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P8: Costs in the FTT
FTT may order costs of its own motion or on an application
“(2) The Tribunal may make an order under paragraph (1) on an application or of its own initiative.” (FTT Rules, r.10(2)).
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Form of making application
“(3) A person making an application for an order under paragraph (1) must--
(a) send or deliver a written application to the Tribunal and to the person against whom it is proposed that the order be made; and
(b) send or deliver with the application a schedule of the costs or expenses claimed in sufficient detail to allow the Tribunal to undertake a summary assessment of such costs or expenses if it decides to do so.” (FTT Rules, r.10(3)).
Lack of schedule of costs does not invalidate application
“I suggested to [the taxpayer] that this was a “technical objection” in the sense that it could be remedied one way or another without prejudice to the Appellant. [the taxpayer] pointed to the fact that the requirement for a schedule or costs was mandatory, in that Tribunal Rule 10(3)(b) uses the word “must” in relation to the requirement to include a schedule of costs. I still regard it as a technical objection in circumstances where it is accepted that there will be no summary assessment of costs. The Tribunal plainly has jurisdiction to waive the requirement in an appropriate case. There is nothing to prevent the Tribunal from waiving the requirement at any stage and I remain satisfied that my direction released on 31 August 2016 was appropriate in circumstances where there was no real prejudice from the absence of a schedule of costs… I note also that Tribunal Rule 7(1) provides that an irregularity resulting from a failure to comply with any requirement in the Rules does not of itself render void any step taken in the proceedings. I do not consider that failure to provide a schedule of costs within the time for making an application for costs renders the application invalid.” (Warren v. HMRC [2017] UKFTT 521 (TC), §§18…19, Judge Cannan).
Failure to submit schedule after reminder leading to dismissal of application
“[18] Having given the Appellant a more than adequate opportunity to remedy the deficiency in its application, without receiving any response within the 28 days specifically allowed to do so, I took the view that it was just to refuse the application. In doing so, I noted that HMRC had informed the Appellant of their withdrawal of the disputed decision within three weeks of being notified of the appeal, and the amount of any costs in respect of which an order could be made was therefore likely to be small, even if unreasonable conduct could be established; thus it was not appropriate, in my view, for any further amounts of judicial and administrative time to be spent on the matter.” (R A Drinks Limited v. HMRC [2014] UKFTT 304 (TC), Judge Poole).
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Form of schedule of costs
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"[59] When considering the extent of the detail required in a schedule of costs claimed, there are in our view two important factors in Rule 10 to be taken into account. The first is the one focused on by the FTT, namely that the schedule must be “in sufficient detail to allow the Tribunal to make a summary assessment”, but there is also a second factor. Rule 10(5)(a) provides that “[t]he Tribunal may not make an order under paragraph (1) against a person … without first giving that person an opportunity to make representations”. This is an important safeguard. In a situation where a representative is known to be advising a number of parties on closely associated matters involving the same points of law, it gives the prospective paying party the opportunity to raise the point and put forward submissions as to why the amounts claimed might, in the light of it, be excessive." (Distinctive Care Ltd v. HMRC [2018] UKUT 155 (TCC), Judge Sinfield and Judge Poole)
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- Schedule of costs need not be in usual form
“Attached to the application dated 16 September 2015 was a schedule of correspondence (mostly between Mr Lewis and HMRC) with time spent by Mr Lewis in relation to each item and invoices raised by Lewis Associates at certain intervals. The schedule states that the total costs incurred by Enviroengineering amounted to £7,713.74 excluding VAT, which had been recovered and was not claimed. The costs included charges for 59 hours of Mr Lewis’s time at £120 per hour. In my view, this document is a schedule of costs within rule 10(3)(b) even though it is, understandably as Mr Lewis is not a lawyer, not in the usual form. However, I would not make a summary assessment in this case. I consider that the number of items, the period of time and the amount of the fees described in the schedule make this case unsuitable for summary assessment by the FTT.” (Enviroengineering Ltd v. HMRC [2016] UKFTT 122 (TC), §37).
