In Rolls Group & Others HMRC, the First-tier Tribunal (FTT) has refused to reinstate VAT appeals, pursuant to an application made under Rule 17(3) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the Rules), many months after withdrawal of their appeals.
The Rolls Group and a number of other joined appellants (the Appellants), withdrew their appeals in early 2013. The Appellants are motor traders and their appeals related to VAT issues and what the Tribunal described as "Italian Uplift Claims". The Appellants withdrew their appeals on the advice of their previous advisors. Some considerable time later, (in some cases more than 18 months later) the Appellants applied to the FTT to have their appeals reinstated. There were two issues for determination before the FTT, namely, should an extension of time for applying to reinstate the appeals be granted, and if so, should the appeals be reinstated?
Rule 17 of the Rules
Rule 17 provides as follows:
"17(1) Subject to any [particular] provision … a party may give notice to the Tribunal of the withdrawal of the case made by it in the Tribunal proceedings, or any part of that case –
- by sending or delivering to the Tribunal a written notice of withdrawal; or
- orally at a hearing.
- A party who has withdrawn their case may apply to the Tribunal for the case to be reinstated.
- An application under paragraph (3) must be made in writing and be received by the Tribunal within 28 days after -
- the date that the Tribunal received the notice under paragraph (1)(a) … ".
Automotive Management Services (AMS) was an advisor to various motor traders. In or about 2008, AMS and Deloitte, agreed to work together in relation to VAT repayment claims by motor trader clients of AMS. Deloitte had particular experience of pursuing claims for repayment of VAT in relation to the margin on sales of demonstrator vehicles (so called 'Italian Republic Claims') and in relation to VAT on payments made by manufacturers (so called 'Elida Gibbs claims').
Deloitte agreed to provide VAT advice to AMS clients in relation to such claims. Italian Uplift claims were summarised as based on an argument that payments by HMRC in relation to Italian Republic Claims had been based on average margins which were too low. In 2009, HMRC did not accept that argument. A lead case, known as Bristol Street Motors, who were represented by Deloitte, proceeded before the FTT.
The judge referred to the facts in one particular matter as illustrative of events in other cases.
Tyn Lon Garage Limited (Tyn Lon) was originally a client of AMS in relation to motor trader VAT claims. Tyn Lon retained a small high street firm of accountants for general accountancy and tax matters. That firm knew very little, if anything about specialist matters relevant to motor traders. On 10 March 2008, Tyn Lon appointed Deloitte to handle its Italian Uplift claim. Tyn Lon duly lodged an appeal with the FTT on 16 October 2009. The appeal was stayed behind Bristol Street Motors.
On 16 January 2013, Deloitte wrote to Tyn Lon seeking instructions in relation to its Italian Uplift claim. The letter confirmed that HMRC had refused the Italian Uplift claim. Deloitte indicated that they did not have another client who was intending to progress their own appeal, or become a lead case, and that the chances of anyone doing so were considered to be low. Tyn Lon's options were either to withdraw its appeal, or proceed with the litigation, which was not recommended given the cost of proceedings and the low prospects of success. On 14 March 2013, Tyn Lon confirmed to Deloitte that it did not wish to proceed with its appeal. Shortly afterwards, Tyn Lon's appeal was withdrawn.
The FTT was satisfied that all the appeals were withdrawn in reliance on advice received from Deloitte.
In 2013, and unbeknown to Deloitte, MHA, another adviser, was also in correspondence with HMRC with regard to Italian Uplift claims. MHA acted for a number of motor traders with such claims, including Listerdale Motor Company Ltd (Listerdale). MHA applied to the FTT, for Listerdale to be a lead case under Rule 18 of the Rules.
In December 2013, HMRC Solicitor's Office also wrote to AMS in relation to Italian Uplift claims and appeals formerly being conducted by AMS. As a result of this correspondence, in early 2014, AMS started to approach clients who had transferred to Deloitte to ascertain the status of their appeals and it was at this stage that they became aware that Deloitte had advised the former AMS clients to withdraw their appeals. In March 2014, AMS contacted MHA and became aware of its proposed lead case. On 13 May 2014, AMS engaged MHA to assist in seeking settlement of all its clients' Italian Uplift claims, including the Appellants.
By this stage, the FTT had made a lead case direction, under Rule 18, specifying Listerdale as a lead case for the purposes of the Italian Uplift claims.
Following the lead case direction, HMRC and MHA reached agreement on the basis for settlement of the Italian Uplift claims. Agreement in principle was reached in or about October 2014. All issues were agreed save for (1) establishing that individual Appellants were the entity entitled to be paid the amounts claimed, and (2) the quantum of the individual claims.
On 14 November 2014, Rolls Group made an application to the FTT to reinstate its appeal.
