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Costly objection by HMRC

15 April 2024. Published by Harry Smith, Senior Associate

In Essex Trading Ltd v HMRC [2024] UKFTT 69 (TC), the First-tier Tribunal (FTT) allowed an application for costs by the taxpayer on the basis of HMRC's unreasonable conduct in opposing an application for specific disclosure.


On 20 and 21 September 2019, HMRC seized a large quantity of mixed alcoholic products from Essex Trading Ltd's (Essex) premises in Croydon. 

While the underlying facts were disputed and to be determined in due course by the FTT at the substantive appeal hearing, Essex's account was that it had purchased the entire stock of Hi-Line Wines Ltd (Hi-Line), which operated an alcohol warehouse and was in some financial distress, in consideration for which it assumed liability under a loan owed by Hi-Line to a third party.  No stock-take was carried out, and the goods were not checked against the stock sheets used by Hi-Line as the basis for the invoices that it rendered (the Stock Sheets).  The stock was delivered in August 2019 to Essex's premises in Croydon. Essex maintained that all goods held at these premises were purchased from Hi-Line, even where they were not recorded on the Stock Sheets.  

Unbeknown to Essex, one of Hi-Line's creditors had presented a petition to wind up Hi-Line on 24 July 2019, which meant that the sale of stock by Hi-Line to Essex was void as it took place after presentation of the petition.  Essex said that the solicitors acting for the liquidators of Hi-Line had demanded that Essex abandon all claims for restoration and all challenges to the seizure of the goods on the basis that Essex had not owned the goods in the first place. Essex agreed to do so in March 2020.

HMRC assessed Essex for duty and penalties in respect of the stock it held that was not recorded on the Stock Sheets. Essex appealed the penalties to the FTT. 

During the course of that litigation, Essex made a successful application to the FTT for specific disclosure against HMRC (the Disclosure Application).  

Having succeeded in the Disclosure Application, on 14 July 2023, Essex applied to the FTT for its costs to be paid by HMRC under Rule 10, Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (FTT Rules) on the grounds that the Disclosure Application had been unreasonably opposed by HMRC (the Costs Application).

While it had been agreed by HMRC that no duty or penalties should arise on stock that had belonged to Hi-Line, as HMRC had assessed Essex for duty and penalties in respect of the stock it held that was not recorded on the Stock Sheets, it was crucial to determine the origin of the goods that had been seized by HMRC.  

Although it appeared from correspondence that Hi-Line and/or its liquidator might have sought restoration of all the goods seized by HMRC (and not just those recorded on the Stock Sheets), Essex did not know the extent of any such application for restoration and this was material in determining whether all, or only some, goods were held by Essex at the duty point.  Accordingly, it sought specific disclosure from HMRC.

HMRC opposed the Disclosure Application on the grounds that: 

(i) it had already provided disclosure under Rule 27, FTT Rules; 

(ii) the documents related to another taxpayer whose affairs it had a statutory duty to keep confidential under section 19, Commissioners for Revenue and Customs Act 2005 (CRCA 2005); and 

(iii) the documents in respect of which disclosure was sought, did not relate to the goods that were the subject of the duty assessment it had issued.

The FTT delivered an ex tempore decision in favour of Essex on 21 June 2023.

On 14 July 2023, Essex made the Costs Application.


Rule 10(1), FTT Rules (insofar as it relates to non-complex track cases where the FTT's cost-shifting provisions are not in play), provides that the FTT 'may only make an order in respect of costs … if the [FTT] considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings'.

Section 18(2)(c), CRCA 2005, provides for an exemption to HMRC's general duty of taxpayer confidentiality where the information is for use in civil proceedings.

FTT decision

The Costs Application was granted.

Essex submitted that HMRC had no good reason to oppose the Disclosure Application and in particular, that:

(1) HMRC was permitted to disclose information, for the purposes of civil proceedings, under section 18(2)(c), CRCA 2005.  If HMRC had been unclear as to its powers it should have remained neutral;

(2) HMRC had unreasonably asserted that the Disclosure Application had been based on speculation;

(3) HMRC had disclosed (in complying with the disclosure order) a letter from Hi-Line's liquidator's solicitors to HMRC enclosing what Essex said was clear evidence that the liquidator had sought restoration of all alcohol seized (and not just that recorded on the Stock Sheets);

(4) the evidence suggested that HMRC was aware that Hi-Line had claimed ownership and restoration of all goods HMRC had seized, as the HMRC tally sheets (which were used by the liquidator to particularise the goods in respect of which restoration was claimed) had been signed by the same HMRC officer who asserted that the excess alcohol had not been claimed by Hi-Line; and 

(5) HMRC's notice of objection was lengthy and many of the objections were wrong, irrelevant or excessive, leading to Essex having to take excessive time to prosecute the Disclosure Application, notwithstanding that many of the points were abandoned by the time HMRC served its skeleton argument.

HMRC submitted that it was not permitted to disclose the relevant documents due to the prohibition in section 18, CRCA 2005; that standard disclosure had been provided under Rule 27, FTT Rules (and specific disclosure was the exception rather than the rule in the FTT); that the disclosure order was made only following argument; and its skeleton argument was shorter than the notice of objection because it had been agreed by the parties' representatives to provide only short skeleton arguments as detailed submissions had already been prepared.

The FTT noted that it had a discretion but not an obligation to award costs if it considered that HMRC's conduct had been unreasonable.  There was no definition of 'unreasonable' for these purposes, but the Upper Tribunal had provided guidance in Distinctive Care.

The FTT considered that the mere fact of HMRC's opposition to the Disclosure Application did not constitute unreasonable conduct, and nor did the length of its notice of objection.  

However, the FTT did consider that HMRC's objection to disclosure on the basis of a duty of confidentiality owed to Hi-Line was misplaced.  These were civil proceedings covered by section 18(2)(c), CRCA 2005, and if HMRC had concerns about its duty to Hi-Line it could have given it the chance to object to disclosure.  In actively opposing disclosure on this ground HMRC had acted unreasonably.  

HMRC had also acted unreasonably in opposing disclosure on the grounds of relevance.  The correspondence in question was clearly relevant to Essex's case, and in the view of the FTT it was misleading for HMRC to have submitted that it was irrelevant.  HMRC must have been aware when the Disclosure Application was made that there was an issue as to who owned the alcohol not detailed in the Stock Sheets, and this was clearly relevant to Essex's liability to duty and/or penalties.  The FTT considered that HMRC's argument was unsustainable and accordingly that it had acted unreasonably.    

The FTT therefore granted the Costs Application and assessed the costs on a summary basis.  


This decision provides useful confirmation that HMRC's opposition to disclosure applications, where the disclosure is permitted under section 18(2)(c) CRCA 2005, can constitute unreasonable conduct giving rise to a potential costs order against HMRC.  It also confirms that the correct approach for HMRC to take if it is unsure of its position on disclosure, is to provide the affected third-party taxpayer with an opportunity to object to disclosure, rather than taking an unnecessarily (and, a cynic might say, deliberately) restricted view of the statutory provisions which permit HMRC to disclose information relating to third party taxpayers.

The decision can be viewed here.