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- Sufficient detail to facilitate a rough but swift assessment
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"[62] I therefore consider that the UT’s guidance that “the time spent by each fee earner should also be given, together with a breakdown showing when the time was spent and giving a brief description of the work done on each occasion” must be interpreted so as to reflect the level of particularisation which would facilitate a rough, but swift assessment of the costs incurred in the appeal. This should not be a particularly onerous task in any case which has been judicially determined as it is reasonable for the claimant and the paying party to assume (save in exceptional circumstances) that the judge determining the case will consider the costs application." (Harris v. HMRC [2022] UKFTT 447 (TC), Judge Brown KC)
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- Must contain sufficient summary of time and cost incurred in relation to key stages
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"[69] We consider the FTT was correct to indicate that the name of each fee earner should be stated, along with the hourly rate for that fee earner and a sufficient statement of the level of experience and expertise of that fee earner to enable the FTT to form a view of the appropriateness of the hourly rate claimed and to assess whether it was reasonable for the relevant work to have been done by a fee earner of that standing. The fee earner’s professional qualification or other status should be identified (e.g. paralegal, trainee solicitor, solicitor, chartered tax adviser, accountancy qualification) and approximate length of experience in that role. The geographical location of the fee earner will also usually be relevant – it is well established that appropriate hourly rates vary by location. Clearly, the time spent by each fee earner should also be given, together with a breakdown showing when the time was spent and giving a brief description of the work done on each occasion. Any disbursements claimed must also be clearly identified, giving the amount of the cost incurred, what it was incurred on and how that expenditure relates to the proceedings. The schedule should also make clear the extent to which any VAT charged is recoverable as input tax by the claiming party, so that it should not properly be recoverable from the paying party. Finally, if the figures in the schedule are calculated as some apportioned part of a larger figure, it would always be advisable for details of the apportionment to be included in the application." (Distinctive Care Ltd v. HMRC [2018] UKUT 155 (TCC), Judge Sinfield and Judge Poole)
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"[49] Under the FTT Rules there appears to be an assumption that all cases may be appropriate for summary assessment whether or not the matter has required a hearing or been determined on the papers, or indeed settled. The rules require the claiming party to produce a schedule of costs so as to facilitate summary assessment, should it be appropriate, and, for the paying party, pursuant to FTT Rule 10(5), to make representations on the schedule prior to any decision being taken on summary assessment.
[50] As a consequence, I find that a compliant costs schedule must include as a minimum the level of particularisation as is required under the CPR. More detail may be required where, as here, there has been no judicial determination of the appeal. The schedule of costs needs to provide a sufficient summary of the time and cost incurred in relation to key stages/activities (most specifically critical documents) in the appeal.
[51] I therefore find that the Upper Tribunal's guidance that “the time spent by each fee earner should also be given, together with a breakdown showing when the time was spent and giving a brief description of the work done on each occasion” must be interpreted so as to reflect the level of particularisation which would facilitate a rough, but swift assessment of the costs incurred in the appeal." (Patel v. HMRC [2023] UKFTT 128 (TC), Judge Aleksander)
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- Must specify who carried out the work and indicate their level of experience
“[16] My conclusion was that the schedule was to some extent deficient: it was impossible to tell who had carried out the work and their level of experience: therefore it was impossible to decide if their claimed hourly rate was commensurate with their experience level. I could guess, for instance that ‘JL’ at £500 per hour was a partner of many years’ experience, but this was not stated and might not be the case. Without the information on name/grade/years of experience, it was not possible for me to undertake a summary assessment. The Rule 10(3)(b) requires the schedule to be in sufficient detail to enable summary assessment. As I find that this schedule was not in sufficient detail to enable summary assessment because of these defects, this was a second and more than a merely trivial breach of the rules.” (Distinctive Care Ltd v. HMRC [2016] UKFTT 764 (TC), Judge Mosedale)
- Where costs divided between different clients, must specify the basis on which that was done
“[20] The schedule was, however inadvertently, misleading. Cornerstone Tax had, on their case, actually spent £75,000 in costs on the 30 appeals; whether that was a reasonable amount of work to carry out on 30 identical appeals being dealt with en bloc was a different question to one of whether it was reasonable to spend £2,500 working on a single appeal. Moreover, it seemed to me, and the appellant’s counsel agreed, that the former question was one for detailed assessment on taxation. By presenting a claim for £2,500, however, the appellant submitted a claim for costs in an amount which parties would reasonably expect to be dealt with on summary assessment.
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[23]The failure to do so was certainly a breach of the spirit of Rule 10(3)(b). I consider it was also an actual breach of Rule 10(3)(b) because the ‘breakdown of costs’ was not a schedule of what was actually claimed: what was actually claimed was one-thirtieth of a larger schedule of costs, a copy of which had not been provided. Either way, it is in the Tribunal’s discretion whether to award costs and the failure to explain with the application how the costs were actually calculated meant that I would not exercise my discretion in the appellant’s favour. Whether or not it was an actual breach of the requirement to provide a schedule of costs, the appellant had not taken care to ensure that the schedule provided gave an accurate picture of how the costs it claimed had been calculated. It should have done so.” (Distinctive Care Ltd v. HMRC [2016] UKFTT 764 (TC), Judge Mosedale)
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- Should include statement of compliance with indemnity principle
"[56] PD 44.9.5(3) provides that a certificate in the form of a statement that “The costs stated above do not exceed the costs which the [party] is liable to pay in respect of the work which this statement covers. Counsel’s fees and other expenses have been incurred in the amounts stated above and will be paid to the persons stated” as set out in N260 is not required only in identified instances. This certificate preserves the indemnity principle of cost recovery. I consider that it is entirely appropriate that any claim for costs under the FTT Rules should provide an adequate assurance as to the application of the indemnity principle albeit that the precise formulation provided for in N260 need not be followed. The Schedule did not contain such a statement." (Patel v. HMRC [2023] UKFTT 128 (TC), Judge Aleksander)
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Or sufficient indication that client was liable
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"[72] The certificate preserves the indemnity principle of cost recovery. I consider therefore that it is entirely appropriate that any claim for costs under the FTT Rules should provide an adequate assurance as to the application of the indemnity principle albeit that the precise formulation provided for in N260 need not be followed.
