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M26: Preliminary hearing
Power to direct preliminary hearing
“(3)…the Tribunal may by direction--
(e) deal with an issue in the proceedings as a preliminary issue;” (FTT Rules, r.5(3)(e)).
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Rejected where application made without notice at hearing
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"[66] In Wrottesley v HMRC [2015] UKUT 637, the UT, having considered those and other authorities, set out the approach which a Tribunal should take when deciding whether to direct that a point be decided as a preliminary issue. Since Mr Freund's application was made without notice, it is plainly not possible for me to be satisfied that the principles set out at [28] of Wrottesley are met." (Electric Mobility Euro Limited v. HMRC [2025] UKFTT 333 (TC), Judge Redston)
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Summary of approach
“We think that the key principles to consider can be summarised as follows:
(1) The matter should be approached on the basis that the power to deal with matters separately at a preliminary hearing should be exercised with caution and used sparingly.
(2) The power should only be exercised where there is a 'succinct, knockout point' which will dispose of the case or an aspect of the case. In this context an aspect of the case would normally mean a separate issue rather than a point which is a step in the analysis in arriving at a conclusion on a single issue. In addition, if there is a risk that determination of the preliminary issue may prove to be irrelevant then the point is unlikely to be a 'knockout' one.
(3) An aspect of the requirement that the point must be a succinct one is that it must be capable of being decided after a relatively short hearing (as compared to the rest of the case) and without significant delay. This is unlikely if (a) the issue cannot be entirely divorced from the evidence and submissions relevant to the rest of the case, or (b) if a substantial body of evidence will require to be considered. This point explains why preliminary questions will usually be points of law. The tribunal should be particularly cautious on matters of mixed fact and law.
(4) Regard should be had to whether there is any risk that determination of the preliminary issue could hinder the tribunal in arriving at a just result at a subsequent hearing of the remainder of the case. This is clearly more likely if the issues overlap in some way—see (3)(a), above.
(5) Account should be taken of any potential for overall delay, making allowance for the possibility of a separate appeal on the preliminary issue.
(6) The possibility that determination of the preliminary issue may result in there being no need for a further hearing should be considered.
(7) Consideration should be given to whether determination of the preliminary issue would significantly cut down the cost and time required for pre-trial preparation or for the trial itself, or whether it could in fact increase costs overall.
(8) The tribunal should at all times have in mind the overall objective of the tribunal rules, namely to enable the tribunal to deal with cases fairly and justly.” (Asiana Ltd v. HMRC [2017] UKFTT 393 (TC), §12, Judge Allatt).
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- Purpose is to save time and cost
“Consideration should be given to whether determination of the preliminary issue would significantly cut down the cost and time required for pre-trial preparation of for the trial itself, or whether it could in fact increase costs overall…It is not clear given the prospects of success and the relevant dependencies of the issues that a preliminary issues hearing would make any significant saving in terms of cost or delay.” (Wrottesley v. HMRC [2015] UKUT 637 (TCC), §§28(7)…48, Judges Herrington and Falk).
“The purpose of calling a preliminary hearing is to save costs in that resolution of the preliminary issue ought to have the possibility of resolving the dispute without a full hearing. So I agree it is normal to have a preliminary hearing to resolve issues of principle, leaving quantum to be decided later if necessary.” (DPAS Ltd (No.2) v. HMRC [2015] UKFTT 0071 (TC), §20)
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- Can the case be more fairly and justly determined by severing one issue?
"[49] The critical issue here therefore is whether the dispute in this case can be more fairly and justly determined by severing ground 1 and dealing with it independently from grounds 2 and 3. If it can be then a preliminary issue hearing should be directed." (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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- Likelihood of appeal could add costs
“Account should be taken of potential for overall delay, making allowance for the possibility of a separate appeal of the preliminary issue.” (Wrottesley v. HMRC [2015] UKUT 637 (TCC), §28(5), Judges Herrington and Falk).
