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MPTL, IR35 & late appeals

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I have been reading the decision of the First-tier Tribunal in MPTL Ltd v HMRC [2022] UKFTT 472 (TC) which strikes me as a very harsh decision.

MPTL had been in dispute with HMRC in relation to assessments raised on the company in relation to IR35. The company asked for a review. It received a 19 page decision on 20 December 2021. At the end of that long missive was the standard statement that: ‘if you want to notify the appeal to the Tribunal, you must write to the Tribunal within 30 days of the date of this letter’. 20 December was the Tuesday of the week before Christmas, so I doubt that the letter was received before Christmas and read before 4 January 2022, the first working day after the New Year holiday.

On 21 January 2022 (31 days after the date of the letter), the accountants wrote to HMRC saying ‘we will therefore take this opportunity to request that this be further heard by a First-tier Tribunal. We look forward to your confirmation that this is acceptable and look forward to receiving confirmation of the Tribunal case date in due course’. Like many (sadly, too many) small firms, the accountants do not seem to have realised that an appeal to the tribunal has to be made to the FTT direct, unlike virtually all other direct tax appeals which have to be made via HMRC.

In early March 2022, MPTL instructed solicitors who e-mailed HMRC on 9 March asking about the state of the appeal. HMRC responded on 16 March saying that the tax had been postponed, but that HMRC had not been informed by the Court Service of any appeal having been made. The solicitors immediately lodged a notice of appeal and asked for a late appeal to be accepted.

The FTT has become very tough in recent months about late appeals. This follows an Upper Tribunal decision (Martland v HMRC [2018] UKUT (TCC)) that says:

the starting point is that permission for a late appeal should not be granted unless the FTT is satisfied on balance that it should be; and

in considering the matter, the FTT should take account of the length of the delay, the reasons for the delay and, all the circumstances of the case.

The tribunal categorised the length of the delay as 59 days, i.e. it ignored the letter from the accountants of 21 January 2022, commenting that ‘a professional firm of Chartered Accountants ought to be aware of the procedure for filing tax appeals’. It said that HMRC is under no duty to tell a taxpayer that it needs to file the appeal with the tribunal and, in any case, it had done so at the end of its 19-page letter of 20 December 2021.

On the reasons for delay, it said that there was no evidence to explain why the accountants did not file a notice of appeal with the tribunal. It accepted that this was a mistake but commented that ‘a mistake for which no explanation has been given is not a good reason for the delay in filing the Notice of Appeal with the Tribunal’. On the circumstances of the case, the tribunal commented that the company could not distance itself from the actions of its accountants. It did accept that the company would be prejudiced if its application is denied (because the tax bill was around £230,000) and that by refusing the appeal ‘HMRC would become entitled to a substantial windfall’. It also accepted that ‘I must form a general impression of the strength or weakness of MPTL’s case and weigh that in the balance’.

In doing so, it felt that the company’s prospects of success on the IR35 point were not good. It seemed to base this to a large extent on a misreading of the Court of Appeal’s decision in Atholl House Productions Ltd [2022] EWCA Civ 501, dismissing its relevance because in that case Ms Adams had a background of being a freelance journalist whereas Mr Lynagh had a background of being an employee of a company in a different field. What the Court of Appeal actually said in Atholl House was that in construing the contract one should take account of circumstances known to the parties at the time the contract was entered into but not of anything that occurred after that time. In other words, in construing the MPTL contract, account should be taken of any facts known to Sky TV at the time the contract was entered into. I would have thought that the fact that Mr Lynagh had a full-time employment contract with someone else, is highly relevant to what sort of contract Sky thought it was entering into with MPTL.

The carefully reasoned Court of Appeal decision in Atholl House seems to me to have fundamentally changed the landscape in relation to IR35. In these circumstances, I find the MPTL decision very worrying and hope very much that the company will appeal against the refusal. However, I accept that this is a very difficult decision, as whilst an appeal to the FTT is made in a no-costs environment, an onward appeal to the Upper Tribunal involves a risk of having to pay HMRC’s costs if the tribunal upholds the FTT decision. 

Issue: 1604
Categories: In brief