[73] The Schedule of Costs prepared on behalf of the Appellant did not contain the statement. It did, however, set out the total costs incurred by reference to a discounted rate (indicating that the engagement terms provided for such a discount) and then identified that the claim was limited to £279,502.90 in respect of solicitors’ fees plus Counsel’s fees, expenses and VAT. In my view that is a clear indication that the Appellant was liable to and/or had already paid costs of the reduced sum and not the total costs incurred (even at the discounted rate).
[74] On balance, I accept that the Schedule of Costs was not deficient in this regard." (Harris v. HMRC [2022] UKFTT 447 (TC), Judge Brown KC)
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Examples re deficient form
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- Schedule making no attempt to identify the relevant costs
"[39] The Schedule simply lists the costs charged by RPC in the most general terms: for example numerous items are simply identified as “correspondence with Counsel” “correspondence with HMRC”; “case management” or “work on evidence”. Others relate to Exclusive Promotions, but no attempt has been made to remove those costs.
[40] There is no attempt, either, to allocate costs as between Mr Fox’s two penalty appeals, which remained live and were determined by the Substantive Decision, and his three withdrawn surcharge appeals. This is significant because Mr Fox had three grounds of appeal, of which two were based on reasonable excuse. Those two grounds remained in issue to exactly the same extent when Mr Fox’s surcharges were cancelled and the related appeals withdrawn.
[41] Despite RPC’s assertions, I agree with HMRC that the Schedule also incudes items which appear on their face to relate to the other stayed cases, including “updating records following receiving the latest documents including a ‘nudge’ letter sent to 56 members”; “drafting and sending email to the Tribunal requesting stay of a member’s appeal”; “sending email to FTT requesting a stay for a member” and “drafting letter to send to tribunal in response to multiple directions issued threatening to strike out members appeals”.
[42] RPC are incorrect to say that it is for HMRC to identify costs which are not properly due. It is instead the applicant who must set out, in sufficient detail, the costs which properly relate to the matter in question. No such exercise has been carried out in this case. The Costs Application is therefore refused for the further reason that it does not comply with Rule 10(3)(b)." (Fox v. HMRC [2022] UKFTT 138 (TC), Judge Redston)
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- Failing to give details of of fee earners and work undertaken insufficient
"[52] As is apparent from [38] to [42] above the Schedule provided:
(1) the initials of each fee earner, together with their hourly rate and job title;
(2) the hours spent by each fee earner by reference to each line item;
(3) a very brief description of the work done;
(4) the three disbursements incurred by way of counsel’s fees thus identifying the relevance of the fees to the proceedings; and
(5) VAT is claimed in full indicating that the Appellant was not entitled to any input tax recovery.
[53] It did not however, identify:
(1) The names of the fee earners, their professional qualification, and how long each fee earner had been in grade;
(2) the location of each fee earner;
(3) a sufficient description of the work undertaken to enable a judgment to be made about (a) whether the time taken for the task was reasonable in the circumstances, and (b) whether it was reasonable for the relevant work to have been done by a fee earner of that standing.
[54] As is obvious, the substance of N260 has not been followed.
[55] I find that the level of detail included in the Schedule is insufficient to enable HMRC to make any representations as to the costs incurred, or for the Tribunal to be able to make a summary assessment." (Patel v. HMRC [2023] UKFTT 128 (TC), Judge Aleksander)
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- Work relating to key stages not identified - deficient
"[66] The four groups of tasks set out in the Schedule of Costs do not have headings. HMRC have asserted, in essence, that the groupings are designed to obfuscate and defy a proper analysis of the costs incurred. HMRC contended that the Appellant was required to particularise each task undertaken rather than amalgamate them into groups.
[67] The Appellant contends that the tasks in each group are associated and coherent despite not being chronological and are not required to be particularised more specifically.
[68] There is some considerable force to HMRC’s argument, and it is unclear why the Appellant’s representatives sought to present the Schedule of Costs in the way that they have. There has been no explanation as to why the substance of N260 was not followed or why the costs associate with key stages or documents (as distinct from every stage or document) in the appeal have not been particularised. A rationale of the grouping was provided but that explanation does not address why the need for a proportionate and sufficient particularisation of costs was not provided.
[69] The Schedule of Costs as drafted would have rendered the task of summary assessment too time consuming and difficult to undertake for any judge attempting to do so particularly in the context that there had been no judicial determination.
[70The Tribunal finds, in this regard, that the Schedule of Costs is deficient." (Harris v. HMRC [2022] UKFTT 447 (TC), Judge Brown KC)
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- Providing some detail but not enough to allow summary assessment
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"[28] It is fair to recognise that the standard form claim documentation was used by the Appellant breaking down the time into the various categories specified within the form itself in respect of the time spent by the solicitors. However, the Tribunal considers that the schedule as prepared would not allow for summary assessment, certainly not for a claim exceeding £700,000 in respect of an appeal commenced only 5 months prior to when it ended in circumstances in which only the procedural step of commencement had taken place.