“Given the amount at stake in the present case it is likely that whoever loses the preliminary issue will consider an appeal. I agree with Judge Gort that this is likely to cause further delay in what is already a stale case and that this would not be desirable.” (Hargreaves v. HMRC [2014] UKUT 395 (TCC), §46)
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- Resort to sparingly
“It has often been said that the power that tribunals have to deal with issues separately at a preliminary hearing should be exercised with caution and resorted to only sparingly. This is in keeping with the overriding aim of the tribunal system. It was set up to take issues away from the ordinary courts so that they could be dealt with by a specialist tribunal as quickly and simply as possible. As Lord Scarman said in Tilling v Whiteman [1980] AC 1, 25, preliminary points of law are too often treacherous short cuts.” (SCA Packaging Ltd v. Boyle [2009] UKHL 37, §9)
“[T]he case has reached this House on hypothetical facts, the correctness of which remain to be tried. I, with others of your Lordships, have often protested against the practice of allowing preliminary points to be taken, since this course frequently adds to the difficulties of courts of appeal and tends to increase the cost and time of legal proceedings. If this practice cannot be confined to cases where the facts are complicated and the legal issue short and easily decided, cases outside this guiding principle should at least be exceptional.” (Tilling v. Whiteman [1979] UKHL 10, Lord Wilberforce)
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- Listing issues due to Counsel unavailability not relevant
"[50] I start by noting that I do not consider that difficulties associated with listing a hearing due to unavailability of counsel is a matter to which any real weight should be given. Where there are significant difficulties in listing because one side's counsel has limited availability, the Tribunal can, and has previously, required the party causing the difficulty to appoint alternative counsel. To do so to prevent perpetual delays in listing is in accordance with the overriding objective but often miraculously causes listing difficulties to disappear. " (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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Essential criterion is whether there is a short knockout point
“The essential criterion for deciding whether or not to hold a pre-hearing is whether…there is a succinct, knockout point which is capable of being decided after only a relatively short hearing. This is unlikely to be the case where a preliminary issue cannot be entirely divorced from the merits of the case, or the issue will require the consideration of a substantial body of evidence. In such a case it is preferable that there should be only one hearing to determine all the matters in dispute.” (SCA Packaging Ltd v. Boyle [2009] UKHL 37, §9, Lord Hope).
“The power should only be exercised where there is a “succinct, knockout point” which will dispose of the case or an aspect of the case. In this context, an aspect of the case would normally mean a separate issue rather than a point which is a step in the analysis in arriving at a conclusion on a single issue. In addition, if there is a risk that the determination of the preliminary issue may prove to be irrelevant, then the point is unlikely to be a “knockout” one.” (Wrottesley v. HMRC [2015] UKUT 637 (TCC), §28(2), Judges Herrington and Falk).
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- Short point
“An aspect of the requirement that the point must be a succinct one is that it must be capable of being decided after a relatively short hearing (as compared with the rest of the case) and without significant delay. This is unlikely if (a) the issue cannot be entirely divorced from the evidence and submissions relevant to the rest of the case, or (b) if a substantial body of evidence will require to be considered. This point explains why preliminary questions will usually be points of law. The Tribunal should be particularly cautious on matters of mixed fact and law.” (Wrottesley v. HMRC [2015] UKUT 637 (TCC), §28(3), Judges Herrington and Falk)
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- Succinct: 5 - 7 days is not succinct
"[31] I find that - taken in isolation - five to seven days for a preliminary hearing is not "succinct", nor is it "relatively succinct" when compared with a time estimate for a full hearing of eleven to thirteen days (being the time estimate for hearing the domicile issue plus the time estimate for hearing the liability issue). This criterion weighs significantly in favour of not directing a hearing of a preliminary issue." (Embiricos v. HMRC [2022] UKFTT 464 (TC), Judge Aleksander)
- Strength of proposed argument is a factor
"[56] It is my view that the strength of the possible argument is a factor which could be taken into account when applying my discretion. If I considered that the argument had good prospects of success and was therefore more likely to deliver the knockout point asserted, it is a factor I would weigh more significantly in the balance in favour of a direction for a preliminary issues hearing. However, I do not consider the converse to be as compelling. In a case where there has been no rule 8 Tribunal Rules application for strike out on the basis of no reasonable prospects of success it must be assumed to be the case that HMRC consider the point at least arguable. Here HMRC appeared to indicate that the argument might not be entirely hopeless for the 2013/14 Determination because that Determination was issued prior to any opinion having been issued. Where therefore there is an arguable, but not a strongly arguable case, I consider the strength of the case to be a neutral circumstance." (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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No requirement that preliminary hearing must determine entire proceedings
