Appeal, out of time

Introduction

This case dealt with the making of an appeal outside of the time limit. An out of time appeal could only be allowed if there was a reasonable excuse for not bringing the appeal within the time limited and that the subsequent appeal was made without delay.

The Facts

The claimant started a transport business in November 1999, trading as Cook Transport. On 16 November he informed HMRC that he had 18 employees.

Between that date and 23 July 2003 no PAYE or NIC end of year returns were submitted by him. At a meeting on 19 June 2003, the claimant told HMRC that he had deducted PAYE but had not paid it over to HMRC because he had been building up the business. He was given until 16 July 2003 to deliver his records to the tax office. He said he delivered the documents but it was HMRC's position that the records were never delivered.

On 23 July 2003 HMRC issued notices of determination of the PAYE liability for the tax years 1999/2000 to 2002/2003 inclusive. Each notice contained a statement on the time limit for making an appeal: “If your client does not agree with the Notice of Determination, a written appeal should be sent to us at the address shown aside within 30 days from the date of issue.” The determinations were followed by decisions on the NICs due in respect of the employees.

On 9 December 2003, Revenue wrote to the claimant informing him that since he had not appealed against the PAYE determinations, they were final and the tax was due and payable. The claimant wrote to the National Insurance Office on 4 February 2004 to complain that the Inland Revenue had the documents from which true assessments could be made. On 8 March 2004, HMRC wrote to the National Insurance Office saying that the claimant had not provided any wages’ records and that he had not appealed.

Following receipt of a bankruptcy petition, on 3 February the claimant appealed against the assessments of 23 July 2003 on the ground that “the amount demanded is grossly excessive and is based on incorrect information”.

An appeal could be made outside the time limit where HMRC were satisfied that there was a reasonable excuse for not bringing the appeal within the time limit and the subsequent appeal was made without delay. HMRC refuted this position. The claimant then applied to the Special Commissioners for a determination of whether he could bring the appeals out of time. The Special Commissioners decided not to admit the out-of-time appeal. That decision was the subject of a successful judicial review challenge. The matter was remitted to the Commissioners for rehearing. After hearing arguments from both sides on the issue of the balance of prejudice the Special Commissioners decided not to accept the late appeal applications.

The claimant appealed to the High Court, on the grounds that the Special Commissioners’ decision was irrational and that it was flawed for lack of adequate reasons.

The Issue

Whether the decision of the Special Commissioners was irrational; and was it flawed for lack of adequate reasons.

The Decision

The High Court rejected the claimant's (taxpayer) appeal.

The conditions for allowing a late appeal were considered in the Commissioners of Inland Revenue for Judicial Review of a Decision of the General Commissioners of Income Tax (Hugh Love) [2005] CSOH 135:

1. Is there a reasonable excuse for not observing the time limit, for example because the appellant was not aware and could not with reasonable diligence have become aware that there were grounds for an appeal? If the delay is in part caused by the actings of the Revenue, that could be a very significant factor in deciding that there is a reasonable excuse.
2. Once the excuse has ceased to operate, for example because the appellant became aware of the possibility of an appeal, have matters proceeded with reasonable expedition?
3. Is there prejudice to one or other party if a late appeal is allowed to proceed, or if it is refused?
4. Are there considerations affecting the public interest if the appeal is allowed to proceed, or if permission is refused?

The claimant accepted that the Special Commissioners took into account relevant considerations and did not take into account irrelevant considerations. The claimant's position was that the decision reached by them was one which no reasonable Commissioner could have reached. He submitted that it could not be rational for the State to deny a taxpayer a right of appeal in circumstances where he had an unanswerable appeal (as these appeals were assumed to have) and where, if permitted to appeal, he would avoid bankruptcy which would otherwise follow.

In considering this argument, the Judge stated that the conditions to make an appeal outside of the time limit were not met-there was no reasonable excuse for not bringing the appeals within the time limited and the out-of-time applications were not made without unreasonable delay after the expiry for the time for appealing. There was prejudice to HMRC in not being able to close its books. There was a public interest in these cases in achieving finality in litigation.

It was incumbent on the claimant to identify particular reasons why he should be allowed to appeal many months outside the period. The burden was all the greater where neither of the two conditions was met. In the judgment, it was held that the Commissioners were fully entitled to hold that the claimant did not discharge this burden on the facts of this case. It would mean that any taxpayer with a meritorious appeal who claimed that he faced bankruptcy as a result of a tax liability that he could not set aside because of his own delay would succeed in having an appeal admitted even in cases of substantial delay. If this were right, it would inevitably lead to the disapplication of time limits for appeals for persons who could claim that they would be made bankrupt if they could not appeal.

The judgment is available online at http://www.bailii.org/ew/cases/EWHC/Admin/2009/590.html.