[29] The terms of rule 10(3)(b) do not permit the applicant to decide to serve a lesser schedule because, in the view of the applicant, a summary assessment is unlikely or not sought. The schedule should be sufficient to permit the Tribunal to undertake the assessment should it decide to do so. The Tribunal is of the view that the assessment as originally served would not have permitted any form of summary assessment of it. The alternative is to seek an application for the requirement to serve the schedule to be waived on that basis that summary assessment is inappropriate, The Appellant did not make such an application and the statement in the application for costs cannot be interpreted as an application for waiver of he requirement provided for in rule 10(3)(b).
[30] The further schedule of costs addresses one of the limitations of the first but still does not, in the Tribunal’s view, represent a schedule which would permit the Tribunal to undertake over a summary assessment should it have decided to do so. In particular over half of the claim (that relating to the time spent by Ernst Young) remains entirely unparticularised." (Wincanton Holdings Limited v. HMRC [2022] UKFTT 446 (TC), Judge Brown KC)
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- HMRC will know whether taxpayer is VAT registered - not deficient
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"[75] The Appellant has sought to claim the full amount of VAT which was chargeable on the amount of the claim. It is therefore at least implicit that the Appellant considers that VAT represents a cost that he has suffered.
[76] In the present case the Appellant is an individual. HMRC contend that is none to the point as a barrister is an individual and yet able to claim VAT. But a barrister will be registered for VAT and HMRC would know that. HMRC are well aware that the Appellant is not so registered. Further, the nature of the issue under appeal would preclude costs associated with it from being recoverable as input tax such VAT having quite obviously been incurred for private purposes."(Harris v. HMRC [2022] UKFTT 447 (TC), Judge Brown KC)
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Dispensing with defects in costs schedule
"[61] Where there is a defect in a schedule of costs it is a matter for the Tribunal’s discretion as to whether to waive the breached requirement, require it to be remedied and/or make such order as to costs as the Tribunal considers appropriate. A failure to submit a compliant schedule of costs could, and has in the civil courts, resulted in a determination that no costs be awarded but only where to do so is in accordance with the overriding objective.
[62] I must decide, in all of the circumstances and in accordance with the overriding objective, whether the defects identified in the Schedule has so prejudiced HMRC that it should deprive Mr Patel of an award of its costs.
[63 HMRC have not suggested that Mr Patel's application should be dismissed in its entirety because the Schedule is defective. Instead, they submit that the Tribunal should decide the principle of costs in the first instance so as to enable the parties to make further representations in relation to the reasonableness and proportionality of the costs apparently incurred if such representations are necessary.
[64] On balance, I consider that the appropriate course of action is to determine the principle that Mr Patel is entitled to costs, but that he is required to produce a compliant schedule of costs, so that the Tribunal can make a summary assessment if the parties are unable to reach agreement." (Patel v. HMRC [2023] UKFTT 128 (TC), Judge Aleksander)
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- No prejudice caused to paying party
"[80] It is also clear by reference to Taree that, even in situations in which no schedule has been provided at all, the approach adopted under the CPR is to consider whether any real prejudice been caused to HMRC as the paying party.
[81] This is an appeal in which the costs shifting provisions applied. HMRC capitulated on the appeal. It is apparent that the Appellant sought to resolve the issue of costs during the negotiations between the initial indication that HMRC were prepared to “settle” the appeal and them notifying the Tribunal that they no longer defended the PCN and yet the parties did not enter a section 54 TMA settlement agreement which the Tribunal would have expected to have dealt with the issue of costs both as to entitlement and assessment without the formalities associated with an application under rule 10 FTT Rules.
[82] There can therefore be no assertion that HMRC were not well aware of the Appellant’s right and intention to claim for costs." (Harris v. HMRC [2022] UKFTT 447 (TC), Judge Brown KC)
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- Detailed assessment inevitable
"[89] Given the size of the claim it was entirely unrealistic of Ernst Young to even suggest that the costs be determined summarily even had the schedule been more fully particularised. That is not an excuse for the preparation of a deficient schedule, and it is surprising that Ernst Young determined to incur the costs in producing the schedule when they could simply have been avoided by way of an application to waive its production. However, given the inevitability of the nature of the order as to detailed assessment HMRC have suffered no prejudice whatsoever as a consequence of the defects in the Schedule of Costs.
[90] In such circumstances, the proper course for this Tribunal to take is to exercise its powers under Rule 7(2)(a) FTT Rules and waive the requirement for a compliant schedule of costs incurred and to order that the costs be awarded (see below for the basis on which they are awarded) to be subject to detailed assessment should the parties be unable to agree quantum. Through the process of detailed assessment HMRC will have the opportunity to make such challenges as they wish to make.