"[57] A determination of domicile as a preliminary issue (if decided in HMRC's favour) will not dispose of all the issues in the appeals, and so a further hearing would be required to resolve the liability issue. If, however, the domicile issue is resolved in Mr Embiricos’ favour, that will resolve the appeal, and no hearing on the liability issue will be required. I find that it is clear from [28(6)] of Wrottesley that there is no requirement that a preliminary hearing must be determinative of the entire proceedings. The Upper Tribunal only stated that the First-tier Tribunal must consider whether there was any possibility that determination of the preliminary issue could mean that there was no need for a further hearing. This criterion is satisfied." (Embiricos v. HMRC [2022] UKFTT 464 (TC), Judge Aleksander)
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Not to be done if issues difficult to segregate/ compartmentalise
“While I do not suggest that the hearing of a preliminary issue will never be appropriate for determination by a tribunal, I consider that the power to determine a preliminary point should be sparingly exercised. It is, I believe, often difficult to segregate in a wholly compartmentalised way a single issue in this field from other material that may have relevance to the matter to be decided.” (Chris Ryder v. Northern Ireland Policing Board [2007] NICA 43, §16, approved in SCA Packaging Ltd v. Boyle [2009] UKHL 37, §10).
“I acknowledge that, if the appellant succeeded on a preliminary issue, that would dispose entirely of the proceedings. Since I believe that a hearing of a preliminary issue would be shorter than the substantive hearing, there is at least a prospect that a preliminary hearing would save time and money. However, I believe that consideration is more than outweighed by the very real risk that a preliminary hearing will add to delay and expense by the Tribunal having to go over the same ground twice: once at a preliminary hearing and (if the appellant is unsuccessful) again at a substantive hearing.” (Addo v. HMRC [2016] UKFTT 787 (TC), §18, Judge Jonathan Richards).
- Validity of discovery assessment cannot be divorced from underlying facts
"[59] Although the threshold test for a discovery assessment is different, and may be considered to represent a higher bar for HMRC to overcome requiring a closer investigation of the underlying facts and circumstances, the Tribunal has reasonably consistently determined that a preliminary issue hearing is not appropriate in discovery assessment cases (see for example Hargreaves v HMRC [2014] UKUT 395 (TCC) at paragraph 43 in which the UT considered that the discovery threshold could not be divorced from the underlying facts)." (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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- Inappropriate where the issue is the validity of VAT assessment
"[61] In my view a strong parallel can be drawn to the process by reference to which HMRC determine that it "appears that VAT returns are incorrect or incomplete" justifying a best judgment assessment. In that context it has been definitively concluded that a preliminary issues hearing would usually be inappropriate. In Pegasus Birds Ltd v HM Customs & Excise [2004] EWCA Civ 1015 the Court of Appeal, citing from Rahman v HM Customs & Excise [1998] STC 826 stated:
"In principle there is nothing wrong in the Tribunal considering the validity of an assessment as a separate and preliminary issue, when that is raised expressly or implicitly by the appeal, and, as part of that exercise, applying the Van Boekel test. There is a risk, however, that the emphasis of the debate before the Tribunal will be distorted. If I am right in my interpretation of Van Boekel, it is only in a very exceptional case than an assessment will be upset because of a failure by the Commissioners to exercise best judgment. ... The danger of the two stage process is that it reverses the emphasis..." (original emphasis)
[62The Court then provided guidance to the Tribunal as follows:
"... There may be a few cases where a "best of their judgment" challenge can be dealt with shortly as a preliminary issue. However, unless it is clear that time will be saved thereby, the better course is likely to be to allow the hearing to proceed on the issue of amount, and leave any submissions on failure of their best judgment, and its consequences, to be dealt with at the end of the hearing." (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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- Similar for PAYE/NICs decision validity
"[63] Whilst it is clear that the focus of ground 1 is not identical to a best judgment challenged in VAT as ground 1 seeks to establish the minimum information HMRC must have before they are entitled to issue Determinations of tax based on an appearance that there may be tax payable I consider that the challenges identified in Pegasus Bird are similar...
[64] Whilst the statutory test for a decision to issue a Notice under s8 is differently framed it is substantively similar in that a decision that a person is liable to pay contributions must be made to the best of the officer's information and belief. Accordingly, an understanding of the evidence on which the decision is made will be necessary.
