HMRC attempted to avoid payment of costs following a loss in the FTT. But after a five round hearing that reached the High Court, was it really worth the effort?
In July, HMRC v R Gardiner and others [2018] EWHC 1716, a saga dating back to 2005/06, concluded with a win for the taxpayers, for whom I have acted since 2012.
The Gardiners had successfully brought tax appeal proceedings in the First-tier Tribunal (FTT), challenging penalties imposed by HMRC for negligent filling out of returns.
Costs of £25,000 were sought by the Gardiners on the basis that HMRC had behaved unreasonably in the conduct of the appeals. At a costs hearing in December 2014, the FTT agreed that costs were due to the taxpayers. Because the payment of counsel’s fees involved an ‘unusual arrangement’, however, the FTT decided that if the amounts payable could not be agreed the matter should be referred to the Senior Courts Costs Office (SCCO).
The SCCO’s paper review concluded that the unusual arrangement breached the indemnity principle, so that the Gardiners were not entitled to anything. The Gardiners then requested an oral hearing, where both sides were represented by counsel, at which the deputy master summarised the key issues involved as:
whether EDF, the Gardiners’ tax advisor, was acting on behalf of the Gardiners when it instructed counsel, Mr Keith Gordon, to appear before the [FTT]; and
whether the Gardiners had a liability to pay the fees of counsel.
The deputy master concluded that both these issues were satisfied, changed his earlier decision and awarded the Gardiners most of the costs incurred, allowing a fee of £16,500.
HMRC appealed, and the fifth and final round, and the fourth oral hearing, was in the Queen’s Bench division of the High Court. The decision was, again, in the Gardiners’ favour. Costs were awarded to the taxpayers, although with a further reduction in the amount to £15,325.
Are there lessons to be learned? Costs specialists may find the latter part of the case useful, although few tax people get involved in such matters. But, really, was it worth it? The costs involved were not large. And as the FTT had found that HMRC acted unreasonably in its conduct of the penalty appeals, it seemed peculiar that it tried so hard to resist the consequences.
HMRC might say it was protecting public funds, but it would be good to know how much public money was spent on the five rounds of this dispute. I understand HMRC has refused to reveal this information, despite a freedom of information request.
Taxpayers often cannot afford to litigate against the bottomless pocket of the state. In most litigation, one party is of course better funded than the other (and the state is frequently the better funded party). I believe that there is unfairness where taxpayers are at such a financial disadvantage and have to accept HMRC’s view where the alternative is costly litigation.
As CIOT president Ray McCann recently said: ‘It cannot be acceptable to anyone (including HMRC) when the LSS [litigation and settlements strategy] is used to justify years of delay and an all or nothing approach is applied across the board, often to amounts of tax that anyone would consider low.’
Perhaps the penalties and the costs dispute could have been resolved by negotiations, involving give and take. However, the LSS makes such negotiations difficult for HMRC. That is a pity.
The Treasury Sub-Committee of the House of Commons is looking at the conduct of tax enquiries and resolution of tax disputes (see bit.ly/2NaArOb). In his written evidence, Gordon said: ‘The perception I have now is that officers are no longer interested in ascertaining the correct tax treatment of any particular situation but are solely concerned with maximising the revenues. There is far too often no longer a frank discussion of facts and legal propositions but instead a war of attrition where HMRC officers hope and expect the taxpayer to blink first.’
If the Gardiners’ case is an example of the above, then that is much to be regretted. Perhaps the Treasury Sub-Committee’s report will lead to behavioural change at HMRC.
Home >Articles > Costs disputes: time for procedural change?
Costs disputes: time for procedural change?
HMRC attempted to avoid payment of costs following a loss in the FTT. But after a five round hearing that reached the High Court, was it really worth the effort?
In July, HMRC v R Gardiner and others [2018] EWHC 1716, a saga dating back to 2005/06, concluded with a win for the taxpayers, for whom I have acted since 2012.
The Gardiners had successfully brought tax appeal proceedings in the First-tier Tribunal (FTT), challenging penalties imposed by HMRC for negligent filling out of returns.
Costs of £25,000 were sought by the Gardiners on the basis that HMRC had behaved unreasonably in the conduct of the appeals. At a costs hearing in December 2014, the FTT agreed that costs were due to the taxpayers. Because the payment of counsel’s fees involved an ‘unusual arrangement’, however, the FTT decided that if the amounts payable could not be agreed the matter should be referred to the Senior Courts Costs Office (SCCO).
The SCCO’s paper review concluded that the unusual arrangement breached the indemnity principle, so that the Gardiners were not entitled to anything. The Gardiners then requested an oral hearing, where both sides were represented by counsel, at which the deputy master summarised the key issues involved as:
whether EDF, the Gardiners’ tax advisor, was acting on behalf of the Gardiners when it instructed counsel, Mr Keith Gordon, to appear before the [FTT]; and
whether the Gardiners had a liability to pay the fees of counsel.
The deputy master concluded that both these issues were satisfied, changed his earlier decision and awarded the Gardiners most of the costs incurred, allowing a fee of £16,500.
HMRC appealed, and the fifth and final round, and the fourth oral hearing, was in the Queen’s Bench division of the High Court. The decision was, again, in the Gardiners’ favour. Costs were awarded to the taxpayers, although with a further reduction in the amount to £15,325.
Are there lessons to be learned? Costs specialists may find the latter part of the case useful, although few tax people get involved in such matters. But, really, was it worth it? The costs involved were not large. And as the FTT had found that HMRC acted unreasonably in its conduct of the penalty appeals, it seemed peculiar that it tried so hard to resist the consequences.
HMRC might say it was protecting public funds, but it would be good to know how much public money was spent on the five rounds of this dispute. I understand HMRC has refused to reveal this information, despite a freedom of information request.
Taxpayers often cannot afford to litigate against the bottomless pocket of the state. In most litigation, one party is of course better funded than the other (and the state is frequently the better funded party). I believe that there is unfairness where taxpayers are at such a financial disadvantage and have to accept HMRC’s view where the alternative is costly litigation.
As CIOT president Ray McCann recently said: ‘It cannot be acceptable to anyone (including HMRC) when the LSS [litigation and settlements strategy] is used to justify years of delay and an all or nothing approach is applied across the board, often to amounts of tax that anyone would consider low.’
Perhaps the penalties and the costs dispute could have been resolved by negotiations, involving give and take. However, the LSS makes such negotiations difficult for HMRC. That is a pity.
The Treasury Sub-Committee of the House of Commons is looking at the conduct of tax enquiries and resolution of tax disputes (see bit.ly/2NaArOb). In his written evidence, Gordon said: ‘The perception I have now is that officers are no longer interested in ascertaining the correct tax treatment of any particular situation but are solely concerned with maximising the revenues. There is far too often no longer a frank discussion of facts and legal propositions but instead a war of attrition where HMRC officers hope and expect the taxpayer to blink first.’
If the Gardiners’ case is an example of the above, then that is much to be regretted. Perhaps the Treasury Sub-Committee’s report will lead to behavioural change at HMRC.
