When tax cases are appealed to the First-tier Tribunal (FTT) generally there is no ‘cost shifting’. Many of the appellants are ordinary people do not have legal representation and the general rule is that no costs are awarded to either party unless one of the parties acted unreasonably.
A taxpayer, a provider of a care home facility in Gloucestershire had acquired some premises and filed a Stamp Duty Land Tax (SDLT) return back in 2008. HMRC subsequently enquired into this return and issued a determination that the SDLT charged should be greater, the taxpayer disagreed and took the case to the FTT. While waiting for the case to be heard HMRC issued an information notice to the taxpayer regarding the SDLT return that had already been determined. The taxpayer sent a notice of appeal to the information notice and agreed with HMRC that they would internally review its decision. The internal review took place but HMRC didn’t reverse the decision and upheld the information notice. The taxpayer then took the information notice appeal to the FTT. The FTT subsequently issued a notice of appeal to HMRC who then promptly withdrew the information notice and didn’t contest the information notice proceedings at the FTT.
The Court of Appeal (CoA) has now decided that HMRC didn’t act unreasonably when defending the appeal, as soon as HMRC were made aware of the legal proceedings they withdrew the information and didn’t contest the appeal. While the taxpayer had incurred costs in defending its position as HMRC hadn’t acted unreasonably during the actual legal proceedings that it was not possible for costs to be awarded. The CoA also considered the academic point of whether costs incurred before litigation can be part of a cost award. The CoA confirmed that they can be, by reference to similar legislation outside of the rules applicable to tax tribunals but unreasonable behaviour by a party has to continue once tribunal proceedings have begun. In this case, if HMRC had tried to argue to uphold in the information notices in the FTT then that behaviour would have been unreasonable and costs could be awarded.
The decision can be found at: Distinctive Care Ltd v Revenue And Customs – Find case law (nationalarchives.gov.uk)
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