[91] The Tribunal recognises that this is an outcome which differs from that granted in the matter of Wincanton Hildings Ltd v HMRC (currently unreported). As identified, where there is a defect in a schedule of costs it is a matter for the Tribunal’s discretion as to whether to waive the breached requirement, require it to be remedied and/or make such order as to costs as the Tribunal considers appropriate. The order sought in Wincanton was an unreasonable costs order in a sum exceeding £700,000 in respect of an appeal which got no further than the making of a hardship application and in respect of which approximately 50% of the quantum claimed was entirely unparticularised. A wildly different scenario to the present claim." (Harris v. HMRC [2022] UKFTT 447 (TC), Judge Brown KC)
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But see
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"[29] The terms of rule 10(3)(b) do not permit the applicant to decide to serve a lesser schedule because, in the view of the applicant, a summary assessment is unlikely or not sought. The schedule should be sufficient to permit the Tribunal to undertake the assessment should it decide to do so. The Tribunal is of the view that the assessment as originally served would not have permitted any form of summary assessment of it. The alternative is to seek an application for the requirement to serve the schedule to be waived on that basis that summary assessment is inappropriate, The Appellant did not make such an application and the statement in the application for costs cannot be interpreted as an application for waiver of he requirement provided for in rule 10(3)(b).
[30] The further schedule of costs addresses one of the limitations of the first but still does not, in the Tribunal’s view, represent a schedule which would permit the Tribunal to undertake over a summary assessment should it have decided to do so. In particular over half of the claim (that relating to the time spent by Ernst Young) remains entirely unparticularised.
[31] Accordingly, there is presently no valid claim for costs and the claim is dismissed." (Wincanton Holdings Limited v. HMRC [2022] UKFTT 446 (TC), Judge Brown KC)
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Application to dispense with costs schedule
Where summary assessment will not happen
“I considered the Respondents’ application to waive the requirement to serve a schedule of costs on paper. Given the nature of the proceedings I was satisfied that this would not be a case where the tribunal would make a summary assessment of costs. The schedule therefore would serve no real purpose, other than to increase costs. In a direction released on 31 August 2016 I directed that the requirement for a schedule should be dispensed with. Jurisdiction to make such a direction is contained in Tribunal Rules 5 and/or 7(2)(a).” (Warren v. HMRC [2017] UKFTT 521 (TC), §11, Judge Cannan).
Where it will involve considerable effort prior to costs being decided in principle
“The Rules require that any party seeking an order for costs must send with its application “a schedule of the costs or expenses claimed in sufficient detail to allow the Tribunal to undertake a summary assessment of such costs or expenses if it decides to do so”. For the vast majority of cases dealt with by the Tribunal, this procedure is appropriate. However, where the amount of time and effort involved in drawing up the appropriate schedule may be large, it appears unfortunate that a party should be put to the time and effort of doing so before establishing an “in principle” entitlement to costs, especially if there are potential complications or disputes about the precise terms of any order (e.g. as to an allowable proportion, as to the basis of assessment or even as to the appropriateness of an order at all)… Taking all those matters into consideration, it may be helpful for me to indicate that in the circumstances of this case, if HMRC had submitted a prompt costs application without the appropriate schedule attached (but including an application to dispense with the requirement for the schedule), I would have been prepared to waive the requirement to deliver the schedule of costs with the application. I would have given appropriate directions to enable the costs application to be determined “in principle” before requiring HMRC to deliver a detailed schedule of costs at a later date if the figures could not be agreed between the parties. For situations where the amounts of costs involved are large and complex, this seems to me to be a sensible step which is only likely to save potential wasted time and costs for all parties.” (Vardy Properties v. HMRC [2013] UKFTT 96 (TC), §§18…20).
Application requires notification to FTT and HMRC
“That rule required an application to be made by sending or delivering it to both the Tribunal and HMRC. The appellant did not send or deliver it to HMRC. Even if the Tribunal’s sending of the application to HMRC on 15 December 2015 should count as compliance with Rule 3(10(a), Rule 10(4) required the application to be made within 28 days. That expired on 14 December 2015 so at best HMRC received the notification late.” (Distinctive Care Ltd v. HMRC [2016] UKFTT 764 (TC), §8, Judge Mosedale).
Time limit for application: 28 days from final decision
“(4) An application for an order under paragraph (1) may be made at any time during the proceedings but may not be made later than 28 days after the date on which the Tribunal sends--
(a) a decision notice recording the decision which finally disposes of all issues in the proceedings; or
(b) notice under rule 17(2) of its receipt of a withdrawal which ends the proceedings.” (FTT Rules, r.10(4)).
Late costs application
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See M32: Imposing and relieving sanctions
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Parties at liberty to wait until final decision released to apply for interlocutory costs
"I did not order - and (as far as I can recall) was not at the time invited to order - that the costs of that application be treated as costs in the appeal generally. As such, I 5 can approach the costs of the application discretely from the remainder of the costs. There is no default position that the costs of the interlocutory application should be in the case. In the absence of contrary provision, both parties were at liberty to wait until release of the decision on the substantive appeal to apply for their interlocutory costs. That was "the final decision", because it was the decision which finally disposed of all 10 the issues in the proceedings: see Rule 10(4)." (Ulster Metal Refiners Ltd v. HMRC [2022] UKFTT 125 (TC), Judge McNall)
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Right to make representations and duty to consider individual’s financial means
“(5) The Tribunal may not make an order under paragraph (1) against a person (the "paying person") without first--
(a) giving that person an opportunity to make representations; and
(b) if the paying person is an individual, considering that person's financial means.” (FTT Rules, r.10(5)).
