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HMRC’s delay shocking but not an abuse of process


While there was no doubt that HMRC’s 12-year delay in this share valuation case was outrageous and indefensible, the question facing the tribunal was whether it made a fair hearing impossible.

2nd Aug 2022
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Can an “unconscionable” delay by HMRC amount to abuse of process, to the extent that a taxpayer cannot receive a fair hearing of his appeal? If so, does the first tier tribunal (FTT) have jurisdiction to offer the taxpayer a procedural remedy by allowing his appeal without a hearing?

These were the questions facing Judge Jonathan Cannan in the case of Andrew Nuttall (TC08517).

Nuttall subscribed for shares in Readybuy plc in 2003, and in September of that year, when the company was floated on the Alternative Investments Market (AIM), made a gift of those shares to The Prince’s Trust. He claimed income tax relief for that donation under the then section 587B of ICTA 1988 (now section 431 of ITA 2007).

The value of the shares used in Nuttall’s claim was 53.25p per share, this being the price at which some Readybuy shares were being traded on AIM at the time of the gift. On 15 June 2005, HMRC opened an aspect enquiry into his 2003–2004 tax return, on the basis that the true market value of the shares was considerably lower.

It was not until 28 September 2017 that HMRC issued a closure notice, valuing the shares at 14.66p a share. The effect was to reduce the qualifying value of Nuttall’s gift from £174,660 to £48,084. Nuttall appealed, and in due course the case progressed to the FTT.

Abuse of process

Counsel for Nuttall made an application in April 2021 that HMRC “be barred from taking further part in the proceedings and that his appeal be allowed on the grounds of abuse of process”.

The argument was that:

  • Twelve years in which to arrive at a share valuation was an “inordinate and unjustifiable delay on the part of HMRC”
  • “As a result of that delay, certain relevant evidence will not be available to the tribunal”
  • “Because of HMRC’s delay, Mr Nuttall has been prejudiced in pursuing his appeal because relevant evidence has been lost”.

The first of these points was indisputable. The judge noted that HMRC had “not sought to explain or justify that delay”, and observed that “the conduct of the enquiry was, on the evidence before me, wholly unacceptable”.

The delay, however it might be described, could only constitute abuse of process if it led Nuttall to suffer prejudice in his ability to conduct an appeal. But had it? And, if so, could the FTT take action?


The judge followed the leading case of Foulser vs HM Revenue & Customs, where the High Court set down a distinction between matters where the FTT does have the power to grant procedural relief for abuse of process and matters where it does not, so that judicial review is the only available remedy.

Situations can conveniently be divided into two categories:

  • Category 1: the alleged abuse directly affects the fairness of the hearing before the FTT
  • Category 2: the subject matter of the alleged abuse of process is outside the substantive jurisdiction of the FTT.

The judge considered that, even though HMRC’s delay might be outrageous and indefensible, he would only be able to take action if its result was that he became unable to determine the appeal fairly (category 1). So the question came down to this: had the consequences of the long delay made it impossible for him to reach a fair judgment on the substantive issue – which was, of course, whether HMRC’s valuation of the shares was appropriate.

It had been suggested that, over the long years of HMRC’s inaction, documents had been lost by WH Ireland (the nominated adviser or “nomad” to the flotation), and other documents “not retained” by HMRC. These, it was alleged, could have been material to establishing the shares’ market value. It was also argued that, after so long a delay, “memories of witnesses will have faded”.

The judge was, however, ultimately swayed by the evidence of HMRC’s expert witness – Andrew Strickland, a chartered accountant and experienced valuer – who pointed out that none of the above considerations had any bearing whatsoever on establishing the true share valuation (which was, of course, the entire point of the appeal and its hearing).

Valuation principles

The basis for valuing shares is set out clearly in legislation. 

For shares quoted in the Stock Exchange Daily Official List (SEDOL), section 272(3) of TCGA 1992 (in its pre-2007 version) required the value to be the lower of: 

  1. The lower of the two prices shown in the list on the relevant date plus one-quarter of the difference between the two figures (“quarter up”); or
  2. Halfway between the highest and lowest bargains recorded for the relevant date.

