First- tier Tribunal gets tough on costs
A new case, Taylor Made Consulting Ltd v HMRC [2014] TC 04018, has shed light on the circumstances in which the First-tier Tribunal (“FTT”) will grant orders for costs against a taxpayer. The FTT found that the taxpayer and/or its adviser acted unreasonably in bringing and conducting appeal proceedings because they must have known that the appeal had no reasonable prospects of success.
When can the Tribunal award costs?
The issue of costs is very important for a taxpayer who will not want to be penalised if he or she takes an unsuccessful case at the FTT. In brief:-
Rule 10 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 allows the FTT to make an award of costs in these circumstances:-
- Where there are ‘wasted costs,’ essentially where there has been improper, unreasonable or negligent conduct or omission by a representative (whether legal or other);
- Where the tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings. There is no definition of “unreasonably” and therefore its ordinary meaning will be applied;
- Where the case has been allocated to the complex category and the appellant has not opted out of the costs regime.
The facts of this case
HMRC issued an information notice under Finance Act 2008 (FA 2008), schedule 36 para 1 requiring Taylor Made Consulting Ltd, (“Taylor”) to produce documents relating to a remuneration trust. Taylor, however, refused to produce the requested documentation claiming that communications between itself and its advisers, Baxendale Walker, were legally privileged. The claim was roundly rejected by HMRC which relied upon the decision of the Supreme Court in R (on the application of Prudential plc) v Special Commissioner of Income Tax [2013] BTC 45, in which their Lordships held that legal advice privilege does not extend to advice given by non-lawyers. HMRC relied in this respect on the fact that Baxendale Walker was not a firm of lawyers regulated by the Law Society but simply a provider of wealth management services.
TMC appealed against the information tand the FTT issued directions in relation to the application. The directions were only partially complied with, however, by Taylor which then notified HMRC that it has withdrawn its appeal to the Tribunal. HMRC applied for costs on the basis that TMC or its representative had acted unreasonably in bringing and conducting the proceedings.
What is unreasonable?
As stated above, there is no statutory definition and the making of a costs order is a matter of judicial discretion, open to challenge only if it can be demonstrated that the Tribunal, in making the award, has made an irrational decision that no other Tribunal, properly appraised of the facts and the law, would have taken. Previous decisions of the Tribunal have dealt with circumstances where acts or omissions by the parties may be unreasonable and include:-
- Pursuing a hopeless case
- Non-attendance
- Introducing evidence outside the prescribed time limits
- Failing to answer a reasonable request by the other side
- Failing to comply with a case management direction
- Leading unnecessary or futile cross-examination of witnesses
- Failing to withdraw from a case in the face of overwhelming witness evidence and
- Presenting arguments that are substantially different from those deployed in a statement of case or skeleton argument.
The decision of the FTT
HMRC made a number of submissions to support its case, one of which found favour with the FTT, namely that Taylor and/or Baxendale Walker Limited must have known from before Taylor lodged its appeal against the information notice that there were no grounds on which a claim of legal professional privilege could be made and, accordingly, that the appeal had reasonable prospect of success.
Levy and Levy comment
There are times when it proves impossible to bring a matter to a satisfactory settlement and it becomes necessary to take the matter to appeal. Bringing a case to the FTT requires careful preparation and skilled advice throughout the appeals process. The merits of the case, both technical and evidential, need to be carefully considered and any point that is raised must be properly arguable. This case demonstrates that the FTT will punish with a costs order parties who raise points with which have little or no merit.
Levy and Levy – the tax investigations and resolution specialists in London and Tunbridge Wells