Late assessment appeals – the takeaway from the Tribunal
The facts
The Appellant had made an application for an appeal against (a) a VAT assessment and (b) an income tax assessment (and associated penalties) to be made out of time. In this respect, s.83G (6) VAT Act 1994 permits an appeal to be made outside the 30-day period if the Tribunal gives permission. (There is an equivalent provision for appeals against an income tax assessment). The dates of the assessments in respect of which permission to appeal out of time was sought were (a) VAT assessment – 11 February 2019, and (b) income tax assessment – 5 June 2019.
The Martland/Data Select Criteria
Following the guidance of the Upper Tribunal in William Martland V HMRC [2018] UK UT 0178 (TCC) (“Martland”), the Tribunal is expected to follow a three-step approach which involves a consideration of the 5 issues identified Data Select v HMRC [2012] UKUT 187(TCC) (“Data Select”). The five considerations identified in Data Select that may be taken into account in considering an application to the Tribunal to depart from the time limits prescribed by Statute are as follows:
(1) What is the purpose of the time limit imposed by statute?
(2) How long was the delay?
(3) Is there a good explanation for the delay?
(4) What will be the consequences for the parties of an extension out of time?
(5) What will be the consequences for the parties of a refusal to extend time?
The Upper Tribunal in Martland reduced the stages of the decision making to three, but all of the factors identified in Data Select are considered within the three stages. The stages are:
(1) Establish the length of the delay
(2) Establish the reasons for the delay
(3) Evaluate all the circumstances of the case, which will involve a balancing exercise
that will essentially assess the merits of the reasons given for the delay against the
prejudice which would be caused to both parties by granting or refusing permission.
The Appellant
The Appellant was of Chinese origin and spoke only Mandarin. He had no understanding of the meaning of terms like “sole trader” and of the difference between him conducting his business, and him doing so through a company.
The facts
The Appellant bought a take-away restaurant in June 2016. He engaged a solicitor, who spoke Mandarin ,and received letters from his solicitor which had passages in English and Mandarin. Regrettably, the letter informing him that he was required to register for VAT as the transaction was a transfer of business as a going concern, did not contain the necessary passage in Mandarin. The restaurant was not successful ad its turnover was significantly below that of the previous proprietor.
The Appellant received an unannounced visit just before cashing up time one evening shortly before 14 March 2017. The Appellant’s witness statement referred to this visit and the correspondence from HMRC that followed the unannounced visit also referred to the visit and the hospitality the staff had offered to the officers of HMRC. At the hearing, the officer of HMRC said, however, that there had never been such a visit. The Tribunal recorded that this was the first denial that there had been such a visit. There was no denial in the correspondence between the parties and found that on balance, there had been an unannounced visit, and HMRC failed to make a record or the record could no longer be found.
Following the unannounced visit, HMRC commenced an enquiry and made a prearranged visit to the take-away restaurant on 24 April 2017. Mr. Mughal, the officer of HMRC, attended and requested a number of documents. Again, a member of kitchen staff at the restaurant had acted as unofficial interpreter.
The Appellant appointed a local firm of accountants, Nathanial Consultancy Ltd (“NCL”). A Mandarin speaker called Zoe had originally been assigned to the case. On 24 April 2017, NCL sent form 64-8 to HMRC. On 5 May 2017 HMRC sent a letter to NCL confirming their request for documents. Between May 2017 and 22 February 2019 HMRC corresponded with NCL. Regrettably, Zoe had departed to go on maternity leave and she was succeeded by another lady and then by Shawn. The Appellant received copies of the letters from HMRC and simply took them unopened to NCL. On each visit NCL’s representative assured the Appellant all was in order. The Appellant was unaware that NCL had failed to provide to HMRC the documents that he had provided NCL. In consequence, HMRC raised income tax and best estimate VAT assessments based upon the turnover of the former owner of the takeaway restaurant. This was so, notwithstanding that NCL had invited HMRC to provide best judgment assessments based upon the actual records provided to HMRC.
