In Distinctive Care v HMRC [2019] EWCA Civ 1010 (13 June 2019), the Court of Appeal confirmed that HMRC’s conduct prior to the lodging of an appeal is generally irrelevant to the award of costs.
In January 2012, HMRC had issued a determination that Distinctive Care had an outstanding liability to SDLT as a result of a transaction that had taken place in 2008. The company had appealed the determination to the FTT. Those proceedings were still pending when the HMRC officer dealing with the company’s SDLT affairs issued an information notice (FA 2008 Sch 36).
Distinctive Care considered that HMRC did not have the power to issue an information notice relating to a liability in respect of which it had already issued a determination, and appealed against the information notice in July 2015. HMRC withdrew the notice ‘following the recent receipt of legal advice’ in September 2015 and the FTT allowed the appeal.
Distinctive Care applied for an order for costs, and as the appeal had been categorised as basic, HMRC could only be ordered to pay costs if it had acted unreasonably (FTT Rules r 10). As the notice had been withdrawn promptly following the lodging of the appeal, Distinctive Care’s application for costs could only succeed if HMRC’s behaviour prior to the company’s appeal was relevant.
The court found: ‘The earliest conduct that is relevant for the purposes of rule 10(1)(b) is the bringing of the proceedings, that is the proceedings before the FTT.’ These proceedings start with the lodging of an appeal and not with the issue of an information notice by HMRC. The court concluded: ‘There may be circumstances in which behaviour before the appeal is brought is relevant to the tribunal's assessment of the reasonableness of conduct post-commencement, but an applicant cannot extend the scope of the tribunal’s inquiry by alleging bad faith at an earlier stage on the part of HMRC. The parties and the tribunal must always bear in mind first that the focus should be on the standard of handling the case rather than the quality of the original decision.’
Why it matters: HMRC’s change of position arose from a failure of communication within HMRC between the Central Policy team ('CenPOL') and the officer handling the case. CenPOL had told the officer that he could issue an information notice after the issue of a determination, and he had done so in relation to several taxpayers. CenPOL had then changed its policy, prior to the issue of the information notice to Distinctive Care, but the officer had not been made aware of the change. The Court of Appeal considered that this was not relevant to the award of costs.
In Distinctive Care v HMRC [2019] EWCA Civ 1010 (13 June 2019), the Court of Appeal confirmed that HMRC’s conduct prior to the lodging of an appeal is generally irrelevant to the award of costs.
In January 2012, HMRC had issued a determination that Distinctive Care had an outstanding liability to SDLT as a result of a transaction that had taken place in 2008. The company had appealed the determination to the FTT. Those proceedings were still pending when the HMRC officer dealing with the company’s SDLT affairs issued an information notice (FA 2008 Sch 36).
Distinctive Care considered that HMRC did not have the power to issue an information notice relating to a liability in respect of which it had already issued a determination, and appealed against the information notice in July 2015. HMRC withdrew the notice ‘following the recent receipt of legal advice’ in September 2015 and the FTT allowed the appeal.
Distinctive Care applied for an order for costs, and as the appeal had been categorised as basic, HMRC could only be ordered to pay costs if it had acted unreasonably (FTT Rules r 10). As the notice had been withdrawn promptly following the lodging of the appeal, Distinctive Care’s application for costs could only succeed if HMRC’s behaviour prior to the company’s appeal was relevant.
The court found: ‘The earliest conduct that is relevant for the purposes of rule 10(1)(b) is the bringing of the proceedings, that is the proceedings before the FTT.’ These proceedings start with the lodging of an appeal and not with the issue of an information notice by HMRC. The court concluded: ‘There may be circumstances in which behaviour before the appeal is brought is relevant to the tribunal's assessment of the reasonableness of conduct post-commencement, but an applicant cannot extend the scope of the tribunal’s inquiry by alleging bad faith at an earlier stage on the part of HMRC. The parties and the tribunal must always bear in mind first that the focus should be on the standard of handling the case rather than the quality of the original decision.’
Why it matters: HMRC’s change of position arose from a failure of communication within HMRC between the Central Policy team ('CenPOL') and the officer handling the case. CenPOL had told the officer that he could issue an information notice after the issue of a determination, and he had done so in relation to several taxpayers. CenPOL had then changed its policy, prior to the issue of the information notice to Distinctive Care, but the officer had not been made aware of the change. The Court of Appeal considered that this was not relevant to the award of costs.
