TC09568 - [2025] UKFTT 00820 (TC)

In summary, Miss Brown submitted as follows:

The delays in making the appeals both to HMRC and to the tribunal by both appellants are both serious and significant. In the case of Mr Stenhouse, the delay is between 60 months and 33 months. In the case of Mrs Stenhouse, the delay is between 68 months and 45 months.

The appellants have provided no good reasons for these delays. The most significant reason appears to be that they were unable to obtain copies of the bank statements from RBS and were unable to appeal until they had received those bank statements.

However, the requests for information were not limited to the bank statements. They included requests for other information concerning income and expenses which the appellants could readily have provided but which they chose not to.

Furthermore, it is clear that the appellants were able to provide sufficient information to their accountant to enable him to produce their tax returns. Why, therefore, was this information not provided to HMRC. There is no evidence of receipt by HMRC of any spreadsheet having been sent to them by Mr Stenhouse.

Whilst it is wholly understandable that the appellants were concerned about the health of their daughter when she was hospitalised in May 2018, the discovery assessments and penalty notices were issued over a number of years between December 2018 and April 2020. No good reason has been given why there was no response to those, by way of an appeal, during that period.

The notices make clear, in plain English, what the recipient must do if they disagree with the contents of a notice (whether it is a discovery assessment or a penalty notice). The appellants have simply failed to read the notices and make appeals accordingly. There is no justification for the submission that no appeal could be made unless and until the bank statements had been obtained.

In addition, the appellants had clearly been told in the 19 September email that they needed to appeal if they disagreed with the determinations and what to do to make that appeal. That was in 2019.

Furthermore, the bank statements were obtained in June 2022, yet the appeals to HMRC by the appellants’ accountants were not made until December 2023. No reasons have been given for this delay.

The tribunal must give proper force to the position that the need for statutory time limit to be respected as a matter of particular importance. Litigation must be conducted efficiently and at proportionate cost. HMRC would be prejudiced if the application is granted as they would have to divert resources to defend this appeal which they were entitled to consider closed. This would prejudice them and indeed other taxpayers who have made timely appeals. The appellant’s case is obviously weak. They have failed to cooperate with the enquiries or comply with the information notices. The bank statements have not been supplied to HMRC. It is only because of the enforcement action that the appellants have addressed the position.

In summary, the appellants submitted as follows:

They are conscientious taxpayers who have never sought to avoid a tax liability. This is reflected in the fact they have always submitted timely tax returns.

They could not afford the professional fees for representation before the tribunal.

The enquiries into their returns have been closed. No additional tax has been assessed. This shows that HMRC must have been satisfied with the information in those returns.

The bank statements show that there is no tax to pay. It would therefore be a manifest injustice if they were not allowed to proceed with their appeal.

If they were not allowed to appeal, there would clearly be double taxation, something which is reflected in the discovery assessments.

Their daughter’s hospitalisation in May 2018 meant that documents are received during that period were not given due attention. This is perfectly understandable given their domestic position.

They could not appeal unless and until they had the information which proves that there was no tax to pay. For a number of reasons over which they had no control, they did not have this information which was contained in the bank statements, until June 2022. They could not, therefore, have brought an appeal until then.

It is in the interest of justice to allow the application so that the merits of the appeal can be considered. They are not asking for special treatment, just for fairness. If we reject the application, then they will lose everything that they have worked for, and their children will be detrimentally affected.

Following the hearing, the appellants submitted their written speaking notes and closing submissions. They took the opportunity to add to those closing submissions, brief further submissions which they had not made at the hearing. We have disregarded those further submissions when reaching our decision.

We will apply the three stage approach set out in Martland. This is the case for both appellants, against both the discovery assessments and the penalty notices. We remind ourselves that we are exercising judicial discretion, and in that regard, we are subject to the overriding objective in Rule 2 namely to deal with the case fairly and justly.

The appellants did not dispute that the appeals were made very late. This is the case in respect of both appeals against the discovery assessments and against the penalty notices. In the case of Mr Stenhouse, the delays are between 16 and 33 months. In the case of Mrs Stenhouse, the delay is between 68 and 45 months. These are clearly serious and significant delays and we can therefore move on to the second stage, namely to assess the reasons for the failure.

These are straightforward. The appellants submit that they were unable to appeal unless and until they had the bank statements from RBS, since without them they could not dispute HMRC’s figures. In turn, they were unable to obtain these until June 2022 as a result of the change of bank from RBS to TSB, their inability therefore to access their electronic RBS records, and the difficulties which the bank faced in providing paper copies due, in part, to the Covid pandemic. Furthermore, due to their daughter’s hospitalisation in May 2018, documents received on or around that time were not given their due attention.