The Appellant became aware of the situation when he opened the 22 February 2019 letter from HMRC. Although he could not read the text, he could understand the numbers and alarmed at the size of them he confronted NCL but was unable to obtain satisfaction.
The Appellant then appointed Cheung Associates as his agent. On 13 May 2018 Cheung sent to HMRC Form 68-4 and a letter asking for copies of the correspondence and documents as NCL had failed to return them to the Appellant. HMRC replied a month later, on 13 June. They advised Cheung that the enquiry was closed. This seems to have exhausted Cheung’s capability to handle the enquiry.
The Appellant lost no time in finding another agent. On 1 July, the Appellant appointed Mr Nong of EC Accountants Limited (“EC”) as his agent and on 5 July 2019 EC wrote to HMRC seeking information and documents from HMRC, having failed to secure copies of them from NCL. Mr Nong is a Mandarin speaker and accountant but he has no experience of handling tax appeals.
Unknown to the Appellant, on 12 July 2019 HMRC had raised income tax assessments and sent them to NCL, the former agent. EC wrote to Ms McClosky (who was handling the income tax aspects of the enquiry for HMRC) on 5 August 2019 indicating they had not had a reply to their letter of 5 July and stating that they were assisting the Appellant to “finalise the case and fulfil his taxpayer’s responsibility”. EC wrote and called HMRC three times before HMRC responded on 4 September with some of the earlier correspondence as requested. EC specifically queried the amount of the liability on 12 September 2019 and, after a further chaser, Mr Mughal replied on 7 October providing the VAT assessment dated 11 February 2019 and the income tax assessment dated 12 July 2019. )On 22 October 2019 EC wrote to HMRC contesting the calculations in relation to income tax and in relation to VAT. Miss McClosky replied on 30 October. She said she has “stood over all of the tax charged under the self-assessment” and indicated that she was waiting for her colleague Mr Mughal regarding any amendment to the assessable figure. From this, Mr Nong of EC believed the issues of quantum were to be dealt with by Mr Mughal. Correspondence in relation to both income tax and VAT were dealt with using the same case reference number CFS-1358677.
Mr Mughal of HMRC replied on 7 November after having been chased and indicated he was in the process of reopening the case and which he expected would be completed in one week when he would be able to give a detailed response. Detailed exchanges then took place between EC and Mr Mughal of HMRC. A personal statement was obtained from the Appellant who explained the situation. HMRC wished to have a meeting with the Appellant. EC managed to obtain some of the books and records that had been given to NCL and provided them to HMRC on 7 January 2020. EC chased on 11 February to ensure they had been received. HMRC replied on 11 February indicating that he had received the books and records sent but there were no bank statements and no details of employees. EC responded on 14 February 2020 that the business did not have a bank account and operated on a cash basis as the records show- all bills including rent and services charges were paid in cash at a bank directly into the supplier’s account. It was also explained the employee records had been sent to NCL and that they had not yet been able to retrieve them. It was explained that there had been a high turnover of staff and frequently friends of the Appellant had to come to the restaurant to help out.
On 3 March 2020 Mr Mughal responded to EC indicating that he did not intend to reopen the case. The business records were, he claimed incomplete. He indicated that the Appellant would need to apply for permission to appeal out of time and after that is granted there were various options on how to proceed. A link was attached for more information together with formal document of appeal. (20)EC applied to the Tribunal for permission to make a late appeal on 17 April 2020. They were unaware of the time limitations. None were referred to in Mr Mughal’s email of 3 March
The Tribunal’s decision
The Tribunal recorded that there were two disputed periods; the first period was from 24 March 2019 to 5 July 2019, a period of two and a half months as HMRC had taken a month to reply to a letter to it of 13 May 2019. The second period was from 4 March 2020 to 17 April, a period of 44 days.