[65] In my view, the most effective and thereby just and fair means of determining this appeal taking account of all the factors listed in rule 2(2) Tribunal Rules, in particular the requirement to act proportionately and avoid delay, is for the appeal to progress towards a single hearing of all issues." (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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- Time limit may be different if facts are entirely divorced from facts justifying assessment
"[60] The question of limitation, referred to by Judge Malek, may be different where the facts relevant to limitation are "entirely divorced" from the underlying facts justifying an assessment. However, in my view, ground 1 cannot be equated to a limitation issue. A time limit expires on a fixed date or by reference to a calculation. The test here is evaluative - did it appear that tax may be payable." (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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- Or where there is a distinct allegation of bad faith/impropriety
"[63] ... As with a VAT assessment, unless there is some pleaded allegation of vindictiveness or dishonesty on the part of HMRC, the evaluation of whether it appeared to HMRC that tax may have been payable is going to be entirely intertwined with the evidence of liability to tax and require an assessment of what the officers were entitled to reasonably conclude on the evidence available to them." (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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Quantum hearing may take place before appeal against preliminary decision determined
“There seems no reason in principle why the FTT would not proceed with determining the quantum appeal while an appeal against the preliminary ruling was pending. The policy behind s 85B [VATA] would suggest that it should. The policy behind ordering the preliminary hearing was to save wasted costs: but that was to save the wasted costs of determining quantum if HMRC won in principle. Once HMRC has lost in principle, that policy would no longer apply.” (DPAS Ltd (No.2) v. HMRC [2015] UKFTT 0071 (TC), §21).
Examples
- Preliminary hearing on discovery assessment validity: can the issue be separated?
“…in an appropriate case in which that question [of whether the conditions for a discovery assessment are met] can be decided as a discrete question, sensible case management would allow a preliminary issue to be determined. In some cases, however (and this was one) the question of satisfaction of the conditions and the underlying tax liability cannot be divorced.” (Hankinson v. HMRC [2011] EWCA Civ 1566, §26).
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- Preliminary hearing granted on question of staleness
“I am conscious of Mr Hall's view that whilst there is an attraction to having the validity of the discovery assessments heard a preliminary issue, it is a fatal attraction. I disagree. This case is one where, in my view, the determination of this preliminary issue would be a satisfactory way of comparatively cheaply and relatively quickly disposing of the appeal as a whole. The hearing of the validity of the discovery assessment as a preliminary issue is consistent with the overriding objective of dealing with cases fairly and justly.” (Milligan v. HMRC [2017] UKFTT 552 (TC), §60, Judge Popplewell)
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- No preliminary hearing simply to allow taxpayer advantage of forcing HMRC to go first
“In my judgment, on the true interpretation of section 29 TMA, a taxpayer has no right to a separate hearing to determine whether the conduct/officer condition is satisfied. He receives the protection to which he is entitled on the hearing of the appeal through the exercise by the FTT of its powers of case management.” (Hargreaves v. HMRC [2016] EWCA Civ 174, §61, Arden LJ).
“…What [the taxpayer] really wants, as is apparent from the argument, is to have two attempts to challenge the assessment, first by a preliminary hearing of the competence issue at which he can call no evidence if so advised; and then if he loses that challenge, at a subsequent hearing of the substantive issue at which he can deploy his evidence to the full. It seems to me to be rather [the taxpayer] who is attempting a procedural manoeuvre by which he can have two separate bites at the cherry in this way. This does not seem to me to be something that he is entitled to as of right.” (Hargreaves v. HMRC [2014] UKUT 395 (TCC), §31, Nugee J).
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- Preliminary hearing to determine burden of proof
“I was also easily persuaded by both counsel that it was inappropriate for exchange of evidence to take place before the issue of burden of proof was resolved. As Mr Jones explained, and Mr Gordon agreed, if HMRC had the burden of proof, their approach to the case would be quite different. HMRC would have to call witnesses, possibly even expert witnesses such as on valuation, to establish their case of Halifax-abuse. On the other hand, if HMRC did not have the burden of proof, they might elect (as they had done in Hilden Park 1) to call no evidence at all but rely on cross-examination to challenge the appellant’s evidence that there was no abuse.” (Hilden Park LLP v. HMRC [2017] UKFTT 217 (TC), §20, Judge Mosedale).
