HMRC application to set aside barring order refused
In Carbon Six Engineering Ltd v HMRC [2026] UKFTT 177 (TC) (29 January), the FTT denied HMRC’s application to set aside a barring order made following their failure to comply with an ‘unless order’. The FTT exercised its discretion to summarily allow the company’s appeal.
In 2022, HMRC issued income tax and NIC determinations to the appellant company on the basis that it was a managed service company (MSC) associated with the MSC provider CKA. In fact, the company was not associated with CKA but with another provider, TAAG, and this error was corrected in correspondence. The company appealed and HMRC subsequently failed to comply with six directions from the tribunal in time and in some cases at all:
HMRC provided an email address for correspondence to the tribunal 34 days late;
HMRC failed to provide a statement of case at all;
HMRC responded to a first unless order late and again failed to provide a statement of case;
HMRC failed to comply with the second such order requiring it to respond to the barring application filed by the company; and
at the time of the current hearing, HMRC had still not complied with the second unless order.
HMRC also applied for the appeal to be stayed behind the CKA lead case, even though it had been established that CKA were not involved. They then applied for the appeal to be stayed behind the TAAG lead case and assumed, incorrectly, that the application had been accepted. HMRC argued that this was an inadvertent error resulting from a change in the legal team responsible for the case, without an effective handover.
The FTT reviewed the case law on barring orders in detail and followed the approach set out in Chappell v HMRC [2019] UKUT 209 (TCC), applying the three-stage test in Martland v HMRC [2018] 178 (TCC). The first stage was to consider the seriousness and significance of HMRC’s failures. The FTT held that the failure to comply with the unless order was a serious and significant breach.
The second stage was to consider why the failures occurred. The FTT accepted that HMRC believed that the appeal had been stayed owing to the legal team handover and that it was not a deliberate failure to comply. However, it found that this belief was not reasonable and that HMRC’s explanations represented ‘bad’ reasons for failure.
The third stage involved evaluating all of the circumstances of the case. The FTT held that the barring order was not disproportionate and dismissed HMRC’s application. It placed particular weight on the need for compliance with directions and, in particular, unless orders. It rejected HMRC’s argument that this case was part of wider litigation involving TAAG MSCs and so the company should not be permitted to succeed in its appeal until the merits of the wider issue had been determined in lead cases. The case law showed that such an argument should be given little weight, except in exceptional circumstances. There were no such circumstances here.
The FTT then exercised its discretion and summarily allowed the appeal. Again, it rejected HMRC’s argument that the appeal should be stayed and the outcome of the lead cases should be applied to it. This would ultimately allow HMRC to participate in the merits determination of the appeal despite the barring order.
Why it matters: When a tribunal judge describes HMRC’s conduct of an appeal as ‘shambolic and haphazard’, you know that something has gone very wrong. This case was one of more than 900 appeals involving the MSC provider and perhaps it is not surprising that procedural failures should occur from time to time. Here, however, there were continual failings over a lengthy period, which must raise concerns about HMRC’s management of appeals on such a large scale.
The decision also includes a detailed consideration of the case law on barring orders at [62] onwards, which will be of interest to all involved in tax litigation.
HMRC application to set aside barring order refused
In Carbon Six Engineering Ltd v HMRC [2026] UKFTT 177 (TC) (29 January), the FTT denied HMRC’s application to set aside a barring order made following their failure to comply with an ‘unless order’. The FTT exercised its discretion to summarily allow the company’s appeal.
In 2022, HMRC issued income tax and NIC determinations to the appellant company on the basis that it was a managed service company (MSC) associated with the MSC provider CKA. In fact, the company was not associated with CKA but with another provider, TAAG, and this error was corrected in correspondence. The company appealed and HMRC subsequently failed to comply with six directions from the tribunal in time and in some cases at all:
HMRC provided an email address for correspondence to the tribunal 34 days late;
HMRC failed to provide a statement of case at all;
HMRC responded to a first unless order late and again failed to provide a statement of case;
HMRC failed to comply with the second such order requiring it to respond to the barring application filed by the company; and
at the time of the current hearing, HMRC had still not complied with the second unless order.
HMRC also applied for the appeal to be stayed behind the CKA lead case, even though it had been established that CKA were not involved. They then applied for the appeal to be stayed behind the TAAG lead case and assumed, incorrectly, that the application had been accepted. HMRC argued that this was an inadvertent error resulting from a change in the legal team responsible for the case, without an effective handover.
The FTT reviewed the case law on barring orders in detail and followed the approach set out in Chappell v HMRC [2019] UKUT 209 (TCC), applying the three-stage test in Martland v HMRC [2018] 178 (TCC). The first stage was to consider the seriousness and significance of HMRC’s failures. The FTT held that the failure to comply with the unless order was a serious and significant breach.
The second stage was to consider why the failures occurred. The FTT accepted that HMRC believed that the appeal had been stayed owing to the legal team handover and that it was not a deliberate failure to comply. However, it found that this belief was not reasonable and that HMRC’s explanations represented ‘bad’ reasons for failure.
The third stage involved evaluating all of the circumstances of the case. The FTT held that the barring order was not disproportionate and dismissed HMRC’s application. It placed particular weight on the need for compliance with directions and, in particular, unless orders. It rejected HMRC’s argument that this case was part of wider litigation involving TAAG MSCs and so the company should not be permitted to succeed in its appeal until the merits of the wider issue had been determined in lead cases. The case law showed that such an argument should be given little weight, except in exceptional circumstances. There were no such circumstances here.
The FTT then exercised its discretion and summarily allowed the appeal. Again, it rejected HMRC’s argument that the appeal should be stayed and the outcome of the lead cases should be applied to it. This would ultimately allow HMRC to participate in the merits determination of the appeal despite the barring order.
Why it matters: When a tribunal judge describes HMRC’s conduct of an appeal as ‘shambolic and haphazard’, you know that something has gone very wrong. This case was one of more than 900 appeals involving the MSC provider and perhaps it is not surprising that procedural failures should occur from time to time. Here, however, there were continual failings over a lengthy period, which must raise concerns about HMRC’s management of appeals on such a large scale.
The decision also includes a detailed consideration of the case law on barring orders at [62] onwards, which will be of interest to all involved in tax litigation.