In terms of the language barrier and the first period, the Tribunal stated:
‘In my view, the Appellant was particularly vulnerable being a Mandarin speaker who is unable to read, write or speak English. He is totally dependent on his advisors. The pool of advisors is necessarily limited to those that speak Mandarin. Unlike local authorities, HMRC do not publish their guidance or their letters in foreign languages not even the most important letters. The Appellant sought recommendations of Mandarin speaking advisors, and appointed and appropriately remunerated Mandarin speaking advisors to assist him on every aspect. The VAT issue arose because although he had found an English lawyer that spoke Mandarin to handle his property purchase and the lawyer produced letters in English with Mandarin translations, the aspect dealing with VAT, the lease being acquired as a business as a going concern and the need to register for VAT had not been translated into Mandarin. The Appellant sought and followed recommendations. It is difficult to see what more the Appellant could have done to enable him to comply with his obligations and prevent the issue arising in the first place…..
There is a clear explanation of the cause of the delay. It stems from the Appellant’s vulnerability as a non-English Mandarin speaking individual. He took all reasonable steps to level the playing field by the appointment of Mandarin speaking professional advisers but was incapable of ascertaining that the enquiry was not being handled effectively until it was too late. He took steps to appoint another adviser on 13 May 2019. Regrettably, Cheung seem to have been defeated by HMRC’s letter of 13 June advising them the enquiry was closed. CE were appointed on 1 July 2019 and they were undeterred. Their determination paid off. They obtained the documents HMRC had received from NCL and obtained and provided to HMRC all the documents the Appellant had given to NCL other than the PAYE records.’
In terms of the second period, the Tribunal stated:
‘The second period is from 4 March 2020 to 17 April 2020, a period of 44 days. HMRC’s letter of 3 March included a link to HMRC’s guidance on appeals which CE failed to review. HMRC say there is no valid reason for the delay. CE say the 3 March letter did not mention any time limit, CE are not tax advisers and as they had not previously conducted a tax appeal they were unaware of the need to file the notice with any particular time frame. It seems to me that this failure arose from the lack of a pool of appropriately qualified tax accountants who are Mandarin speakers. The need for a Mandarin speaker was at the heart of the problem. It is clear CE are diligent. They were pursuing HMRC vigorously from 5 July to 3 March. It was not lassitude that caused the delay. They would in any event have to take time to prepare the notice of appeal. The statute would have provided them 30 days. That leaves a delay of 14 days.’
The Tribunal concluded:
‘HMRC consider that if permission is not refused, they will have to divert resources from I recognise HMRC’s resources are finite, and resources used in this case cannot at the same time be deployed in handling another appeal. But this is not a case which went cold and where the appeal came out of the blue which would cause HMRC difficulties and expense. HMRC staff are very much aware of the facts and issues. To defend an appeal of this nature will not involve delving into historical files of which no officer has any knowledge, nor will it demand significant resource. HMRC’s team will not suffer prejudice. handling other appeals and enquires to handling this appeal. That is not in the public interest…..Rigid adherence to a 30-day period could result in public interest not being served. The Tribunal has been given permission by Parliament to allow appeals to be notified out of time to avoid this situation arising……
Taking all the above into consideration, the balance of the public interest lies, in this case, in allowing the late appeals against the VAT and income tax assessments because there was nothing more the Appellant could have done to prevent the delays arising, HMRC’s communications were in English. All the Appellant could do was appoint a Mandarin speaking advisor from the small pool available. The acts of an advisor ought not to be attributed to the Appellant in this case. It is in the public interest, in this case, that I exercise the discretion and allow the late appeal.’
Conclusion
Although the fact pattern of this case is perhaps unusual, in that the taxpayer was a Mandarin speaker only, the key theme is that at all times he acted promptly and with integrity in trying to sort out his tax affairs. He was also able to point to the fact that his previous advisers had, on occasions, let him down. It was these two points that persuaded the Tribunal to uphold his appeal. The threshold for making a successful late appeal is, therefore, quite a high one for a taxpayer to cross, but the appellant managed it on this occasion.
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