Especially for unreasonable behaviour cost orders
“Whether what the tribunal perceives as unreasonable behaviour should result in an order for costs is a matter to be considered on the basis of a formal costs application, with the benefit of representations from the party against whom the order is sought. The period of delay to which that course of action leads allows for a suitable time for reflection and, perhaps, the realisation that first impressions are not always reliable. It also enables the FTT to undertake a careful consideration of, in this case, all the circumstances in which HMRC came to defend the proceedings. (HMRC v. Jackson Grundy Limited [2017] UKUT 180 (TCC), §62 Judges Bishopp and Herrington).
Failure to provide opportunity leads to set aside
“I am satisfied that the FTT made an error of law in this case, for the simple reason that it did not give Mr and Mrs Hills an opportunity to make representations in 40 that respect. The consequence of that failure, under Rule 10(5) of the FTT Rules, is that the FTT had no power to make the order that it did. In those circumstances, as it seems to me, there is no rationale alternative to setting aside the FTT’s decision.” (Hills v. HMRC [2016] UKUT 266 (TCC), §29, Judge Berner – UT went on to remake the decision).
Payment on account if sent for detailed assessment
“(7A) Upon making an order for the assessment of costs, the Tribunal may order an amount to be paid on account before the costs or expenses are assessed.” (FTT Rules, r.10(7A)).
Sheldon practice
“This was a parliamentary answer given by the Right Hon. Mr Sheldon in 1978 and was as follows: “the Commissioners [ie HM Customs & Excise] have concluded that, as a general rule, they should continue their policy of not seeking costs against unsuccessful appellants; however, they will ask for costs in certain cases so as to provide protection for public funds and the general body of taxpayers. For instance, they will seek costs at those exceptional tribunal hearings of substantial and complex cases where large sums are involved and which are comparable with High Court cases, unless the appeal involves an important point of law requiring clarification. The Commissioners will also consider seeking costs where the appellant has misused the tribunal procedure – for example, in frivolous or vexatious cases, or where the appellant has failed to appear or to be represented at a mutually arranged hearing without sufficient explanation, or where the appellant has first produced at a hearing relevant evidence which ought properly to have been disclosed at an earlier stage and which have saved public funds had it been produced timeously.” (Trapps Cellars Ltd v. HMRC [2014] UKFTT 326 (TC), §18, Judge Mosedale see also [2015] UKUT 405 (TCC), §§109 – 111).
Applied transitionally to FTT
Upon the move to the Tribunal system it was confirmed that the Sheldon practice would continue to apply to appeals notified to the VAT & Duties Tribunal before 1 April 2009. Appeals notified after that date are subject to the ordinary rules of the FTT (which have an opt out from general cost shifting in complex cases).
“A written ministerial statement was made by the Financial Secretary to the Treasury on 10 March 2009 in respect of transitional cases under the new regime: “the practice set out by the Right Hon. Robert Sheldon, now Lord Sheldon of Ashton-under-Lyne, on 13 November 1978 – and restated on 24 July 1986 by the Right Hon. Peter Brooke, now Lord Brooke of Sutton Mandeville – will also continue to apply on a transitional basis, and HMRC will not seek costs from appellants in most cases.” (Trapps Cellars Ltd v. HMRC [2014] UKFTT 326 (TC), §20, Judge Mosedale).
Tribunal will normally award costs in line with parties’ reasonable expectations
“Tribunal would normally award costs in line with the reasonable expectations of the parties: the party which wins the appeal would normally expect an order of costs in their favour. However, an Appellant which loses an appeal would not expect an award of costs to be made against them where the Sheldon statement applies. Although the Sheldon statement is extra-statutory, that does not prevent the appellant relying on it as costs are in the discretion of the Tribunal and the Tribunal in exercising its discretion would normally take into account the parties’ reasonable expectations, including expectations engendered by concessions.” (Trapps Cellars Ltd v. HMRC [2014] UKFTT 326 (TC), §21, Judge Mosedale).
Transitional costs regime in VAT appeals lodged before 1 April 2009
General approach
“In reaching his decision [in Atlantic Electronics v. HMRC [2012] STC 931] Warren J said that:
(1) There were two policies underlying the FTT Rules. The first was to give the taxpayer the choice in a Complex case as to the applicable costs regime; the second was to provide certainty as to the applicable costs regime at an early stage in the proceedings. He notes that one of the reasons for the second policy was to prevent a party from electing for a regime at a late stage in the proceedings when it knew which regime was likely to be more favourable because of the course the proceedings had taken. The taxpayer was not to be allowed to wait and see;
(2) it was the nature of the case as complex rather than its formal categorisation which was relevant to the exercise of the discretion under para 7(3) of the Order;
(3) there was something artificial and contrary to common sense in expecting a taxpayer who wants to rely on the default regime to make an application for that regime rather than the onus being on the party who wants the discretion to be exercised to make that application [51];
(4) the conduct of a party – it actions or inactions which could lead the other party reasonably to expect that one or other set of rules was sought could certainly be taken into account in the exercise of the 7(3) discretion ([26])
(5) delay in making an application for the Old Rules beyond a reasonable time after 1 April 2009 was relevant to the exercise of the discretion, “after a reasonable time has passed, parties who wait and see how a case develops before making an application should not ordinarily expect their application to succeed ([68]);
(6) where delay is present, the reasonable expectation is that the discretion will not be exercised to disapply the default position [66]. That was not because of any reasonable expectation that the default regime will apply, but because that is what the second policy, that of certainty, requires [50];
(7) a taxpayer could reasonably assume that the default position would apply unless and until HMRC indicated to the contrary in which case they ought to make an application; and it would be for HMRC to justify a departure form the default regime [60];
(8) the expectations of the parties as to which rules should be applied were relevant to the decision of which rules to apply only in so far as they reflected the factors which the tribunal would consider, and should not be given separate weight in that decision [56];
(9) the tension between the policy of the FTT Rules applicable to a new case and the fairness and justice of maintaining the old regime could be avoided by making a split order applying the different regimes to the periods before and after 1 April 2001. That could at least be a starting point [45, 46].” (S&I Electronics Ltd v. HMRC [2016] UKFTT 260 (TC), §17).