This valuation principle relies entirely on the prices being traded on the open market – which might have lent some support to Nuttall’s valuation of 53p.

For shares not quoted on SEDOL, however, section 272(3) does not apply. Readybuy was quoted on AIM (which was what permitted its shares to benefit from income tax relief in the event of a charitable gift), but not on the London Stock Exchange.

Instead, section 273 applies, which postulates a hypothetical free market in which the value is “the price which those assets might reasonably be expected to fetch on a sale in the open market”. 

The information that must be considered in making that evaluation is “all the information which a prudent prospective purchaser of the asset might reasonably require”. In practice, this usually equates to the information in the prospectus and in particular does not include information about what other – potentially not so prudent – investors might have chosen to pay. 

While one may talk of “market sentiment” and “hope value” that might increase the amount an investor is prepared to pay for a share, the hypothetical prudent investor would expect to see that hope expressed in the cashflow forecasts. If not, he will not take it into account.

The judgment

HMRC’s long delay in bringing this enquiry to a conclusion was shocking, but to the extent that it constituted abuse of process it did not prevent the FTT from reaching a fair decision on the substantive appeal – it was not a Category 1 abuse. Procedural remedy, such as granting the appeal unheard, or barring HMRC from pleading its case, was not called for.

The substantive appeal itself (TC08518), which included two other taxpayers in similar situations, was dealt with in an almost anticlimactic manner. Only HMRC had engaged an expert witness, whose evidence as to the correct procedures to follow convinced the judge that the fair value of the shares as at September 2003 was not 53.25p as claimed by Nuttall, nor 14.66p as used in the closure notices in 2017, but 12.1p. Not only did Nuttall fail to have his appeal accepted unopposed, but he ended up with a larger tax bill.


We are all regularly appalled by examples of HMRC delay, and by how often the department seems to get away with behaviour that it would not tolerate from a taxpayer.

Nevertheless, HMRC delays cannot be used as ammunition before the FTT unless they genuinely make it impossible for the tribunal to determine the appeal fairly. For more general abuse, the remedy is through judicial review.

It might be argued that the money Nuttall spent on retaining a QC might have been better spent on engaging an expert witness of his own. It might even be suggested that running the “abuse of process” argument amounted to playing the man rather than the ball. Because ultimately, it all came down to the basic principles of valuation.

Replies (6)

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By Hugo Fair
02nd Aug 2022 14:34

"It might even be suggested that running the “abuse of process” argument amounted to playing the man rather than the ball. Because ultimately, it all came down to the basic principles of valuation."

Presumably he (and his advisers) knew the weak position re valuation, which is WHY they tried the other route.
No excuse for HMRC's appalling attitude & behaviour, but sounds like taxpayer was always going to lose.

Thanks (1)
By listerramjet
03rd Aug 2022 11:54

But there is a clear abuse here. The AIM is a recognised market and its prices are a valid indication of a likely sale value. The abuse is the defect in the legislation that precluded its use. The donation is a charitable gift, and the tax relief consequent to government policy.
What it also indicates is the abusive approach HMRC takes in overriding government policy. It calls us "customers" but it tends to view our assets as its asset!

Thanks (0)
paddle steamer
03rd Aug 2022 17:00

Was this in any way a marketed scheme?

I seem to recall discussions I had with one lot of advisers re a scheme to create losses re gifts of AIM shares to charities, but that discussion was way , way back in circa 2003/2004/2005.

Thanks (1)
Replying to DJKL:
By Hugo Fair
03rd Aug 2022 19:11

Which was exactly when Nuttall made his first 'gift' of AIM shares to a charity!

Thanks (1)
Replying to Hugo Fair:
paddle steamer
05th Aug 2022 17:56

So it was, my reading skills are degrading.

I think the crowd offering it were based offshore but I don't want to name them in case it was not them and my memory is faulty.

We were doing a very substantial property trading deal at the time and I looked at all sorts of arrangements(Films/SHEPS, etc), however I was uncomfortable with most of them so we body swerved .

Thanks (0)