People entering/exiting building.

Tribunal criticises HMRC's unreasonable behaviour and awards costs to the taxpayer

09 January 2012. Published by Adam Craggs, Partner

In Nicholas Deluca v HMRC (TC01422) the First-tier Tribunal (Sir Stephen Oliver QC) criticised HMRC's conduct and directed that they make a contribution of half the costs incurred by Mr Deluca in connection with an HMRC enquiry into his tax return and his subsequent appeal to the Tribunal.

Mr Deluca's appeal to the Tribunal was successful and he applied for a contribution by HMRC to the costs that he had incurred in respect of the appeal under rule 10 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 ('the Tribunal Rules'). Mr Deluca relied on rule 10(1)(b) which provides, so far as relevant, that:

'(1) The Tribunal may only make an order in respect of costs …

(b) if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings;'

The Judge concluded that HMRC had, throughout, pursued the wrong person for the tax said to have become due in respect of certain loan waivers made at a time when Mr Deluca ceased employment due to illness. In the view of the Judge, APCO Limited, Mr Deluca's employer at the relevant time, should have been made liable under the PAYE regulations. Nothing in the regulations made Mr Deluca liable as employee for the tax which HMRC claimed was due.

The judge went on to say:

'I am satisfied that HMRC had no justification for pursuing Mr Deluca for the tax and consequently putting him in a position of having to appeal … HMRC should have recognised at an early stage in the enquiry on whom (if they were correct) the tax liability would properly fall. Their action in pursuing him in effect driving him to incur the costs was unreasonable in the extreme.'


This case is a timely reminder that the Tribunal Rules do enable taxpayers to obtain payment of their costs from HMRC and that the Tribunal is prepared, in appropriate circumstances, to direct HMRC to pay such costs. HMRC can be required to pay a taxpayer's costs even if the taxpayer's appeal has been unsuccessful provided the Tribunal is satisfied that HMRC have acted 'unreasonably in bringing, defending or conducting the proceedings'.

What is also significant, is that it would that taxpayers are able to recover costs incurred in connection with an HMRC enquiry which will normally precede the appeal itself (the costs incurred in relation to lengthy and complex enquiries can be substantial). The ability to obtain a direction from the Tribunal requiring HMRC to pay costs incurred by a taxpayer is an important one which should not be overlooked by taxpayers or their advisers!

Stay connected and subscribe to our latest insights and views 

Subscribe Here