N Brown Group Plc: Tribunal confirms there is no going back once a taxpayer has opted out of the costs regime
In N Brown Group Plc and Another v HMRC  UKFTT 445 (TC), the First-tier Tribunal (FTT), has confirmed that it did not have the power to permit a taxpayer to withdraw its written request that the proceedings be excluded from the costs regime.
The appellants' appeals came before the FTT for a case management hearing. The relevant issue, for the purpose of this blog, was whether the appellants could withdraw their written requests to the FTT that the proceedings should be excluded from potential liability for costs under Rule 10(1) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the Tribunal Rules).
The appellants' appeals had been allocated as Complex by the FTT. Under Rule 10(1)(c), the FTT may make an order in respect of costs in cases where:
"the taxpayer … has not sent or delivered a written request to the Tribunal, within 28 days of receiving notice that the case had been allocated as a Complex case, that the proceedings be excluded from potential liability for costs …".
Notwithstanding that they had opted out of costs some considerable time previously, the appellants wrote to the FTT on 2 March 2016, seeking to withdraw their requests that the proceedings should be excluded from liability for costs, noting that HMRC had filed its Statement of Case on the (mistaken) understanding that the costs regime applied.
The FTT's decision
The FTT refused the appellants' application.
At the hearing, both parties referred to the comments of the Upper Tribunal in Atlantic Electronics Ltd v HMRC  UKUT 45 (TCC), where the underlying purpose of the rule had been set out as follows:
"The right to opt out under Rule 10 has to be exercised, as I have mentioned, within 28 days of the allocation of the case as a Complex case. There are I think, two related reasons for that requirement. The first is to achieve certainty for both parties so that they know, at an early stage, which costs regime is to apply and can run their cases accordingly. The second is to prevent the taxpayer from waiting to see how his case progresses…".
The appellants argued that they should be allowed to withdraw their written requests to opt-out of the costs regime for three reasons. Firstly, the costs regime is the default position in a Complex case. Secondly, the taxpayer alone has a right to opt out of the costs regime and this is not dependent on the agreement of HMRC and thirdly, there is nothing in the Tribunal Rules which explicitly prevents a taxpayer from withdrawing a written request to opt out of the costs regime.
The appellants submitted that the FTT had power to allow a taxpayer to withdraw a written request to opt out under Rule 5(3)(c) of the Tribunal Rules, which provides that the FTT may "permit or require a party to amend a document".
The FTT referred to the policy reasons which underlie the costs rules and that the ability to opt out of the costs regime under Rule 10(1)(c)(ii) is a one off event available for a limited period only (28 days from receiving notification of Complex allocation from the FTT). The FTT commented:
"there are good reasons for that as Warren J pointed out in Atlantic Electronics. It achieves certainty for the parties and prevents a taxpayer from obtaining an unfair advantage in relation to costs by waiting to see how the case progresses before deciding whether or not to opt out … ".
The FTT said that it had to decide two questions. First, did it have the power to permit an appellant to withdraw a request to opt-out of the costs regime and second, if it did have such a power, should it permit the appellants to do so in this case.
The FTT concluded that Rule 5(3)(c) did not give it the power to permit the appellants to withdraw their written requests to opt out of the costs regime. In the FTT's view, reference to "document" meant a document which is used in the proceedings such as a pleading, application, or submission. However, even if the written request was a "document" for the purpose of Rule 5(3)(c), the FTT agreed with HMRC's submission that the appellants were not asking to amend their requests to opt out of the costs regime but rather to revoke the requests entirely. The FTT derived support for its approach from the fact that Rule 17 of the Tribunal Rules specifically provides that a party who has given written notice of withdrawal of their case may apply to the FTT for the case to be re-instated ie to revoke the notice, which strongly suggests that the absence of such a provision in Rule 10 is a deliberate choice. The appellants did not seek to rely on any other provision of the Tribunal Rules and the FTT could not identify a Rule that would allow the FTT to permit the appellants to withdraw their request to opt out of the costs regime.
The FTT's conclusion that it does not have the power to allow a withdrawal of a previously notified opt out from the cost regime in a Complex appeal is not surprising given the reasoning behind the operation of the costs rules, as explained in the Atlantic Electronics case. This decision does, however, provide a reminder to taxpayers that when a case is notified as being Complex by the FTT, careful consideration is required in deciding whether to remain within the costs regime or not. A decision to opt out cannot be revisited at a later date.
A copy of the decision can be found here.