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Tribunal allows taxpayers' application for costs against HMRC

18 October 2023. Published by Liam McKay, Senior Associate

In Gigabiz Ltd & Others v HMRC [2023] UKFTT 00693 (TC), the First-tier Tribunal (FTT) awarded the taxpayers' their costs following their successful appeals, but refused their application for indemnity costs on the basis that HMRC's conduct did not merit the "stigma of an indemnity costs award".


Following their successful appeals, the FTT considered an application for costs (the Application) made by Gigabiz Ltd, Xiao Wang and Xuhua Ji (the Appellants). 

Although the FTT's decision in respect of the substantive appeals has not been published, it would appear that HMRC conceded the appeals on the last day of the hearing. 

The Application was made pursuant to Rule 10 of the Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009 (the Rules) and sought a summary assessment. It was not clear to the FTT whether the Application was made under Rule 10(1)(b), 10(1)(c) or both. Accordingly, the FTT treated the Application as one primarily made under Rule 10(1)(c), with Rule 10(1)(b) as an alternative.

The Appellants argued that indemnity costs should be awarded on the basis that HMRC had acted unreasonably to the extent that its conduct should be seen as exceptional. The Appellants argued, in support of the Application, that HMRC had:

(1) changed several of its arguments between the preparation of its statement of case and its skeleton argument; 

(2) lacked understanding of certain documents; 

(3) misinterpreted its own internal systems; 

(4) raised an argument about the identity of a supplier that was irrelevant; 

(5) failed to consider any form of 'real-world' credibility checks; 

(6) relied on unclear and unsubstantiated documents; 

(7) raised an issue regarding R&D; and 

(8) made baseless allegations of fraud.

FTT decision

The Application was granted.

The case had been allocated to the Complex category and the FTT had no hesitation in adopting the general rule that applies under Rule 44.2(2) of the Civil Procedure Rules (CPR), that the unsuccessful party will be ordered to pay the costs of the successful party.

However, the FTT did not consider that the matters raised by the Appellants, whether viewed alone or together, represented conduct that merited "the stigma of an indemnity costs award". That was because, in the FTT's view, all of the matters complained of by the Appellants were criticisms of either the merits of HMRC's case or the way it was conducted. In that regard, the FTT held that mere weakness of HMRC's case, absent more, could not justify an indemnity award given its penal nature. That was particularly so because HMRC would already be paying the Appellants' costs of meeting those weak arguments under the standard basis. The FTT also observed that if HMRC's argument or position changed to such a degree that it was prejudicial to a fair hearing, then the proper course of action for the Appellants was to seek an adjournment and the costs thrown away as a result; it was not to seek indemnity costs at a later date.

As to the Appellants' argument that HMRC made baseless accusations of fraud, the FTT noted that the Appellants failed to provide any details of the alleged accusation. Rather, the FTT found that HMRC had raised penalties for deliberate behaviour in the context of its investigation into the Appellants and that it was properly open to HMRC to have both raised such penalties and then sought to prove its case and test the evidence. Accordingly, the FTT determined that HMRC's case could not be described as opportunistic, thin, speculative or unduly weak.

The only unusual feature of the case that the FTT considered might engage the indemnity cost jurisdiction was the decision of HMRC to concede the appeals on the very last day of the hearing. Whilst the FTT noted that was both unusual and unfortunate, it considered that it was nevertheless preferable to making "mealy-mouthed submissions" and then insisting that the FTT provide a full written decision. The FTT observed that to hold otherwise and punish HMRC by an award of indemnity costs would have a chilling effect on the ability of HMRC to take a pragmatic and sensible view of litigation, no matter how late in the day. Accordingly, the FTT held that, whilst HMRC's approach was outside of the norm in litigation and ought to be generally deprecated because it suggested a failure to review the case and evidence at an earlier stage, it was not, in the context of the Appellants' appeals, conduct that was unreasonable to the necessary degree given the context of HMRC's investigation and the evidence as a whole.

As to Rule 10(1)(b), the FTT considered that an application premised on unreasonable conduct involved the application of a similar test to that for making an indemnity costs order. Accordingly, in light of its rejection of the Appellants' arguments for indemnity costs to be awarded, the FTT also rejected the Appellants' assertion that HMRC acted unreasonably in defending or conducting the proceedings. While the FTT acknowledged that there might be an argument that a test premised simply on “unreasonable conduct” had a lower hurdle than the test for indemnity costs, it noted that the point was not argued, and therefore did not express any further view.

The FTT also rejected the Appellants' request for a summary assessment as being neither appropriate nor possible, noting that it was "a classic case where the receiving party could and should seek a detailed assessment". That was because, firstly, it was clear that any "substantial" claim for costs (which the FTT postulated may mean a claim exceeding £20,000), was unlikely to be suitable for summary assessment and secondly, because a summary assessment, other than of the most basic kind, could only take place where there was a proper schedule of costs drafted in line with CPR Practice Direction 44, which the Appellants had failed to provide.

Accordingly, the FTT ordered HMRC to pay the Appellants' costs of and occasioned by the appeals on the standard basis, to be assessed if not agreed.


The FTT's approach to costs has been in the spotlight in recent times, and this decision emphasises the importance of a properly pleaded application for costs accompanied by a detailed cost schedule. Further, while taxpayers will welcome the FTT's readiness to apply the general CPR rule that costs follow the event, this decision demonstrates that the threshold for an award of indemnity costs is  high.

If the Application had been heard in the higher courts (rather than before the FTT) and determined under the CPR, the Appellants may well have been awarded their costs on an indemnity basis as the courts generally take a very dim view of litigators who withdraw from litigation on the final day of a substantive hearing.     

The decision can be viewed here.