slowness of the security.

MR. RIVETT: Everybody gets here early to accommodate that. He was ten minutes late to give evidence to this court. I asked my learned friend. It was clear who was responsible for the lateness of the sitting this morning. Suddenly, the witness appeared and, lo and behold, the penalty was withdrawn. I think, if I may say so, I accept the submissions that are made about the issuance of the penalty, but it is very, very hard to escape the inference that what has been going on and the refusal to answer the very clear question that this court asked HMRC, with the decision-makers in the room, two days ago, not to withdraw this penalty two days ago is some sort gamesmanship. With respect, sir, it is just not appropriate in these circumstances. A clear question was asked two days ago. I am afraid the explanation that my learned friend has given as to why they are willing to withdraw it, in the face of the letter of Friday, which explains his concession, what it does not go anywhere near is meeting why this tribunal was not provided with an answer before I was due to be cross-examining this witness.

JUDGE ALEKSANDER: I do not propose to take further submissions on this point now. What applications are made by parties once we have reached a decision, we will deal with.