[2010] UKFTT 562 (TC)

TC00813

	Appeal number: TC/2010/04462

Application for leave to appeal out of time - Whether reasonable excuse - Whether any other reasons to allow late appeal.

FIRST-TIER TRIBUNAL

TAX 

	ROBERT LEGG	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: WDF COVERDALE (TRIBUNAL JUDGE)
                        MISS CA ROBERTS									

Sitting in public at Manchester Civil Justice Centre on 2 September 2010

The Appellant in person

Mr Morgan of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	This is an application by Robert Legg for permission to appeal out of time against a Jeopardy Amendment issued by HMRC on 21.11.08 and against a Closure Notice issued by HMRC on 23.6.09. The appeal period in respect of the former expired on 21.12.08 and the appeal period in respect of the latter expired on 23.7.08. The appeals were lodged by Mr Legg on 13.5.2010 i.e. some seventeen months late in respect of the Jeopardy Amendment and some ten months late in respect of the Closure Notice.
2.	The background to this matter is that in March 2007 HMRC began an enquiry in to Mr Legg’s tax return for the year 2003-04 and ascertained that he was a party to a bank account which had been credited with some £3,000.00 interest. A Tax Return was issued to Mr Legg but it was returned blank.
3.	HMRC wished to have details of the bank account or source of funds which generated the £3,000.00 interest. 
4.	Mr Morgan, on behalf of HMRC, says that some five or six letters were issued to Mr Legg asking for details of the source of his funds but there was no response. Accordingly on 21.11.08 a calculation was carried out based upon the assumption that Mr Legg must have received some £250,000 from an undisclosed source in order to generate interest of £3,000.00. If £250,000 was, itself, income then it would be liable to income tax and a letter to Mr Legg dated 21.11.08 stated that additional tax of £96,725.40 was due as a consequence of amendment to his self assessment. His self assessment figure had previously been nil.
5.	Mr Legg did not respond to the letter dated 21.11.2008 which was a Jeopardy Amendment.
6.	On 23.6.09 HMRC sent Mr Legg a Closure Notice under Section 28A (1) and (2) Taxes Management Act 1970 in which reference was made to updating Mr Legg’s self assessment statement of account which by that time disclosed a balance of income Tax due of £267,470.66 inclusive of adjustments and a number of penalties. Again, this figure was intended to reflect an income figure of £250,000.00 per annum for which no account had been given by Mr Legg.
7.	Mr Legg did not respond to either the Jeopardy Amendment or the Closure Notice. The amount claimed by HMRC increased, with the addition of further items, to £274,355.73. Correspondence was addressed to Mr Legg notifying him of this figure but, still, he took no action. This figure related to a number of years and was made up as follows:-
  Tax Year ending 5.4.08		5566.12
  Tax Year ending 5.4.07		6178.83
  Tax Year ending 5.4.05		125,014.02