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- Preliminary hearing on domicile before quantum not granted
[63] I find that given the complexity of the issues before the Tribunal and the amounts involved, it would not be disproportionate to direct a preliminary enquiry. However, I have found that making such a direction carries a material risk of delaying the overall resolution of the appeal, and that this risk weighs more heavily against holding a preliminary hearing than the fact that such a hearing would not be disproportionate to the issues in dispute. Overall, I find that the requirements of the overriding objective favour do not favour holding a preliminary hearing.
[64] Having weighed up the various factors above, I consider that criteria supporting having a preliminary hearing on domicile are outweighed by the contrary factors. Mr Embiricos’ application that there should be a preliminary hearing of the domicile issue is dismissed." (Embiricos v. HMRC [2022] UKFTT 464 (TC), Judge Aleksander)
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- Not granted for challenge that PAYE/NICs decision issued prematurely (and now HMRC are out of time)
"[67] For the sake of completeness and addressing the factors identified in Wrottesley:
(1) In the circumstances of this case, to direct a preliminary issue would be contrary to a cautious approach whether such an approach is the starting point or as a tie breaker.
(2) HMRC have not applied under rule 8 for ground 1 to be struck out on the basis that there is no reasonable prospect of it succeeding and appeared to acknowledge that as the Determination for 2013/14 predates the opinion ground 1 is not entirely fanciful for that year. However, even if successful for 2013/14 its prospects diminish as HMRC progressed with their review of Mr Vine's employment status to the point of conclusion. The review being by reference to a single contract spanning all tax years under appeal. As such, ground 1 is unlikely to represent a knockout point avoiding consideration of the contract and its operation in practice.
(3) The proportion of the overall hearing which would address ground 1 was agreed to represent approx. 25% of the overall time and thus might have been capable of being decided at a short hearing. But as, in my view, it is not an issue which can be "entirely divorced" from the evidence and submissions relating to grounds 2 and 3 it is not appropriate to deal with it as a preliminary issue.
(4) There was agreement that determination of ground 1 was unlikely to hinder the consideration of grounds 2 and 3.
(5) If a preliminary issue were directed, together with appropriate directions for the discrete disclosure of documents and evidence relating to it, for it then to be conceded, on that evidence, there would have been an unnecessary delay. It is far better that the standard directions relating to the disclosure of evidence including witness statements proceeds in the normal way and ground 1 be dealt with at trial.
(6) It is almost inconceivable that no hearing of grounds 2 and 3 would be required. Mr Gordon indicated that if the 2015/16 Notice were left standing, having been issued after the conclusion of the employment status review, the Appellant may concede the appeal on cost benefit grounds (there being of the order of £20k NICs at stake for that year alone). But, in my view, given such an equivocal indication of concession and given at least the possibility that the ground 1 outcome may be different on the facts across the years, it is almost inconceivable that no hearing of grounds 2 and 3 would be required.
(7) The cost of preparing for two hearings and for one are unlikely to be materially different: two hearings would cost more because of the duplication and requirement to refresh that would be necessitated. It is not however, a significant factor.
(8) For the reasons given this was not a marginal decision the interests of dealing justly and fairly with this appeal require that it now be progressed." (Jelly Vine Productions Ltd v. HMRC [2024] UKFTT 562 (TC), Judge Brown KC)
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Backdoor attempt to obtain preliminary hearing
“The Appellant suggested that he had a right to have a decision on the preliminary issue before the Tribunal continued to hear the substantive appeal. We do not agree…Other than the references in Hargreaves, we are not clear what “right” the Appellant was asserting. The Appellant has a right to a fair hearing but we cannot see how this could be prejudiced by our approach of reserving our decision on the s 29 issue and hearing the substantive case. The parties were already prepared for the hearing of the substantive issues and witnesses were at the Tribunal. There might be an advantage to both parties in terms of time and costs if at this stage the Tribunal could decide that there had been no valid discovery, but the Tribunal had made it clear that it was unrealistic to expect an extempore decision on that point, which was in danger of consuming more legal argument than the substantive case.” (Anderson v. HMRC [2016] UKFTT 565 (TC), §§76 – 77).