Liban Awdon v The Commissioners for HMRC
[2023] UKFTT 361 (TC)
Aftab Ahmed v The Commissioners for HMRC
20 March 2024
[2024] UKFTT 236 (TC)
First-tier Tribunal
Mr. Ahmed won an appeal against the taxman (HMRC). HMRC argued he was careless, but the judge said he wasn't. The judge also made HMRC pay Mr. Ahmed's legal fees because HMRC should have known they were wrong but kept arguing their point anyway.
Key Facts
- •Mr. Aftab Ahmed appealed a discovery assessment issued by HMRC under s 29 TMA 1970.
- •The appeal centered on whether Mr. Ahmed acted carelessly in relation to written-off loans from his companies, impacting his 2013-14 tax liability.
- •HMRC argued Mr. Ahmed was careless for not notifying them of the written-off loans and their tax implications.
- •Mr. Ahmed argued he was not careless, having notified HMRC through his auditors.
- •The Tribunal found in favor of Mr. Ahmed, determining he had taken reasonable care.
- •Mr. Ahmed subsequently applied for costs, arguing HMRC acted unreasonably in defending the appeal.
Legal Principles
Tribunal's power to award costs is derived from s 29 of the Tribunals Courts and Enforcement Act 2007 (TCEA) and subject to Tribunal Procedure Rules.
Tribunals Courts and Enforcement Act 2007 (TCEA), s 29
A costs order can be made if the Tribunal considers that a party acted unreasonably in bringing, defending, or conducting the proceedings (Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, rule 10(1)(b)).
Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, rule 10(1)(b)
The threshold for 'unreasonable' conduct is lower than 'wholly unreasonable'; a single act of omission can suffice; and the focus is on the handling of the case before the FTT, not the original decision's quality (Market & Opinion Research International Ltd v HMRC [2015] UKUT 12 (TCC); Distinctive Care Ltd v HMRC [2018] UKUT 155 (TCC)).
Market & Opinion Research International Ltd v HMRC [2015] UKUT 12 (TCC); Distinctive Care Ltd v HMRC [2018] UKUT 155 (TCC)
Outcomes
Mr. Ahmed's appeal was allowed.
The Tribunal found Mr. Ahmed had taken reasonable care to notify HMRC of the written-off loans through his auditors, despite not directly notifying the 'Income Tax Department'.
Mr. Ahmed's application for costs was allowed.
HMRC acted unreasonably by pursuing an argument (Mr. Ahmed's carelessness) despite possessing evidence (auditors' letter and HMRC officer's note) suggesting otherwise. A rigorous review should have revealed this.