  Tax Year ending 5.4.04		137,304.88
  Tax Year ending 5.4.03		550.59___
  Total					274,614.44	
8.	On 23.7.09 a letter was sent to Mr Legg by HMRC warning him of bankruptcy action. He took no action upon this.
9.	HMRC issued a Statutory Demand for £274,355.73 on 19.10.09. This evidently prompted Mr Legg to take his first steps in this matter: he made application to set aside the Statutory Demand and swore an affidavit in support of his application on 16.11.09.
10.	The Tribunal has no documentation relating to the outcome of the application to set aside the Statutory Demand but it would seem that no further steps have been taken in connection with bankruptcy proceedings pending the outcome of this appeal to the Tribunal.
11.	It is apparent from the letter of appeal that Mr Legg did not take any steps to challenge the assessments until he telephoned the Blackpool office of HMRC after receiving a letter referring to bankruptcy proceedings on 23.7.09. The correspondence he received from HMRC at this time related, of course, to the collection of outstanding tax rather than any matters of assessment. It is HMRC’s case today that Mr Legg had persistently ignored all correspondence until this final letter of 23.7.09 threatening bankruptcy proceedings. It is submitted by Mr Morgan that although both the Jeopardy Amendment and the Closure Notice set out Mr Legg’s rights of appeal they were ignored.
12.	It is further submitted by Mr Morgan that, as stated above, the estimated £250,00.00 supposed to have been in the hands of Mr Legg was assumed to have been an income received by Mr Legg and Mr Legg has yet to provide any explanation for these matters.
13.	In Mr Legg’s letter of appeal he concedes that he initiated the appeal process following receipt of a letter from HMRC dated 23.7.09 (i.e. threatening bankruptcy proceedings) and in the letter of appeal he does not pretend that he took any steps to challenge the figures before that time. He admits that he received a volume of correspondence from HMRC but he does not pretend that he took any steps whatsoever to respond to that correspondence until the letter threatening bankruptcy on 23.7.09. Mr Legg evidently telephoned the Blackpool office and alleged that information supplied to them may have been malicious. Mr Legg made allegations against his former wife’s solicitor and made a mischievous allegation against Mr Behan, the Inspector of Taxes, personally. The Tribunal notes that the letter of appeal fails to address any substantial issues relating to the source of Mr Legg’s funds.
14.	Section 31A(1)(b) of the Taxes Management Act 1970 (TMA) provides that notice of an appeal must be given within 30 days after the “specified date” which, for the purposes of this appeal, is the date of the Jeopardy Amendment and the date of the Closure Notice (Section S31A(3)(a)TMA).
15.	Appeals out of time are governed by Section 49 (1) TMA which provides: 
“An appeal may be brought out of time if on an application for the purpose an inspector or the Board is satisfied that there was a reasonable excuse for not bringing the appeal within the time limited, and that the application was made thereafter without unreasonable delay, and gives consent in writing; and the inspector or the Board, if not satisfied, shall refer the application for determination by the Commissioners”.
16.	The matter of “reasonable excuse” has been considered in a number of cases.  The case of R (Browalia Cal Ltd) v General Commissioners of Income Tax [2004] STC 296 referred to a wide discretion on the part of the General Commissioners (now the Tribunal) and Evans-Lombe J said, at paragraphs 12 to 14:-
“12. It is submitted before me by the taxpayer that section 49, when properly construed, confers upon the General Commissioners, on reference to them of an application to an inspector for permission to lodge an appeal out of time, a wider discretion than that which the Inspector himself had. That discretion is not confined, as the Inspector’s discretion is confined, to determining whether there was a reasonable excuse for the failure to lodge the appeal within that time, but would also embrace such considerations as the lack of any prejudice to the Commissioners as a result of failing to lodge an appeal in time, and demonstrable injustice to the taxpayer if such an appeal is not permitted to be lodged out of time.
13. I accept that submission. It seems to me that this is a proper construction of the Act. It is apparent from subsection 1 of section 49 that it contemplates two stages, the first stage being an application to the Inspector who can, if he can discern a reasonable excuse, properly allow an appeal to be lodged out of time, thus saving the necessity of reference to the General Commissioners for that permission to be granted; but that if he does not find that there was reasonable excuse, the second stage then arises, which is a reference of the application by the Inspector to the General Commissioners for them to determine.
14. The section does not purport to guide the General Commissioners in any way as to how that discretion to permit appeals to be lodged out of time should be exercised. It seems to me, therefore, to follow that the General Commissioner’s discretion is at large and they can consider the sort of matters which I have referred to which an Inspector of Taxes had no power to take into account.”
16.	In R on the application of Philip Cooke v  General Commissioners of Income Tax and another [2007] STC 499 Burton J said, at paragraph 27, that :-
“27. On the other hand, of course, there must be balanced against that the lack of explanation for the delay and the prejudice, such as it may be established to be, on the part of the Revenue. This balancing act is not one that was carried out by the Commissioners, because they were told that it was not appropriate for them to do so. Browallia refers of course to the existence of prejudice. But the depriving of a party of the opportunity of putting forward an arguably meritious appeal is itself an obvious prejudice, and so the reference to lack of prejudice in paragraph 12 of the judgment of Evans-Lombe J must carry with it the question of whether basic appeal was arguable. In any event, Evans-Lombe J clearly did not mean the examples that he gave of the matters which would fall within the discretion of the Commissioners but not within the original discretion of the inspector was exclusive, and the merits are obviously an important part of that consideration. Although the Commissioners’ letter in the protocol correspondence asserted consideration of the merits, it is quite plain that they did not in the end consider them”. 
