TC09539 - [2025] UKFTT 00599 (TC)

AHT submit that it was unreasonable for HMRC to fail to provide instructions to their representatives to withdraw the penalty assessment until the arrival of Mr Olatoye at the hearing immediately before he was due to give evidence. They submit that this was a failure promptly to act, it having become clear that the penalty assessment could no longer properly be defended and that it was “doomed to fail”. Promptness is a fact-sensitive question as with all questions of unreasonable behaviour. In this case, given that (i) the hearing was continuing (and time was short such that any reduction in the scope of the issues could have helped the hearing to avoid going part-heard), (ii) my request to HMRC’s counsel to obtain instructions before the beginning of the third day, (iii) the fact the assessment was to penalties (with, AHT says, the inevitable seriousness of the context of criticism of the behaviour of doctors in relation to their practices), HMRC’s actions cannot be seen as prompt. This, AHT submits, is unreasonable behaviour.

AHT submits that a proportionate order is appropriate as it should reflect the relative importance (in monetary terms) of the penalty assessment to the total money at stake in the litigation – even though this underrepresents the wider significance of a penalty with the implications of at least a degree of misconduct compared to a technical dispute about the scope of legislation.

HMRC submit that the witness evidence filed on behalf of AHT made only cursory mention of advice received in 1993 as the basis for their “reasonable excuse”, and HMRC’s skeleton argument states that the documentation had not been properly explained in evidence. The UHY Hacker Young email, they say, was not produced until “after hours” on the working day immediately preceding the commencement of the hearing. Given the paucity of evidence relevant to this issue in the statement of Dr Farjo, HMRC submit that they were obliged to explore the advice received by the AHT in the cross-examination of Dr Farjo.

HMRC submit that notwithstanding the provisional view implicit in my request that they reconsider the penalty decision in light of Dr Farjo’s evidence, it cannot be said that their defence of the penalty appeal was “doomed to fail”. A determination that a reasonable excuse exists involves a careful consideration of all the circumstances of the case, and HMRC were entitled to consider all the evidence (oral and documentary) in assessing the merits of continuing to resist the appeal.

HMRC contrast the circumstances in this case with the circumstances in Generator Power, where new evidence was produced by the appellant at the hearing, and HMRC were given 28 days to consider that evidence. In the circumstances in this appeal, HMRC are criticised for withdrawing the penalty less than 48 hours after I had given an indication that they should consider whether they wished to pursue penalties.

AHT have also made allegations that the decision of HMRC to notify the withdrawal of the penalties only on the morning of the fourth day may have been motivated by (to put it at its mildest) litigation tactics. These allegations are strenuously denied by HMRC. There is no evidence to support any of these allegations, and I have not taken them into account in reaching my decision.