Appeal out of time – Correct approach
O'Flaherty v Revenue and Customs Commissioners: Upper Tribunal (Tax and Chancery Chamber): 4 April 2013
The taxpayer was at the material time the proprietor of a pub and hotel in Liverpool, which he ran as a sole trader. The pub business commenced in 2003 and the hotel business in 2004. He had engaged an accountant, J, who had provided certain services to the businesses until around June 2009. In October 2008, the businesses were the subject of an employment compliance review by the Revenue and Customs Commissioners (the Revenue).
It was found that the taxpayer had failed to obtain certain required information and documentation when engaging staff as required by the Income Tax (Pay As You Earn) Regulations 2003, SI 2003/2682. Consequently, the Revenue issued two notices of assessment to the taxpayer in respect of the pub business and the hotel business respectively. In each case, the notices referred to the requirement that an appeal be made within 30 days of the date of issue of the assessment.
The issue of each of those assessments had been preceded by letters from the Revenue to the taxpayer's then accountants, S & Co, on 18 May 2009 and 17 July 2009. Those letters in each case had informed S & Co that the Revenue intended to issue assessments in respect of PAYE. Following receipt of those letters, S & Co wrote to the taxpayer informing him that it was unable to answer the queries raised by the Revenue as it had not acted for the Revenue at the relevant time. On 10 August 2009, S & Co wrote to the Revenue in relation to the assessment in respect of the pub business.
The letter referred, inter alia, to the inability of the taxpayer to obtain the relevant documents from J. The Revenue wrote to the taxpayer in relation to the pub business informing him that in the absence of an appeal the pub assessments would be treated as final and conclusive, and would be referred to the collector of taxes for collection. A similar letter was sent to the taxpayer on 17 September 2009 in respect of the hotel business. In each case, the letter advised that, if a late appeal was to be considered, full information should accompany the late appeal, together with the grounds 'surrounding' the late appeal.
On 26 October 2010 a statutory demand was made to the taxpayer in respect of unpaid amounts of tax. S & Co corresponded with the Revenue, requesting that the demand be set aside or postponed, explaining that the business had ceased trading on 31 December 2007, and that it had been unable to provide the information to the inspectors as the matter had been dealt with by the taxpayer's previous accountants. S & Co further submitted a late appeal to the Revenue and requested a review of the case. By letter dated 22 July 2011, the Revenue informed S & Co that it could not accept a late appeal. The taxpayer applied to the First-tier Tribunal (Tax Chamber) (FTT) for permission to make a late appeal. Following dismissal of his application, he appealed to the Upper Tribunal (Tax and Chancery Chamber).
It fell to be determined whether the FTT had correctly identified the approach to be adopted on an application for permission to appeal out of time. Consideration was given to section 49 of the Taxes Management Act 1970 (the 1970 act). The appeal would be allowed. The power to permit a late appeal had been conferred on the FTT by statute, namely section 49 of the 1970 act. It was well established that on an application of that nature, the FTT should consider all material factors, including the reasons for the delay, whether there would be prejudice to the Revenue if the taxpayer was permitted to appeal out of time, and whether there would be demonstrable injustice to the taxpayer if permission was not given.
The FTT should conduct a balancing exercise in reaching its conclusion whether to grant permission for the late appeal or not. The approach to be followed was essentially the same as the approach to be followed in relation to an application for an extension of time. As a general rule, the court or tribunal should ask itself the following questions: (1) what was the purpose of the time limit; (2) how long the delay had been; (3) whether there was a good explanation for the delay; (4) what the consequences for the parties of an extension of time would be; and (5) what the consequences for the parties of a refusal to extend time would be. The court or tribunal should then make its decision in the light of the answers to those questions (see - of the judgment).
It was apparent from an examination of its individual findings that the FTT had directed its attention almost exclusively to the question whether the taxpayer had had a reasonable excuse for failing to make an appeal within the proper time limits. It had done so because it had perceived that to be the correct question as a matter of law. In so doing the FTT had been in error. The FTT should have approached the issue as one of discretion. It should have conducted a balancing exercise, having taken into account all the relevant factors and circumstances. Those factors should have included the arguable merits of the taxpayer's case.
The focus given by the FTT to the question of reasonable excuse had had the result that the submissions on merits had been ignored by it. It should have considered the submissions of S as to the merits. It had not needed to reach any conclusion on the taxpayer's substantive case, but it had needed to consider whether that case had had any arguable merit, in order that that factor could be taken into account as part of the balancing exercise. It had failed to do so because it had adopted an erroneous view of the proper approach to be taken in law (see , ,  of the judgment). The matter would be remitted to a new panel of the FTT for the parties to present their respective cases afresh (see  of the judgment).
Data Select Ltd v Revenue and Customs Comrs  SWTI 2185 applied; R (on the application of Browallia Cal Ltd) v General Commissioners of Income Tax  SWTI 2220 considered; R (on the application of Cook) v General Commissioners of Income Tax  SWTI 258 considered; Fattal v Walbrook Trustee (Jersey) Ltd  All ER (D) 109 (May) considered; Ogedegbe v Revenue and Customs Comrs  SWTI 798 considered.