And so, we proceed to the third stage of the Martland approach, namely to undertake an evaluation of all the circumstances of the case. This requires us to conduct a balancing exercise, assessing the merits of those reasons, with the prejudice which would be caused to both parties by granting or refusing permission. And in undertaking this balancing exercise, we must take into account the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected.

Three further things need to be said. Firstly, we can have regard to any obvious strengths or weaknesses of the appellant’s case. Secondly, the fact that the appellants represented themselves, as they could not afford representation, is not generally something we should take into account. Finally, as was set out in the Upper Tribunal decision in HMRC v BMW Shipping AgentsLtd [2021] UKUT 91 (TCC) (“BMW Shipping Agents”) (albeit in the context of a reinstatement application, but in our view this is of general application when considering an application for permission to bring a late appeal)“… It remains a balancing exercise which invites, among other considerations, a consideration of the nature of the reasons for the breach of direction and the results that would follow if the appeal is, or is not, reinstated”.

We will deal first with the applications for permission to bring late appeals against the discovery assessments. We will then consider the applications in respect of the penalty notices.

It is abundantly clear that the discovery assessments spelt out, in words of one syllable, precisely what a recipient needs to do if they disagreed with the assessment. They need to write to HMRC within 30 days of receiving the assessment. No satisfactory explanation was given by the appellants as to why they did not follow these plain English instructions. There was some suggestion by Mr Stenhouse that he thought that there must have been a form to complete which he could not find. We do not give any weight to this assertion. No tax expertise or experience is required to interpret what HMRC tell a taxpayer to do if they disagree with the assessment. A simple letter would suffice.

Furthermore, when they receive these discovery assessments, the appellants were still instructing their accountants to complete their tax returns. We appreciate that it is an expensive exercise for the appellants to have instructed professionals to represent them at the hearing. But they, very wisely, paid a professional accountant to ensure they complied with their obligations to complete accurate and timely tax returns. It would have been the work of a moment to have contacted their retained accountant and asked them what to do. Again, no satisfactory explanation (indeed no explanation at all) was given by either of the appellants as to why they did not do this. There is no evidence that they went on to HMRC’s website to seek further information about what to do.

And this was not the only information the appellants were given concerning how and when they should make an appeal. In September 2019, in the 19 September email, it was also spelt out to them that the assessments would stand if they were not appealed and what to do in order to make an appeal.

The reason given by the appellants as to why they did not make an appeal was because, in their view, they could not do so without the relevant financial information which would have enabled them to contradict HMRC’s figures. And this was not available to them until the hard copy bank statements were obtained from RBS in June 2022.

However, as cogently observed by Miss Brown, the appellants appeared to be in a position to provide their accountants with financial information relating to, in the case of Mrs Stenhouse tax years 2015/2016, 2016/2017 and 2018/2019, and in respect of Mr Stenhouse 2016/2017 and 2018/2019. In respect of these earlier years, they were still banking with RBS. So, if they were able to provide the information to their accountants, why were they not able to provide it to HMRC. Mr Stenhouse answered this by saying that he had thought that he had sent a copy of his spreadsheet, which he sent to his accountant, to HMRC at the same time as he sent an email to HMRC on 3 July 2018. But we had no corroboration of this, and HMRC had not received it. We are pretty certain that had they done so, they would have acted upon it. We reject his assertion and find that the spreadsheet was not sent to HMRC.

We do not know why Mr Stenhouse thought that he could not make an appeal unless and until he had the bank statements. We accept that it was an honestly held belief. But in the face of the information that was available to him from both his accountant and HMRC, we do not consider this to be reasonable. It is not a “good” reason for having failed to bring the appeals in time and does not weigh heavily in his favour in the balance at this final evaluation stage.

Weighing against him too, and indeed against Mrs Stenhouse, is the fact that the appeals were brought very late.

However, we can consider any obvious strengths and weaknesses of the appellants’ position. And there are three of these. Firstly, HMRC have the legal and evidential burden of establishing that they have made a valid discovery assessment, and no evidence has been provided, other than the discovery assessments themselves, that an HMRC officer made a valid subjective and objective discovery. Secondly, given that the appellants submitted returns and HMRC are relying on the extended time of six years for four of the discovery assessments, they must show that the appellants have acted carelessly, and no prima facie evidence of carelessness has been provided to us. Finally, there has been no serious challenge to the way in which the appellants described to us the way in which Mr Stenhouse and his partner ran their business, which was reflected in previous returns submitted by Mrs Stenhouse which demonstrated that she was not liable to tax on the profits generated by the business carried on by her husband and his partner. So the discovery assessments on her clearly overtax her.

We have not needed to undertake any sort of detailed forensic analysis. These are obvious strengths and weaknesses.