The FTT's decision
The judge set out a helpful summary of the general principles which apply when the FTT is required to consider whether to extend a time limit. He detailed the factors set out by the Upper Tribunal (UT) in Data Select Ltd v HMRC  and that the FTT should have regard to the overriding objective of dealing with cases "fairly and justly", as required by Rule 2 of the Rules. He commented that in Leeds City Council v HMRC, the UT had endorsed the approach adopted in Data Select and the fact that the UT had in that case commented that the amendments to the CPR introducing a stricter approach to compliance, as explained by the Court of Appeal in Mitchell v Associated Newspapers Ltd , had not been incorporated into the Rules. The judge noted that the factors relevant to whether an appeal should be reinstated on an application pursuant to Rule 17(3), were set out by the Upper Tribunal in Pierhead Purchasing v Commissioners of Revenue and Customs . It is necessary to consider:
- whether there was good reason for the delay;
- whether HMRC would be prejudiced by reinstatement;
- the loss to the appellant if reinstatement was refused;
- whether extending time would be prejudicial to the interests of good administration;
- the merits of the proposed appeal.
The judge also said that, when considering whether an appeal should be reinstated, an important consideration would be whether there is good reason for the withdrawal of the appeal and the circumstances in which reinstatement was being sought.
The fact that the Appellants had been professionally advised at the time and what effect this had on the merits of the application, was also considered by the judge. The judge said that, in considering an application under Rule 17(3), if a professional representative was at fault in failing to meet a time limit then that might be a relevant factor in deciding to extend time. The judge was of the view that where a party applied to reinstate an appeal in such circumstances, it would be relevant to consider whether the advice was such that no reasonably competent professional advisor could have given it.
Having provided some helpful commentary on the general principles applicable when considering whether to extend a time limit, the judge considered the two issues before him.
Should an extension of time be granted?
On the matter of an extension of time, the judge pointed out that it was clear there was a power under Rule 5(3)(a) of the Rules to extend the time within which an application to reinstate must be made. Rule 17(4) of the Rules provides that such an application must be made within 28 days following receipt of the notice of withdrawal by the FTT. The judge noted that in the case of the Rolls Group, the 28 day time limit expired in or about mid-April 2013. The application for reinstatement however was made on 14 November 2014, some 19 months later. The judge noted that the purpose of the 28 day time limit was clearly intended to promote finality.
The judge was of the view that the Appellants must be taken to have been aware of the 28 day time limit for reinstatement but that:
"… in the context of an application to extend time based on wrong advice from D, the appellants could not be expected to make such an application until they appreciated that the advice was wrong."
It was, however, apparent to AMS by March 2014 at the latest that the appeals had been withdrawn and why, and there was no application to re-instate until Rolls Group made its application in November 2014 (the other Appellants did so in February 2015). The judge said that the period from March 2014 until that time had to be viewed against the background of the 28 day time limit and accordingly he was not satisfied that there was a good explanation for the delay after March 2014.
The judge then considered a further related issue, namely, the consequences for the parties of a decision to extend or not to extend time. However, it was impossible to do this because other than the amount of the claims, he had no evidence before him as to the impact of the loss of individual claims on the individual Appellants. He did, however, conclude that HMRC had suffered prejudice. HMRC was entitled to consider that the appeals had been finalised and the time for an application for reinstatement had long passed.
Should the appeals be reinstated?
On the second issue, the judge considered Rule 17(3), in the light of the Pierhead Purchasing case, and said:
"The existence of a 28 day time limit to apply for reinstatement does not really give any indication as to what might constitute a good reason to seek reinstatement following a withdrawal. On one view it might be viewed as giving something akin to a cooling off period, recognising that an appellant might change his mind about withdrawal. Alternatively it might be viewed as simply giving time to identify and correct any mistake which led to a withdrawal. It is clear that there is no entitlement to reinstate following a withdrawal."
Reinstatement of an appeal remains a matter of discretion for the FTT and an applicant must show sufficient reasons to justify reinstatement. The judge was of the view however that this was not a case like Pierhead Purchasing where the Appellant did not receive advice on the consequences of withdrawal. Deloitte had advised the Appellants in terms that withdrawal would mean giving up on the matter. He said:
"… the Appellants had an opportunity to consider the advice they had received, to take soundings within the industry or to raise the matter with AMS, their previous adviser…".
The judge said that it was a factor to take into account that the Appellants had relied on the advice of a leading firm of professional advisors but it was also relevant to consider whether the advice was such that no reasonably competent professional advisor could have given it. If the advice was reasonable, then reliance on that advice would not support the Appellants' case. The grounds for seeking reinstatement could thus fairly be described, in the judge's view, as subsequently taking a different view as to the prospects of success.
The judge concluded that there was no material before him from which he could find that the appeals had anything more than a reasonable prospect of success and he was not satisfied that the advice received from Deloitte was wrong at the time it was given, or that it was advice that no reasonably competent professional advisor could have given. The most he could say was that a different view of the prospects of success had been reached. Accordingly, carrying out a balancing exercise and taking into account all the surrounding circumstances and the overriding objective, he did not consider that it would be appropriate to re-instate the appeals and the application was therefore dismissed.
Although hindsight is a wonderful thing, in this brave new world of HMRC 'nudge' letters and its various 'Settlement Opportunities', the decision in this case is a salutary reminder to taxpayers and advisors alike that when considering whether to withdraw an appeal, great care should be taken to ensure that such withdrawal is the right decision as it may be difficult to persuade the FTT to exercise its discretion to reinstate an appeal, particularly when the application is made a long time after the 28 day time limit has expired.
For the full judgment please click here.