In Pachangas Mexican Restaurant Ltd v HMRC [2019] UKFTT 436 (TC), the FTT allowed the taxpayer’s appeal against a demand for security as HMRC had failed to communicate the reasons behind its decision to demand security.


HMRC had concerns about the ability of Pachangas Mexican Restaurant Ltd (the taxpayer) to submit returns and pay VAT on time. These concerns were based on links between the taxpayer and other non-compliant businesses that had failed owing VAT. On 27 September 2017, HMRC served a written notification on the taxpayer which required it to provide security in the sum of £29,450, against future VAT sums due. There were no reasons given in the notification as to why HMRC required security. HMRC informed the taxpayer, by letter on 19 October 2017, that if it made taxable supplies without providing security, it would be committing a criminal offence under section 72(11), Value Added Taxes Act 1994.

The taxpayer asked HMRC for the reasons for the requirement to provide security. HMRC responded by letter on 3 November 2017, stating that security was required due to “concerns that the company would be non-compliant. These concerns arose due to the links between this company and other non-compliant businesses which failed owing VAT.

The taxpayer appealed to the FTT.

FTT decision

The appeal was allowed.

The FTT was very critical of HMRC.

The officer who made the decision failed to attend the FTT hearing. The FTT commented this was a serious omission as it is the reasoning of the officer who took the decision, on the basis of the facts and matters taken into account by her, that is important. By failing to attend, the taxpayer was denied the opportunity to cross-examine her.

The FTT confirmed that for almost all public law decisions, particularly those where the exercise of discretion is involved, valid reasons must exist and be communicated to the citizen at the time the requirement or decision is notified.

Because the taxpayer had been given no reasons for the demand, its right of appeal was “of little or no practical value”. The lack of information meant it was unable to make an informed decision on whether to exercise this right. The FTT commented that: “It is extremely important that a person should be aware of the facts and reasons relied upon by a public authority which imposes a requirement or decision”. In its view, this was a situation where a ‘minded to’ letter from HMRC would have been appropriate. Such a letter would have given the taxpayer the opportunity to respond to, comment on, or make representations on, the facts presented in the letter.

The FTT concluded that the absence of reasons behind the decision to demand security was unlawful and therefore unreasonable. Accordingly, the appeal was allowed.


It is unusual for HMRC to lose an appeal based on a demand for security. In this case, the reasons HMRC considered it had for demanding the security may well have been justified but because the reasoning behind the decision was not communicated to the taxpayer, the FTT concluded that the demand was unlawful and unreasonable.

Although the FTT allowed the appeal, it made clear in its decision that it was making no finding as to whether HMRC could or should have issued the notification requiring security to be provided. Its decision was based on the fact that HMRC had failed to provide the taxpayer with its reasons for issuing the notification.

The decision can be viewed here.