It is clear from the discovery assessments that these were issued on a protective basis as HMRC were running out of time. They were issued very close to the four and 6 year deadlines and make clear that it was too late to amend the appellants tax returns hence the reason why they were issuing the assessments.

Although this was not submitted to us by Miss Brown, we are aware of the presumption of regularity (in simple terms, an HMRC officer is presumed to have acted regularly and properly in making a discovery). But we also take judicial notice of the fact that many discovery assessments are successfully challenged on the basis that the officer did not make an objectively reasonable discovery. Given that; the burden of establishing the discovery rests with HMRC, the fact that the discovery assessments were made at the very last minute, and that HMRC appeared to accept that they had very little information to go on when closing the appellants enquiries, as the appellants had provided little relevant information, there is sufficient obvious evidence to neutralise the presumption.

It is clear too, from Mullens v HMRC [2023] UKUT 00244 that when alleging carelessness, as HMRC must do in order to make good a discovery in the first place (when a taxpayer has submitted a tax return) and to benefit from the extended 6 year time period, HMRC must provide some prima facie evidence of that carelessness. The burden of proving carelessness rests with them, even though it is a matter objective fact, determinable by the tribunal, as to whether a taxpayer has indeed been careless.

The discovery assessments make no mention of carelessness. We were provided with no evidence justifying why HMRC considered the appellants to have behaved carelessly when submitting their tax returns. This is a considerable weakness in HMRC’s case. It may well be that they have some evidence but it was not provided to us. Again, we take judicial notice that it is reasonably common that when HMRC issue a discovery assessment relying on an extended time limit they will, at the same time, either in the same letter, or a covering letter, explain why they are alleging carelessness against a taxpayer. No evidence that this was provided to the taxpayers has been provided in this case. There is no evidence that HMRC have issued penalties for careless inaccuracies in the appellants’ tax returns.

These are obvious weaknesses in HMRC’s case.

There is also an obvious strength in the appellant’s assertion that Mrs Stenhouse should not be taxed and there is effective double taxation by dint of the fact that the discovery assessments tax her, and Mr Stenhouse, on the same income.

As mentioned above, no serious challenge to the appellants’ business model was made either in correspondence, or at the hearing, by HMRC. They appear to accept the way in which the appellants have dealt with the distinction between legal ownership of the properties on the one hand, and the beneficial right of Mr Stenhouse and his partner to the profits generated by those properties on the other.

And indeed, the appellants had submitted tax returns for a number of years on this basis which were accepted by HMRC (we accept that some were enquired into and closed without amendment on the basis of a lack of information).

So HMRC appear, in the past, to have accepted that Mrs Stenhouse had no beneficial interest in the business profits. And no suggestion was made, either at the hearing or in correspondence with HMRC, to justify why they thought she had a beneficial interest in those business profits.

In light of this it seems that the discovery assessments, on their face, significantly overcharge Mrs Stenhouse. This requires no detailed forensic analysis. It is simply an obvious deduction from the facts, which appear to have been accepted by HMRC, concerning the way in which the property business was organised.

The position is extremely finely balanced. On the one hand we have significant and serious delays and a disregard for time limits which were clearly explained to the appellants, without, frankly, a good reason for that disregard. And particular importance must be given for litigation to be conducted efficiently, and for statutory time limits to be respected. On the other hand, we can take into account obvious strengths and weaknesses, and that it remains a balancing act, in which we can take into account the consequences of rejecting the applications.

We have reached the conclusion that the obvious strengths and weaknesses outweigh (but only just) the delays and reasons given for them.

We therefore grant permission for the appellants to bring their appeals against discovery assessments out of time.

We now turn to the penalty notices. The position here is very different. The delays are serious and significant, and the reasons are poor. Whilst we accept that the appellants were finding it difficult to obtain the RBS statements, we can see no reason why these were required in order to challenge the penalty notices, which were not tax geared, and arose from the failure by the appellants to provide information which had been sought, by statutory information notices, on a number of occasions. Furthermore, whilst some of the information related to the provision of bank statements, much of the information requested did not. The information notices asked, for example, for details of rents rates and property repairs and copies of invoices. This information appears to have been provided to the appellants accountants as they relate to years in which the appellants had filed tax returns. Yet no reason was given as to why it could not be provided to HMRC.

We, like HMRC, are sympathetic to the plight of their daughter, but this was for a limited time in May 2018 and the penalty notices were issued between December 2018 and May 2019.

There are no obvious weaknesses to HMRC’s position as there were in the case of the discovery assessments. There are no obvious strengths to the appellants’ position.

The balance of prejudice, therefore, weighs very heavily in rejecting the appellants’ applications for permission to bring their appeals against the penalty notices out of time, and we do not give them permission to do so.