Little weight given to complex nature of case
“Although the policy of the FTT Rules suggests that cost shifting should apply to a case of a complex nature unless the taxpayer elects otherwise, it seems to me that the absence of a plain mechanism for the making of such an election in relation to a case which has not been classified as complex, when taken with Warren J’s remark that that there is something artificial and contrary to common sense in expecting a taxpayer who wants to rely on the default regime to make an application for that regime, indicates that little weight is to be given to the complex nature of the case.” (S&I Electronics Ltd v. HMRC [2016] UKFTT 260 (TC), §27).
Absence of intimation from HMRC that it seeks costs points in favour of default costs position
“In the absence of intimation that HMRC wished for the old Rules to apply, it seems to me that it would not have been unreasonable for the taxpayer to assume that the default no costs position would apply after 1 April 2009. This does not seem to me to be a case where the taxpayer can be said to have been waiting to see what would happen before making an opportunistic application.” (S&I Electronics Ltd v. HMRC [2016] UKFTT 260 (TC), §28).
Examples
“Warren J considered three examples. In the first the vast majority of the costs would be incurred after 1 April 2009, in the second the vast majority were incurred before that date, and in the third example where there was a split across 1 April 2009…In the first example he regarded the 2009 rules as a starting point: he would generally expect the tribunal to make a prospective direction reflecting the taxpayer’s choice, and if an application were not made in good time he would expect the default regime to be applied; in the second he said that in the absence of special circumstances it would be fair to apply the old rules, and in the third, that if a split regime were not imposed that a major factor would be the amount of time and money spent before and after 1 April 2009.” (S&I Electronics Ltd v. HMRC [2016] UKFTT 260 (TC), §§19…20).
“In [Mynt Ltd v HMRC [2013] UKFTT 635 (TC)] the appeal was brought before 1 April 2009 but heard afterwards. The tribunal dismissed the appeal; HMRC made an application for costs. This was a retrospective application like the one in the present application. The FTT considered that the conduct of the parties was a relevant consideration. Although neither party seemed to have turned its mind to the question of costs, HMRC had sought costs in their statement of case (served before 1 April) and in their skeleton argument (served after 1 April) and there had been agreed directions after 1 April 2009 providing for costs in cause. Judge Bishopp came to the conclusion that there must have been a time no later than the service of the skeleton arguments when it must have been obvious to Mynt that the issue of costs had to be addressed, and that by failing to grasp the nettle Mynt was aiming to recover its own costs if successful and probably to pursue an argument for no cost if unsuccessful. On that basis he decided that the Old Rules should apply.” (S&I Electronics Ltd v. HMRC [2016] UKFTT 260 (TC), §22 on Mynt Ltd v. HMRC [2013] UKFTT 635 (TC)).
“The principle factors seem to me to be these: on the one hand, seen as a whole, the vast majority of the work for the final result was done before 1 April 2009, on the other hand there was delay in seeking the application of para 7(3) in relation to the work done after 1 April 2009. To my mind those factors do not weigh in favour of moving away from a split order.” (S&I Electronics Ltd v. HMRC [2016] UKFTT 260 (TC), §30).
Query existence of power to order a payment in respect of pro bono representation
"[76] Having succeeded before the UT, the taxpayer applied for an order for payment in respect of her pro bono representation. In a further decision dated 13 November 2015 ([2015] UKUT 0630), the UT held that it did not have power to make such an order. The taxpayer was given permission to appeal against this decision. While the power to make such orders is clear in respect of proceedings in the civil courts (see section 194 Legal Services Act 2007), no equivalent clearly expressed power exists in relation to proceedings before the Upper Tribunal. The question whether such power exists is one of real practical importance. In the light of the result of this appeal, no question can arise of such an order now being made in favour of the taxpayer in this case. In my judgment, resolution of this issue should await a case where it has a practical effect on the outcome, rather than being decided as, in this case, an academic issue." (HMRC v. Raftopoulou [2018] EWCA Civ 818, David Richards LJ)
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Third party costs orders
Sole director shareholder causing company to pursue appeal he knew was hopeless
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"[56] Therefore when applying the principles identified in paragraphs [38] - [48] above by reference to all of the circumstances and in order to achieve a just and fair outcome, it is to be concluded:
(1) the circumstances of the present application are exceptional in the sense that they are not in the ordinary run of cases;
(2) Mr Karsan, as the sole director and shareholder of the Appellant business, caused an appeal to be lodged which he knew to be hopeless and which he needed in order corroborate his not guilty plea;
(3) Mr Karsan’s personal interest in the appeal is therefore precisely of the nature identified in the case law as relevant in justifying a non-party costs order;
(4) as the appeal was categorised as complex and no option to be excluded from the cost’s regime was exercised the Tribunal has the power to make a non-party costs order;
(5) HMRC’s costs were all incurred as a consequence only of the appeal having been bought.
