Kearney Transport Ltd v The Commissioners for HMRC [2025] UKFTT 593 (TC)

[2025] UKFTT 00593 (TC)Case No TC09533
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 23 April 2025Date Judgment date: 22 May 2025
By remote video hearing
Appeal reference: TC/2024/04750
Hardship application – whether burden of proof discharged – no – application rejected
Before
TRIBUNAL JUDGE IAN HYDEMICHAEL BELL
Between
KEARNEY TRANSPORT LTDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentDaniel McNamee, solicitor for AppellantDenis Edwards of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for RespondentsDECISION

Introduction

[1]This decision is concerned with whether the appellant’s appeal in respect of excise duties is entitled to proceed to a Tribunal hearing without first paying the assessed duty on the grounds that to do so would cause it hardship.[2]We were referred in the hearing to a hearing bundle.Mr Kearney, a director and shareholder in the appellant gave evidence in the hearing. A witness statement from Sarah Fereday, an officer of HMRC who considered the original hardship application, was included in the bundle but Ms Fereday did not attend the hearing. Mr Edwards for HMRC suggested she did not attend because her evidence was for practical purposes irrelevant to the Tribunal’s decision and we agree with that assessment, the relevant history being evident from the correspondence.[3]The burden of proof in this matter is on the appellant to show hardship.

the facts

[4]We find the facts in this appeal as set out below.

The appellant

[5]The appellant is a transport company owned and operated by its directors, Mr Fearney and his son.[6]On 4 June 2024 the appellant was assessed by HMRC for excise duty totalling £69,281. The appellant was also issued excise wrongdoing penalty notices totalling £26,672 but those penalties are not the subject of this application.[7]On 5 August 2024 the appellant through its solicitors appealed the assessments and made an application for hardship.[8]On 24 October 2024 HMRC wrote to the appellant’s solicitors requesting extensive information to support the hardship application including, but not limited to, information on the financial position following the latest accounts, cash flow forecasts, bank account statements and information on debtors and creditors.[9]On 19 November 2024 the appellant’s solicitors provided the appellant’s accounts for the year ended 31 March 2024 and made the following comment:
“Please see attached copy of the Company’s financial statement for the year ended 31 March 2024. You will note that the net profit of the company is £124,797.00. We advise that payment of the tax in advance of the appeal would mean that the potential for drawings to be taken from the business by the directors and shareholders would effectively be reduced by more than 50%. This would create a situation where the directors and shareholders would not be in position to meet their own personal living expenses and would grossly impact the financial viability of the company. We would submit that a certificate of hardship should issue.”
We would submit that a certificate of hardship should issue.”[10]On 29 November 2024, following requests by HMRC for further information beyond the 2024 accounts, the appellant’s solicitors responded to HMRC as follows:
“Further to the material previously submitted, we would advise that the financial status of the company is fully proven by the provision of the company accounts. This is standard commercial practice. Our client does not wish his company to be subject to any further scrutiny by HMRC and we would state that it should be blatantly obvious that a company of this size would suffer hardship from the payment of such an unannounced tax liability.”
[11]On 3 December 2024 HMRC issued a hardship review conclusion letter rejecting the application on the grounds that insufficient financial information and documentation had been provided to enable HMRC to determine whether the appellant would suffer hardship.[12]The appellant applied to the Tribunal for hardship relief.