17.  Accordingly the Tribunal in this case will consider the merits of Mr Legg’s basic appeal itself.
18.  In The Commissioners of Inland Revenue for Judicial Review of a Decision of the General Commissioners of Income Tax (Hugh Love) [2005] CSOH 135, at paragraphs 21-24, Lord Drummond-Young said:
“21. In a sense a tension exists between these two sections. On its face, section 49 might be thought to confer an unrestricted power to reopen assessments by means of a late appeal. Section 33, by contrast, is limited in its application, both by the six year limit stipulated in subsection (1) and by the exclusion for generally prevailing practice contained in to the proviso to subsection (2). If section 49 is unlimited in its application, however, it provides an obvious route to circumvent the restrictions in section 33. That might be thought contrary to the statutory scheme. A similar point can be made in relation to section 29, dealing with discovery assessments, which is subject to a broadly similar limitation for generally prevailing practice. This difficulty arises, I suspect, because the assessment and appeal provisions that are not contained in the Taxes Management Act 1970 have their origins in a number of different Finance Acts, passed over a long period, and no attempt has been made to develop them into a coherent code using systematic concepts and terminology. It must be said that on the whole the assessment mechanism seems to work well in practice, but this is no doubt due to the good sense of Inspectors of Taxes and tax advisers rather than the coherence of the statutory provisions. In the present case, however, I have come to the opinion that the tensions are more apparent than real. They can readily be resolved by a proper analysis of section 49(1), and I now turn to that analysis.
22.  Section 49 is a provision that is designed to permit appeals out of time. As such, it should in my opinion be viewed in the same context as other provisions designed to allow legal proceedings to be brought even though a time limit has expired. The central feature of such provisions is that they are exceptional in nature; the normal case is covered by the time limit, and particular reasons must be shown for disregarding that limit. The limit must be regarded as the judgment of the legislature as to the appropriate time within which proceedings must be brought in the normal case, and particular reasons must be shown if a claimant or appellant is to raise proceedings, or institute an appeal, beyond the period chosen by Parliament.
23. Certain considerations are typically relevant to the question of whether proceedings should be allowed beyond a time limit. In relation to a late appeal of the sort contemplated by section 49, these include the following; it need hardly be added that the list is not intended to be comprehensive. First 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. Secondly, 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? Thirdly, is there prejudice to one or other party if a late appeal is allowed to proceed, or if it is refused? Fourthly, are there considerations affecting the public interest if the appeal is allowed to proceed, or if permission is refused? The public interest may give rise to a number of issues. One is the policy of finality in litigation and other proceedings; matters have to be brought to a conclusion within a reasonable time, without the possibility of being reopened. That may be a reason for refusing leave to appeal where there has been a very long delay. A second issue is the effect that the instant proceedings might have on other legal proceedings that have been concluded in the past; if an appeal is allowed to proceed in one case, it may have implications for other cases that have long since been concluded. This is essentially the policy that underlies the proviso to section 33(2) of the Taxes Management Act. A third issue is the policy that it is to be discerned in other provisions of the Taxes Acts; that policy has been enacted by Parliament, and it should be respected in any decision as to whether an appeal should be allowed to proceed late. Fifthly, has the delay affected the quality of the evidence that is available? In this connection, documents may have been lost, or witnesses may have forgotten details of what happened many years before. If there is a serious deterioration in the availability of evidence, that has a significant impact  on the quality of justice that is possible and may of itself provide a reason for refusing leave to appeal late.
24. Because the granting of leave to bring an appeal or other proceedings late is an exception to the norm, the decision as to whether they should be granted is typically discretionary in nature. Indeed, in view of the range of considerations that are typically relevant to the question, it is difficult to see how an element of discretion can be avoided. Those considerations will often conflict with one another, for example in a case where there is reasonable excuse for failure to bring proceedings and clear prejudice to the applicant for leave but substantial quantities of documents have been lost with the passage of time. In such a case the person or body charged with the decision as to whether leave should be granted must weigh the conflicting considerations and decide where the balance lies.”
19. In R (on the application of Cook) v General Commissioners of Income Tax and another (No 2) [2009] STC 1212 (“Cook No 2”) Dyson LJ (as he then was) agreed, at [18], that the analysis in the judgement of Lord Drummond Young provided valuable guidance as to the correct approach to section 49 TMA.
20.  The Tribunal today now applies the facts of this case to the considerations set out by Lord Drummond Young in the Hugh Love case. The Tribunal finds that there is no reasonable excuse for Mr Legg not observing the time limits for appeals in this case. He has not pretended that he did not receive numerous items of correspondence from HMRC advising him of the nature and extent of their enquires and assessments. He evidently has strong views about the merits of the assessments (as set out in the letter of appeal) but he took no steps, until challenging the threat of bankruptcy, to put forward those views.
