UT/2024/000022 - [2025] UKUT 00309 (TCC)

As regards the relevant legal principles, there is no dispute that the obvious strength of the underlying appeal in respect of which the application to bring a late appeal is something which can properly be taken into account at Stage 3 of Martland (as is clear from [44] et seq of that decision which in turn cited R (oao) Hysaj v SSHD [2014] EWCA Civ 1633, which the FTT referred to at [52])).

It is worth recalling the further guidance the Upper Tribunal in Martland gave at [46] of that decision (also referred to by the FTT at [52]) that in taking account of all relevant factors: “the FTT can have regard to any obvious strength or weakness of the applicant’s case…” noting that “..this goes to the question of prejudice – there is obviously much greater prejudice for an applicant to lose the opportunity of putting forward a really strong case than a very weak one”.

The Upper Tribunal cautioned that “It is important however that this should not descend into a detailed analysis of the underlying merits of the appeal”. The UT quoted from Moore-Bick LJ’s judgment in Hysaj which explained that it was:

“…only in those cases where the court can see without much investigation that the grounds of appeal are either very strong or very weak will the merits have a significant part to play when it comes to balancing the various factors that have to be considered at stage three of the process. In most cases the court should decline to embark on an investigation of the merits and firmly discourage argument directed to them”.

The FTT was thus not required to conduct a detailed merits assessment but to consider whether the merits were obviously strong or obviously weak.

It is true the FTT did not explicitly say it had evaluated the merits of the case. Nevertheless, from the wider context of the decision, the FTT’s self-direction by reference to the extracts from Martland quoting Hysaj, and its summary of the parties’ arguments, we are satisfied the FTT had the issue of merits in mind. It had recorded Mr McNall’s submission at [77] regarding the prejudice of losing the chance to dispute a significant penalty liability and similarly recorded HMRC’s submission at [78] (consistent with the Tribunal’s earlier view at [42]) to the effect the merits were weak insofar as the Appellant had not taken advantage of the various opportunities that HMRC had given to make good his claims about the amounts HMRC sought to charge in penalties.

Therefore, to the extent that there was any error, it was the error of failing to state that the FTT was considering the merits rather than a failure to actually consider those.

In seeking to persuade us that the merits were obviously strong, Mr Bedenham focussed on the need for HMRC to show that the inaccuracy was “deliberate” and the supposed inconsistency between that and HMRC’s stance on tax loss and corrective action. The first point we note is that there was nothing to suggest to us that this point was raised before the FTT. It is not referred to in the application for permission (which refers to HMRC’s agreement as to corrective action and the absence of a tax loss, but does not advance an argument that the inaccuracy was not deliberate) nor in Mr McNall’s skeleton argument or in the FTT’s summary of the arguments; and Ms Goldring, who appeared for HMRC before the FTT, told us that the point was not raised there. Given that the Appellant accepted responsibility for the relevant VAT returns, and accepted that they were inaccurate, if he disputed that the inaccuracy was deliberate he might have been expected to say so. Without the point having been expressly raised, it could only be an error of law for the FTT to fail to deal with it if it leapt from the evidence as an obviously significant point.

The only evidence before the FTT as to the Appellant's state of mind in relation to the Company’s VAT returns was contained in a witness statement made by the Appellant in February 2022 in connection with an application to set aside a statutory demand that had been served on him in relation to the PLN.

In that witness statement the Appellant explains that he had a retail business in his own name which had accounts with suppliers on favourable terms and that he placed orders with them on behalf of the Company but in his own name and using his own VAT number. The Company then paid the suppliers directly, benefiting from the favourable terms. He goes on to say that he believed the Company's tax affairs were in good order and that the VAT assessments and penalty came as a complete surprise to him, and refers to it “subsequently transpiring” that the procedure he had followed was incorrect.

As regards the meaning of the term “deliberate inaccuracy”, Mr Bedenham referred us to the decision of the Supreme Court in HMRC v Tooth [2021] UKSC 17, in which the Court concluded (at [47]) that “for there to be a deliberate inaccuracy in a document … there will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement”. The relevant question is therefore whether Mr Pawar intended to mislead HMRC by claiming input tax on invoices that were in his own name but which he was treating as the Company’s input tax. His witness statement is at best unspecific on this.

The fact that an inaccuracy could be corrected does not preclude it being deliberate. The fact that the inaccuracy could be cured by re-routing the invoicing would not alter the fact that the returns were inaccurate at the time they were made nor exclude the possibility that the Appellant knew this and that the inaccuracy was deliberate.

Moreover, as Ms Goldring pointed out, HMRC made clear they did not accept the evidence in the Appellant’s witness statement. Following receipt of the Appellant’s skeleton argument on 3 January 2023, HMRC had, on 4 January 2023, e-mailed the FTT (copying the Appellant) stating that they did not accept the evidence.

None of the above accordingly points to Mr Pawar having a case that was obviously strong. Much would depend on what the FTT hearing any substantive appeal would make of his evidence. It is difficult however to see how the FTT could have got any further in its analysis than it did, even with detailed investigation, and if it were to do so it would be going against the established case-law guidance not to do precisely that.

There was also, in our view, no error arising in relation to a failure to consider the relevance of HMRC having previously agreed to corrective action.

As discussed above (see [14]) there was no question of the corrective action being directly relevant as it was out of time. While the FTT did not consider corrective action in relation to the merits, it cannot be criticised for failing to do so, as the point was not advanced in that context. The corrective action was put forward to support the Appellant having a good reason for the delay and the FTT clearly addressed that (at [54] and [68]).

As for HMRC’s withdrawal of their defence of the corporation tax penalty appeal, Mr Bedenham fairly and correctly accepted that this could not be relevant to whether the FTT had erred in its decision, as the withdrawal occurred after the FTT’s decision. Mr Bedenham clarified the point was raised in advancing the Appellant’s case in the event the FTT’s decision fell to be remade and we accordingly deal with it in that context.

Moreover to the extent any argument was made that the merits were strong because there was “no tax loss” because input tax could have been claimed then that is undermined not only by the fact the four-year time limit that applied for such corrective action to be taken (which the FTT noted at [17]) had expired but also by the findings that Grant Thornton had identified that there were other reasons underlying the disputed amount in respect of which despite Grant Thornton’s disclosure of further detail had not been backed up by “credible evidence” from HMRC’s point of view. Other sums not within scope of the corrective action were therefore clearly in dispute too and there was nothing to suggest the FTT would have been able to determine, without descending into to the detail, which way that dispute should be resolved.

In summary it cannot be said the merits were obviously strong. There was accordingly nothing to suggest that the FTT erred by failing to consider that the merits were obviously strong and we reject the ground of appeal (Any error in the FTT omitting to state that it had considered the merits, would be plainly immaterial to the outcome and would not be a reason by itself to justify setting aside the FTT Decision).