Upper tribunal: FTT decision was unfair but HMRC loses

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In 2017, the first tier tribunal reached a reasonable compromise over CGT due by Mr and Mrs Ritchie but HMRC challenged that decision at the upper tribunal, with an unexpected result.


In 2017, I wrote about Billy and Hazel Ritchie, who had sold their house and surrounding land. They took advice from their accountant (Weir) and a tax consultant (Russell) who concluded the entire capital gain was covered by private residence relief. HMRC considered that only a small part of the gain was exempt, and issued discovery assessments under TMA 1970 s29.

The first tier tribunal (FTT) found that:

  • Considerably more of the gain turned out to be exempt than HMRC had supposed; but
  • HMRC was justified in assessing the gain outside the normal four-year time limit because their tax returns had been prepared carelessly by the two advisers, although the Ritchies themselves were not careless.

Trying for a rematch

HMRC appealed the FTT decision to the upper tribunal (UT), and the Ritchies cross-appealed on the question of carelessness.

In the event, the UT did not need to consider any arguments relating to the computation of the gain. In fact, they did not directly address the question of whether either Weir or Russell had been careless. Instead, their decision hinged upon issues of the proper conduct of tribunals as governed by the tribunal procedure (first tier tribunal) (tax chamber) rules 2009 SI 2009/273.

Tribunal rules

Rule 5 says the FTT may regulate its own procedure, subject to Rule 2 which states that the overriding objective is to deal with cases justly and fairly. Achieving this objective includes:

  • avoiding unnecessary formality and seeking flexibility in the proceedings, and;
  • ensuring, so far as practicable, that the parties are able to participate fully in the proceedings.

While the rules provide that the parties should each deliver a statement of case setting out their arguments, this does not prevent the FTT from considering issues which were not expressly included in either party’s written submissions.

The requirements of informality and flexibility clearly permit the FTT to consider newly-arisen points, but fairness requires that the other party is given adequate opportunity in the circumstances to address the point.

What new points?

In the original FTT hearing, HMRC argued that it was the Ritchies who had been careless, but the tribunal held they had not.

However, once all the witness evidence had been heard (and the witnesses had all gone home) the judge decided to consider the possibility that it was in fact advisers Weir and Russell who might have been careless.

He concluded that this issue had “been adequately pleaded” – primarily it seems because HMRC had mentioned TMA 1970 s 36(1B) in their statement of case. This subsection provides for the carelessness of someone acting on a taxpayer’s behalf to count as the taxpayer’s own lack of care.

Upper tribunal opinion

The UT was not persuaded that the question of Weir’s or Russell’s level of care had been “adequately pleaded”. One or two casual mentions of TMA 1970 s 36(1B) within the midst of a lengthy assertion that the Ritchies had been personally careless does not amount to an argument that a particular adviser was considered to have been careless.

In fact, the UT’s reading of HMRC’s skeleton argument was that the references to advisers were merely “part of the argument that Mr and Mrs Ritchie themselves were careless”.

“In our view, the FTT’s conclusion that the issue had been adequately pleaded was one not reasonably open to it… We find that the FTT erred in law in this respect,” continued the UT’s verdict.

What should have been done?

While the FTT clearly has the right to investigate fresh matters (and in some circumstances a positive duty to do so), this is subject to the requirement for fairness. The FTT could have considered recalling the witnesses. This was particularly the case since:

  • It had never been directly put to Weir or Russell while giving evidence that they had been careless, and no suggestion had been made that an argument was going to be run that their carelessness had caused a loss of tax.
  • Decisions of the FTT are public record and are “routinely published”.
  • “The reputation of justice is potentially diminished if a tribunal can, having heard a witness, find him or her to have been careless or negligent without giving him or her an opportunity to explain his actions or contest the finding, and perhaps especially so where the witness is a professional and his professional competence is questioned”.

Taking this all into account, the FTT’s decision was unfair. The tribunal was wrong to decide – without seeking further evidence – that there had been carelessness by either Weir or Russell.

What now?

The options open to the UT were either to remit the case to the FTT for reconsideration or to close the matter.

If the FTT had decided that the matter had not been “adequately pleaded” before them, they would have had to decide whether to recall witnesses. It would have been a balancing act between two public interests:

  • collecting the correct tax, which might incline them towards recalling witnesses to investigate properly the question of any carelessness by Weir or Russell; and
  • litigation being brought to a speedy conclusion without incurring needless cost.

Weighing up these competing interests, the UT concluded it was too late, and would be unfair, to revive the question. Rather than return the case to the FTT, it should be terminated now.

The assessment was discharged: the Ritchies owe no tax on the gain.


HMRC was perhaps unwise to have appealed. Prior to this hearing, the Ritchies owed some tax (admittedly less than HMRC would have liked), but now even that lesser amount has been wiped out.

When examining the FTT judgment, I suggested that HMRC had won at best a Pyrrhic victory: by trying for more, they lost even that!

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28th Jun 2019 18:47

A good commentary on this case (that I have not had time to fully read) and clearly the right decision and yet another HMRC [***]-up (but well done to taxpayer's counsel of course).

Also, I am not sure if simply advising someone on tax law is (without more), strictly speaking, acting on their behalf (i.e. it's just acting for them and not for & on behalf of them). The taxpayer acts on their own behalf by filing their tax return or writing to HMRC etc. themselves based on whatever advice that is.

Contrast that with a director who acts on behalf of a company (i.e. an executive power) or an accountant who writes to HMRC on behalf of a client (with or without related tax advice to the client), having been authorised by the client to do so or who completes a tax return on behalf of a client like in the case below:


Another judge recently wrongly (I think) suggested the person was not acting on the taxpayer's behalf if they advised them informally down the pub or words to that effect rather than under a formal engagement letter as a tax specialist, but I see no valid distinction with that example re this phrase. See para 63 here:


So, based on that analysis, I don't think HMRC were able to win this careless "acting on behalf of" point in any event, so it didn't matter that HMRC did not plead it and so it's possibly a wrong decision based on that but the right result at least.

See also: https://www.accountancydaily.co/cch_uk/cln/news_008274_ritchie

[Edit] I belatedly note that the tribunal at para 136 in the case below more or less agree with my above comments re acting on behalf of someone:


But the UT in Atherton disagree with that at para 63 here:


Thanks (2)

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