21.  Mr Legg was, in fact, aware of the significance of failure to cooperate with HMRC because by a letter dated 11.6.07 he was notified of penalties of £450.00 for each of the tax years 2002/2003 and 2003/2004 as a consequence of late returns for those years. These penalties were confirmed by the Commissioners having heard appeals by Mr Legg. (The Tribunal acknowledges that these penalties may have been suspended subsequently). Furthermore Mr Legg was advised, at that time, of further potential fixed penalties of £50.00 and additional penalties of £150.00 per day for each day on which a failure to comply with a notice continued. Such penalties appear very clearly upon a number of notices sent to Mr Legg. Interest charges were also accruing. Mr Legg tells the tribunal that he did not take action to challenge the assessments because “I was advised by HMRC to let the bankruptcy go to court”. The Tribunal finds it hard to believe that such advice would be given by HMRC to Mr Legg.
22.  Further, on the issue of reasonable excuse, Mr Legg’s attitude to HMRC’s position has been extraordinary. The Tribunal puts it to him that, upon receipt of letters from HMRC relating to the Jeopardy Amendment, he could have been expected to take immediate action to challenge the assessment if it was not correct. Records show, of course, that he did nothing to challenge it. Mr Legg tells the Tribunal that he did not take any action because he felt he did not owe the money and he seriously suggests to the Tribunal that he believed the submission to him of the Jeopardy Amendment was intended as a joke. He says that when he received the letter through the post “I was waiting for Jeremy Beadle to appear”. Mr Legg lacks credibility and has not taken any or appropriate steps to safeguard his own interests.
23.  The Tribunal is not aware, and Mr Legg has not alleged, that any part of the delay in pursuit of his appeal has been caused by the actions of HMRC. 
24.  Mr Legg has been aware of the possibility of an appeal for many months. He has not pretended that there was no such endorsement upon the Jeopardy Assessment or the Closure Notice. Matters have not proceeded with reasonable expedition or at all until the service of a Statutory Demand.
25.  The Tribunal has to address the matter of possible prejudice to one or other party if a late appeal is allowed to proceed or if it is refused. Mr Legg says that if the appeal is allowed to proceed he will produce whatever documentation he can but he has no investments; he will produce details of the bank account that generated some interest although he himself has had no bank account since 2000. Mr Morgan believes that Mr Legg’s wife (or former wife) has a bank account but it is not known if this was the source of the £3,000.00 interest.
26.  Mr Morgan tells the Tribunal that HMRC have information indicating that Mr Legg is a party to a bank account; Mr Legg says “I don’t have any account with my name on now, nor in 2003/2004 – I don’t think so”; Mr Legg is vague in this respect.
27.  The Tribunal is concerned that attempts to extract details of bank accounts going back to 2003 or before may be unsuccessful because so much time has passed and Mr Legg indicates that there may have been some matrimonial proceedings so if he maintains that his wife’s bank account was the source of some funds it is clearly possible that cooperation may not be forthcoming. The Tribunal takes the view that there may indeed be some prejudice to HMRC if this appeal is allowed to proceed because the availability of evidence is in doubt.
28.  It is not in the public interest for this appeal to proceed; the amount of tax is large and an early resolution of the matter, and payment of the tax, is now appropriate. Finality in litigation is mentioned in the Hugh Love case and the Tribunal is mindful of this. The delay has been very long. The tax years in question go back to 2002/2003; it is repeated that the appeal against the Jeopardy Amendment was submitted some 17 months after the appeal period expired and that against the Closure Amendment was submitted some 10 months after the appeal period expired.
29.  The Tribunal is not aware of any effect that the instant proceedings might have on any other legal proceedings that have been concluded in the past and no such implications have been drawn to the Tribunal’s attention.
30. The Taxes Management Act 1970 clearly displays a policy of insistence that appeals proceed in a timely manner. This appeal has not been pursued by Mr Legg in a timely manner.
31. The delay in this case has affected the quality of the evidence that is likely to be available and, as mentioned above, bank statements may not be forthcoming. Mr Legg tells the Tribunal that he would be prepared to produce whatever documentation he can but he insists he has no investments. Importantly, he has given no explanation of the source of the £3,000.00 which is fundamental to this appeal. He says that he does not know if his wife’s bank account was the source of the £3,000.00 interest. If he is unable to elucidate the mater at this preliminary stage it is unlikely that he will be able to do any better at the hearing of a full appeal.
32. The decision as to whether leave to appeal should be granted is inevitably discretionary for the Tribunal but the merits of the main appeal have been considered by the Tribunal today. Mr Legg has given unconvincing answers to questions put to the Tribunal as to the source of his funds. His credibility is poor. It is unlikely that he would have any more credibility at a future hearing of the basic appeal. 
33. In summary the Tribunal concludes that although the prejudice to Mr Legg by being deprived of an opportunity to appeal is relevant it is outweighed by the lack of any reasonable excuse for the delay in bringing the appeal, something that could have been avoided by the exercise of reasonable diligence by Mr Legg. In reaching this conclusion the Tribunal is mindful of the comments of Dyson LJ in Cook No 2 [at 24], that “it is incumbent on the claimant [in this case Mr Legg] to identify particular reasons why he should be allowed to appeal many months outside the period specified by Parliament. The burden was all the greater where neither of the two conditions specified in section 49(1) was satisfied”.
34. Having considered all the circumstances of this case the Tribunal does not consider that Mr Legg has identified why he should be allowed to appeal outside the statutory time limit and the application is therefore dismissed.
35. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

                                             WDF COVERDALE
TRIBUNAL JUDGE
RELEASE DATE:  10 November 2010