Director's Application for Costs of PLN Appeal Rejected

Normally, both parties in proceedings before the First-tier Tribunal (FTT) pay their own costs, but the FTT can make an order for costs where one of the parties has acted unreasonably in bringing, defending or conducting the proceedings. A recent decision in which the FTT rejected a company director's application for costs relating to an appeal against a Personal Liability Notice (PLN) emphasised that the conduct complained of must take place during the proceedings.

HM Revenue and Customs (HMRC) had made VAT assessments totalling £819,559 against the company. A penalty of £516,631 was imposed against it and a PLN was issued against the director in respect of the penalty. After a review by HMRC upheld the PLN, the director appealed to the FTT, claiming that his company details had been fraudulently used by an unknown third party and it would be unjust to make him personally liable. HMRC subsequently informed the FTT that they did not intend to defend the appeal.

The director then applied for an award of costs under Rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, seeking costs of £5,500 on the ground that HMRC had acted unreasonably in their conduct of the proceedings. He claimed that HMRC had been aware of the relevant facts long before the PLN was issued and that the proceedings had been unreasonable from the outset.

The FTT took note of the Court of Appeal's decision in Distinctive Care Ltd v Revenue and Customs that for conduct to give rise to the possibility of costs under Rule 10(1)(b), it must be conduct during the proceedings, not before them. The director's submissions did not specifically address HMRC's behaviour after they were notified of the appeal. His assertion that the proceedings had been unreasonable from the outset was not a reference to the appeal but to the enquiry that had led to the VAT assessments, the penalty and the PLN. The case law was clear that an application for costs could not rely on things that had occurred prior to the commencement of the appeal as a basis for a costs decision under Rule 10(1)(b).

When notifying them of the appeal, the FTT had directed that HMRC provide a statement of case within 60 days. HMRC had decided not to contest the appeal 43 days later. The FTT did not consider it unreasonable for HMRC not to have withdrawn at a materially earlier stage. There had never been a defence of the appeal by HMRC, and so no question arose as to whether that defence, or the conduct of it, was unreasonable. The application for costs was rejected.

Although it was not necessary to consider the quantum of costs in the light of that decision, the FTT would not have been satisfied that the appropriate amount would have been the £5,500 the director had claimed. Only one of the three invoices raised by his agent, for £1,500, was for services provided to him: the other two were for services to the company and predated the notification of the appeal.