Pine v HMRC – The costs of Justice prevent Justice

Pine v HMRC – The costs of Justice prevent Justice

Fri 17 Jun 2016

Anyone familiar with the UK Courts system will be aware that there may be instances where the costs of taking a case to Court may deter an appellant from pursuing a case to get the decision that they believe is due. It can become a simple commercial decision to accept what might be the wrong answer rather than possibly risk spending a lot of money to get to the right one. A recent example of that comes from the case of Shoshana Pine V HMRC.

Ms Pine, a non-UK resident living in Israel had been subjected to a penalty for failing to submit her 2011/12 self-assessment tax return (SATR) by the deadline of 31 January 2013. She appealed to the First tier Tribunal, one of her grounds being that the Notice to file a Return had not been sent to her personally. Instead it had been sent care of her appointed agents.

The relevant legislation at section 8 TMA 1970 provides that a taxpayer may be required to submit a return ‘by a notice given to him’. Further legislation at section 115 TMA 1970 allows that any notice which is to be served under the Taxes Acts may be either delivered to him or left at his usual or last known place of residence. Unfortunately, HMRC had been advised that correspondence for Ms Pine could be sent care of her adviser. Although the First tier Tribunal recognised that the Notice to file her return had neither been delivered to her, nor sent to her usual or last known place of residence, they considered that it had been adequately served on her by sending it to her appointed agent in accordance with the ‘Agency Rules’. In essence, the Tribunal extended the agency principle that says that receipt by the agent of the notice may be treated as receipt by the principal.

There was no cost for the Hearing at the First tier Tribunal. However, to appeal the decision, Ms Pine needed to take her appeal to the Upper Tribunal and this is where the question of costs came into play. Ms Pine ran the risk that, if she went to the Upper Tribunal and lost, she could end up having to pay HMRC’s costs – which, in practice, were likely to be far higher than the amounts of tax or penalties involved.

In efforts to protect against the exposure of costs, Ms Pine’s representative, Mr Michael Weissbraun, made an application to the Upper Tribunal for a ‘protective costs direction’ so that, if she were to lose, HMRC would meet their own cost. Mr Weissbraun argued that there was an important matter of principle, namely whether it is open to HMRC to serve notice to file a return upon a taxpayer’s appointed agent. He drew attention to the potential issues if the First tier Tribunal’s decision was to stand and HMRC took it as carte blanche to serve large numbers of notices to file returns to agents rather than taxpayers themselves. Apart from placing a heavy burden on the agents themselves, it ran the risk that taxpayers could find themselves penalised when, through no fault of their own, they were unaware that they had been served a notice to file a return.

HMRC opposed the costs application. They suggested that the point – regarding serving Notices upon the agents – was ‘not of general importance’ but, whatever the outcome, ‘this was not a case in which the burden of costs should fall upon the general body of taxpayers.’ To add insult to injury, when asked what they intended to do if Ms Pine were to drop her appeal, HMRC advised that they would be seeking their costs for dealing with the application for a protective costs direction, which they put at £2,616.

In the Victorian phrase, this made clear to Ms Pine that the game was not worth the candle and she subsequently withdrew her appeal.

The end result is that the important issue of whether HMRC can serve a notice to file a return by sending it care of an agent has not been considered by the Upper Tribunal. The matter is left to stand as decided by the First tier Tribunal.

Fortunately, decisions reached by the First tier Tribunal are not binding and do not set a precedent. However, that does not mean to say that HMRC might not indeed begin to serve returns on taxpayers who have gone abroad or whose whereabouts have become unknown by sending them care of their appointed agents, citing the First tier decision as their justification. When that happens, and taxpayers begin to be penalised for failing to submit returns that they were never sent, there may well be very many who regret that Ms Shoshana Pine was unable to afford the costs of taking her appeal further.


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