Tribunal Costs Award, & Could Penalties Increase?

Penalties Upheld by Internal Review, Client Appealing to First-Tier Tribunal

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Client Appealing Penalties attached to Investigation Settlement. In my opinion his arguments are weak, and have already been rebuffed by HMRC internal review; but client is now seeking FTT appeal. The case might arguably be classed as a "complex matter" due to client's permanent mental health condition, which is backed up by medical evidence. Settlement Agreement last year covered inter alia failure to submit tax returns for 8 years, as well as overclaims on tax returns that he had submitted, and penalties range from 12.5% to 35% and total £10k+

My questions are:

1. Costs: Assuming the case were to be classed as "complex", am I correct in assuming the client will not be awarded any costs whatsoever because he was indisputably at fault for at least one of the (rare) years in which he had submitted a tax return, by overclaiming tax relief  (he prepared cash basis accounts for self-employment, but claimed £000s of sideways tax relief)? It's my (possibly misguided) understanding that tribunal costs awards are all or nothing; that such partial fault will render him ineligible for any award of costs for the other years even if his appeal against those other years' penalties succeeded.  

2. Penalties: HMRC's internal reviewer alluded to the relatively light penalty percentages under the circumstances (which privately I agree with). Is there a danger HMRC might seek to increase those penalties, either at ADR, FTT level, or beyond? I've not been able to find any instance of a tribunal not only upholding a HMRC decision, but also varying it in the Revenue's favour. But this client has unusual circumstances, and frankly has been let off rather lightly thus far. 

Any advice welcome on either or both of the above matters. As you may have gathered, I'm wholly opposed to taking this case any further; but have a litigous client whose mental condition promotes spurious decisions. I need to be certain of the above matters, as the client will devote the rest of his week searching vigourously for a precedent or statute to disprove anything he doesn't agree with.  

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By thomas34
16th Apr 2018 10:09

My first concern would be to make sure you're not going to lose out as far as fees are concerned. Are we talking about narcissistic personality disorder by any chance? If so, it's only a matter of time before you become the subject of his wrath. I'd disengage in a flash if it was me.

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By I'msorryIhaven'taclue
16th Apr 2018 11:19

Quite probably, although the official diagnosis is M.E.

I don't much care about the loss of fees, and am indeed mindful of being on the wrong-end of this client's litigious nature. I need to be spot-on with the two-pronged question(s) in my original post, as this client has deep pockets and an unendearing habit of suing everyone from utility companies to past business associates; always playing the same card by which his mental condition makes his a special case, the exception to the rule, and entitles him to compensation for any non-special treatment.

So, ideally, disengagement needs to be accompanied by irrefutable rationale. For most clients it would be a no-brainer to abandon any further appeal, but this client has his judgement clouded by twenty years of mixing it with HMRC - he also has a £100k VAT case on hold - and "wrath" would indeed be a fair approximation of his motivation in this present appeal process.

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By thomas34
16th Apr 2018 14:27

Looks like a nightmare scenario that's almost certainly not going to end well. Solicitors spend a lot of their time defending the indefensible providing they get paid up front and take instructions however misguided.

I don't think accountant/client relationships work the same way - certainly I wouldn't take the sort of instructions that your client seems to be wanting you to take.

There might be some fall-out but I'd disengage now and subject to monies outstanding walk away with the reason that you can't fight a case that you believe is unwinnable.

His M.E. will hopefully prevent him from fighting you as well as HMRC. If he's going to fight you as well you may as well get the aggravation over and done with.

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By I'msorryIhaven'taclue
16th Apr 2018 15:21

Thanks Thomas,
I'm two years in to this investigation case, and although an appeal to FTT could be an appropriate juncture at which to resign I'm hopeful that the decision not to proceed with such tenuous arguments in such a lost-cause is such a no-brainer that the client will arrive at that conclusion for himself.
It struck me this morning that the matter of (not) being awarded costs, and for that matter any possibility of the lenient penalties being varied in the Revenue's favour one way or another, might be good grist for that mill.

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By slipknot08
16th Apr 2018 17:05

Worth mentioning, it's not just that he could be out his own costs, but - complex route - he could be on the hook for HMRC's costs too... that might damen his ardour somewhat...

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By I'msorryIhaven'taclue
16th Apr 2018 18:30

Thank you, Skipnot, that's a very useful point. I've not been able to unearth an example of such reverse ruling of costs: Clint Westwood had raised that question some time ago at https://www.accountingweb.co.uk/any-answers/tribunal-costs but didn't receive a definitive answer. I'm very grateful to you.

It seems to me that a tribunal would be reluctant to award him costs even if the outcome was a reduction in penalties, because the client is at least partially at fault. I suppose that thinking stems from the non-allowabilty of any investigation fees, given that same partial fault on the client's part.

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By slipknot08
17th Apr 2018 07:59

He can of course opt out of the FTT costs regime (but if he's a narcissist, will he? Usually costs follow the event, but I think sometimes judges will split it into separate issues and allocate costs accordingly. However if he only wins on 1 point out of (say) 6, I'd have thought there's every chance he would be paying rather than receiving costs)... the only FTT costs decision I've seen recently was Mr Warren ...
http://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKFTT/TC/2017/TC0...(warren)

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By I'msorryIhaven'taclue
17th Apr 2018 08:58

Hmm, thank you Slipknot, that's very useful. I think the jackpot in this case would be for our client to win 4 or possibly 5 out of (say) 6 points. I had thought about splitting any appeal into separate issues at appeal stage (by limiting the appeal to the failure to submit a tax return years, and not appealing the one or two issues where he doesn't have a leg to stand on - essentially some of the inaccurate tax return years). Trouble is the edges are blurred here and there, particularly as the Revenue's case relies on his overall behaviour. I have obvious doubts about cherry-picking certain of the years for appeal, in the hope HMRC counsel and a FTT would simply ignore his overall behaviour across any non-appealed miscreant years.

Anyway, thank you for answering so well one of my questions: if I've understood correctly, it seems the client may in theory qualify for an award of costs if the judge is prepared to split the issues. Unlikely, perhaps, although there could I suppose be something of a natural divide between the mental health issues surrounding his failure to submit years and his inaccuracy years (the latter of which he is 100% at fault on one of the years, at least).

Which leaves me with my part b question, Is it possible for an ADR or FTT tribunal to vary (ie uplift) penalties in the Revenue's favour, rather than just in the taxpayer's favour? That might just be the clincher in persuading our protagonist to throw in the towel. I'll throw that question open to the panel.

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By I'msorryIhaven'taclue
17th Apr 2018 14:12

Ahha, found one!

Stayton v Revenue and Customs [2016] UKFTT 345 (TC)
The case is also a reminder of the tribunal’s power to increase penalties, in addition to (among other things) decreasing them. Perfekt!

https://www.taxinsider.co.uk/327-Property_Was_A_Capital_Asset_Throughout...

Thank you so much Thomas and Slipknot for your valuable advice, and for your help in walking me through this thought process.

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Replying to I'msorryIhaven'taclue:
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By Les Howard
10th Jun 2018 20:12

Correct. The FTT does have the power to increase penalties, and has used it on a number of occasions.
Part of your (or your Advocate's) preparation is to review the penalties, and try to gauge whether this is a possible outcome.

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