HMRC bundle blunder costs taxpayer dearby
A tribunal has found that HMRC acted reasonably, despite its actions leading to a hearing being adjourned at short notice at considerable expense to the taxpayer.
Although it isn’t the focus of this article, Sylvia Hook appealed on five grounds against several HMRC decisions relating to income tax and VAT for her sole trade and partnership breeding and selling puppies. The appeal was originally due to be heard by the first tier tribunal (FTT) in November 2022.
In anticipation of the hearing, HMRC supplied three bundles of information to the FTT in July 2022. Two of these bundles were subsequently replaced at the start of November and then again a few weeks later.
On 18 November, (purportedly) final versions of all three bundles were provided to the FTT, with copies also being sent to Hook’s representative. However three days later, and a mere two days before the hearing was due to take place, HMRC contacted Hook to ask for an adjournment. HMRC’s reason for this request was that it was concerned that some documents may have been omitted from the 18 November bundle.
Hook agreed to the adjournment and on the date the hearing should have taken place, the FTT instructed HMRC to produce an updated bundle and for both parties to serve updated skeleton arguments.
At the end of November 2022, Hook emailed HMRC on behalf of her businesses, requesting that it reimburse her for the money spent preparing for the original hearing. HMRC responded and requested a breakdown of said costs, which Hook dutifully provided.
In short, Hook was claiming for the costs of arranging (and then cancelling) for herself, her partner, and various witnesses to be available to attend the hearing. In addition, her adviser had incurred various costs relating to the hearing which she argued had only been necessary due to HMRC’s actions, such as conferring with HMRC as to whether its bundles were complete.
Also within the breakdown were costs for the time taken to “explain the position to Mike and Sylvia Hook and to calm them down given the … shattering of their hopes that the matter was going to be settled by the Tribunal in that week”.
Did HMRC act reasonably?
HMRC responded to say it felt it had acted reasonably and provided a link to allow Hook to make a complaint if she wished. It also set out details of the information it would require if Hook wished to make an official application for her costs.
Instead of following the link, Hook’s adviser sent a letter (and two chase letters) to HMRC —unfortunately all to the wrong address, so HMRC did not receive them. Before the new hearing date, Hook also emailed the FTT to request that the matter of the recovery of costs be dealt with along with the main appeals.
Unfortunately, the request did not include a schedule of the costs claimed, thus failing to meet Tribunal Rule 10(3)(b). Hook was advised to resubmit it with the additional information included.
While Hook did submit a new version, referencing ‘Rule 10’, it again lacked a schedule of the costs. Further, while Hook had originally requested £4,315.00 of costs, the latest application had increased this to £6,595.60 with no explanation as to why the amount had changed. The application included three invoices relating to some of the time in question, but these lacked detail, included arithmetical errors and contradicted the narrative of the complaint.
In order to be awarded costs, Hook needed to prove that, on the balance of probabilities, HMRC had behaved ‘unreasonably’ in the proceedings. If this could not be proved, the FTT would not have any power to award the requested amounts.
The FTT therefore considered what a ‘reasonable’ person would ‘reasonably’ have done, or not done, in these circumstances. The facts were that HMRC had noted it had not provided all the documents it had said it would, and this was discovered too late for updated copies to be sent to Hook. The omission of these documents was the sole reason the hearing had to be adjourned and HMRC referred to the omission as a genuine error, which Hook did not challenge.
The FTT therefore concluded that the mistake was not unreasonable and also that it had been found within an appropriate timeframe, specifically within three days of their previous, 1,800 page long, submission.
On the balance of probabilities, Hook had not therefore demonstrated that HMRC had acted unreasonably in its defence or conduct during the proceedings.
The application for costs was refused.
Although they had become moot points in light of the above decision, the FTT also concluded that Hook’s prior applications did not comply with Rule 10(3)(b) and that, in the absence of alternative detailed evidence, it would have refused any and all costs which were not properly itemised regardless.