[57] However, as was the case in Europeans, HMRC did not notify Mr Karsan of their intention to seek to make the application promptly. Even by their own admission they could have done so at any point after 27 March 2019. The Tribunal considers that they could, certainly theoretically, have notified Mr Karsan that it was their intention to consider, and as appropriate, make an application for costs at the later of the date on which Mr Karsan was charged or the expiry of 28 days from the categorisation of the appeals (i.e. the last date on which the Appellant could have opted out of the costs regime). It was HMRC’s case that the taxpayer knew or should have known that the transactions were part of a fraudulent chain of transactions and it was HMRC that investigated an instigated the prosecution of Mr Karsan. That prosecution was predicated on is personal association with the Appellant company. Those are the features which underpin the non-party costs order.
[58] However, given the obvious asymmetry which would arise had the Appellant not bought its appeal or had withdrawn from it prior to 27 March 2019 the Tribunal has concluded that it would have been inconceivable that even had Mr Karsan been notified that he was at risk as to costs he would have withdrawn the appeal. The costs up to 27 March 2019 would therefore have been incurred in any event.
[59] Taking these factors in the round together with the conclusions reached in paragraph [56] the Tribunal has concluded that it is appropriate to grant a non-party costs order." (Golden Harvest Wholesale Ltd v. HMRC [2020] UKFTT 369 (TC), Judge Amanda Brown)
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Not costs during period when HMRC unreasonably failed to notify intention to seek order
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"[61] However, the Tribunal considers that HMRC’s entitlement to costs should not include any costs arising between 27 March 2019 and 9 October 2019. In that period HMRC should, in the Tribunal’s view, have put Mr Karsan on notice of their intention to make an application against him. To exclude the costs for this period is within the power of the Tribunal in accordance with s29(3) TCEA." (Golden Harvest Wholesale Ltd v. HMRC [2020] UKFTT 369 (TC), Judge Amanda Brown)
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Deferral of decision on interlocutory costs application
Immediate decision not necessary where both parties to blame for late amendments that cause loss of hearing date
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"[49]...Worldpay accepts that there is no general principle that permitting one party to make a “very late” application to amend must always result in the other party being awarded its costs thrown away. Rather, the FTT had a discretion to exercise. In exercise of that discretion, the FTT concluded that HMRC behaved entirely reasonably and could not be blamed for applying to amend their Statement of Case soon before the hearing ([19] of the Decision). It attributed the blame for the hearing being lost to both parties allowing the hearing to be set down before the exchange of evidence was complete ([21] of the Decision). Worldpay considers the FTT was wrong to reach those conclusions, and we will address that argument in more detail in a later section. However, once the FTT concluded that Worldpay was just as much to blame for the loss of the hearing as HMRC, there was no “principle” to the effect that it was nevertheless obliged to make an immediate costs award in Worldpay’s favour as the price of granting HMRC their permission to amend." (Worldpay UK Limited v. HMRC [2020] UKUT 290 (TCC), Judge Richards and Judge Cannan)
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Often better to decide costs immediately
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"[52]...At [58] [of Crown Bidco Ltd v. Vertu Holdings Oy [2017] EWCA Civ 67], the Court of Appeal observed that the question of costs following an application to amend is “often better decided there and then rather than at some distant date by a different judge who will have had no experience and no doubt no appetite for the intricate arguments that can best be made when the detailed points are fresh in everyone’s minds”. However, the Court of Appeal established no principle that costs decisions always have to be made “there and then” and indeed, at [60] of their decision commented specifically that “another judge might have reserved the costs to the trial judge”, emphasising the width of the discretion that is available." (Worldpay UK Limited v. HMRC [2020] UKUT 290 (TCC), Judge Richards and Judge Cannan)
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Deferral may be appropriate where a future hearing may assist in resolving a disputed question
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"[53] The FTT did not defer its consideration of costs to avoid a “difficult decision”. Rather, it considered that deferring the decision until the substantive hearing would give Worldpay an opportunity to make good its point that the disclosure provided did not justify the amended pleading. We do not consider that this involved any error of “principle” or law, although we will later in this decision consider Worldpay’s arguments as to the exercise of the FTT’s discretion." (Worldpay UK Limited v. HMRC [2020] UKUT 290 (TCC), Judge Richards and Judge Cannan)
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