Late appeal allowed due to EIS fraud

In J Huntly v HMRC [2022] TC08466, the First Tier Tribunal (FTT) accepted that the delay to the filing of a late appeal was justified due to fraud, COVID-19 and working on offshore rigs. With the late appeal allowed, the case will be joined with nine other victims of Capital Allowances Consulting Limited (CAC).

• Mr Huntly was an electrician working on offshore rigs.
• He asked his accountant to submit a tax return in order to claim employment expenses.
• His returns for 2015-16 and 2016-17 were filed by CAC, including claims for Enterprise Investment Scheme (EIS) relief of £7,816 and £15,080 respectively. 
• Under HMRC's 'pay now, enquire later' policy, the repayments were based on investment in Eco-Cooling Systems Limited and before an enquiry was opened. It then became clear Mr Huntly did not have the means to make such investments.
• In December 2018, Mr Huntly phoned HMRC within 30 days to contest the subsequent Discovery Assessments but instead of having his right to Appeal explained he was directed to the part of HMRC's website dealing with ways to pay. He believed that he had appealed and that his only option was to pay the tax.
• In 2019, the case officer received information that HMRC suspected CAC of fraud. The matter was also being dealt with by Northumbria Police.
• Mr Huntly was then working offshore for long periods and it wasn't until December 2019 that he engaged Independent Tax. Nine other offshore workers who were registered with Independent Tax were also victims of fraud perpetrated by CAC.
• It took a further 10 months to submit an appeal due mainly to COVID-19 and procedural inefficiencies. By this time, the appeal was 20 months late. HMRC refused it. An application was made to the FTT to allow the appeal, despite it being out of time.

The FTT applied the three stage test of Martland v HMRC [2018] UKUT 178  to decide whether to allow the Late Appeal:

• Identify the delay: The delay was 20 months which was significant and serious.
• Ascertain the reason for the delay
  • The FTT concluded that Mr Huntly was in a state of anxiety upon receiving the HMRC letters as he could not afford the tax. He failed to read the letters fully but instead called HMRC who implied there was no legitimate ground for appeal and the only option was to pay the tax.
  • Mr Huntly believed he had done all he could and was then employed offshore without communications for long periods of time.
  • As soon as he was alerted to his right to appeal by his co-workers who were in the same position, he engaged Independent Tax.  
  • The remaining delays were due to staff oversights at Independent Tax, staff illness, COVID-19 and procedural issues over communicating via email or post going missing. None of these was Mr Huntly's fault or within his control.
• Consider all the circumstances, including prejudice to both parties and the merit of the reason for the delay:
  • HMRC are, in general, prejudiced by late appeals. Accepting them is time-consuming and costly.
  • Mr Huntly would be prejudiced without a late appeal. His case would not be heard. The FTT believed there was a doubt that CAC was a duly authorised agent, in which case the return would not belong to Mr Huntly. This was the argument upon which the appeal in Shaun McCumiskey v HMRC [2022] TC08459 was allowed (for the same EIS fraud also perpetrated by CAC).
  • Such EIS frauds are being assisted by HMRC's policy of 'pay now, enquire later' when a simple sense-check as to the individuals' capacity to make such investments would put the claim into doubt. 
  • Mr Huntly's appeal would be joined by nine others. They are not fact-heavy cases and HMRC is aware of the fraud. There would be limited time and cost associated with adding Mr Huntly's appeal to the list.

In light of all the facts, the FTT allowed the late appeal.

Useful guides on this topic

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

Appeals: Late
When can you make a late tax appeal? What conditions must be met?

SEIS: Seed Enterprise Investment Scheme
When can SEIS relief be claimed? What are the conditions for SEIS relief? What are the benefits of SEIS relief?

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

External link

J Huntly v HMRC [2022] TC08466