The evidence before the Tribunal

[13]The evidence before us consisted of the 2024 accounts and Mr Kearney’s oral evidence.[14]Mr Kearney gave evidence in the hearing as to the appellant’s business and financial position. We found Mr Kearney to be an honest witness who gave credible evidence as to the nature of the business. He was also able to give evidence about its finances in general terms but did not have any understanding as to the appellant’s accounts beyond the superficial.[15]Mr Kearney’s evidence about the business can be summarised as follows:(1) The appellant has 9 tractors and 16 trailers, with two of the trailers being bought on finance since March 2024. Some trailers were refrigerated and some not and were used for different customers.(2) Since March 2024, the trading conditions have deteriorated. They have had to lay off 5 of the drivers so only 4 tractors were operating.(3) The appellant has some £200,000 in the bank but that was needed as working capital.(4) If the appellant had to pay the disputed duty it would likely put the appellant out of business.[16]Mr NcNamee made submissions in closing that under the licensing regime for haulage companies in Northern Ireland a business must keep in free capital £8,000 for the first lorry and £5,000 for each additional lorry. Mr NcNamee suggested 15 was the relevant figure but we suspect Mr McNamee was taking the trailer rather than the tractor number of 9. In any event, and following discussion at the hearing, we take it that Mr McNamee’s submission could be reduced to saying that at most this would require either £48,000 (9 tractors) or £83,000 (16 trailers) to be retained. Mr Kearney did not in clear terms adopt this evidence and we have had nothing else to support the submission by Mr McNamee so we give this evidence little weight.[17]Mr Kearney could not recall why the appellant did not respond to HMRC’s request for information in October 2024 but did say said he did not want to spend money on accountant’s fees for something (such as up to date interim accounts) he did not need but HMRC did. Mr Kearney was advised by the appellant’s accountants not to provide HMRC with bank statements because they contained a lot of sensitive information on employees, suppliers and others which gave rise to data protection concerns. Mr Kearney did not know what the 2025 accounts would show but he knew they would be worse than 2024.[18]The 2024 accounts, their meaning and significance were discussed extensively in the hearing. The principal relevant aspects of the accounts can be summarised as follows: Profit and Loss account Turnover £2,423, 584 … Profit [after tax] £124,797 Balance sheet Fixed assets £526,621 Current assets Stocks £47,194 Debtors £368,341 Cash and cash equivalents £677,901 Net current assets £726,903 … Retained earnings £1,085,654[19]Mr Kearney told the Tribunal that the fixed assets principally consisted of the tractors and trailers.[20]Mr Kearney was vague about the dividends paid to shareholders in 2024. Following some analysis by Mr Bell of the 2023 and 2024 position, Mr Kearney agreed with Mr Bell that in all likelihood dividends in the region of £80,000 had been paid to shareholders and that £24,000 had been paid in total as salaries to the two directors, Mr Kearney and his son.[21]Mr Kearney was asked about the £677,901 shown as “cash or cash equivalents”. His explanation was that it represented the value of stock produced by suppliers to sell to garden centres which the suppliers could not store. The appellant would keep it in their yard pending delivery to garden centres, in April or May. Neither myself nor, more importantly, Mr Bell, an accountant, were satisfied with Mr Kearney’s attempt to explain how storing goods, whether as owner or not, could be described as “cash or cash equivalents”.

the hardship application

[22]The relevant legislation is contained in section 84 Value Added Tax Act 1994:
“84 Further provisions relating to appeals. (1) References in this section to an appeal are references to an appeal under section 83. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) Subject to subsections (3B) and (3C), where the appeal is against a decision with respect to any of the matters mentioned in section 83(1)(b), (n), (p), (q), (ra), (rb) or (zb), it shall not be entertained unless the amount which HMRC have determined to be payable as VAT has been paid or deposited with them. 3A) Subject to subsections (3B) and (3C), where the appeal is against an assessment which is a recovery assessment for the purposes of this subsection, or against the amount of such an assessment, it shall not be entertained unless the amount notified by the assessment has been paid or deposited with HMRC. (3B) In a case where the amount determined to be payable as VAT or the amount notified by the recovery assessment has not been paid or deposited an appeal shall be entertained if— (a) HMRC are satisfied (on the application of the appellant), or (b) the tribunal decides (HMRC not being so satisfied and on the application of the appellant), that the requirement to pay or deposit the amount determined would cause the appellant to suffer hardship. ...”
[23]The principles to be applied in a hardship application are well established, for example in R & C Commrs v Elbrook (Cash & Carry) Ltd [2017] BVC 514 and Totel Ltd v Revenue and Customs Commissioners [2014] UKUT 485 (TCC). The Tribunal must consider the matter on the evidence before it and the burden of proof is on the appellant. The merits of the underlying appeal are not relevant. The fact that HMRC rejected the application because no evidence was produced at that time is also irrelevant.

discussion

[24]The evidence before us consisted of the 2024 accounts and Mr Kearney’s oral evidence.[25]The appellant’s argument that this would half the profits available to be distributed to shareholders which in turn would affect their ability to meet their living expenses, is an argument about hardship for the shareholders not the appellant.[26]The appellant’s financial position was and remains unclear to us. We accept that the excise duty is a significant sum for the business, and we accept that trading conditions have deteriorated since March 2024. We further accept that the appellant is a family run haulage business that has had to lay off drivers and, with profits of £124,797 on a turnover of some £2.4m, works on thin margins. However, that does not explain the balance sheet. Specifically, as we have said above, we struggle to accept Mr Kearney’s explanation of the “cash or cash equivalents” amount of £677,901. If the appellant’s accountant had given evidence, we might have had a better understanding of the position. For example, how the number changes if at all when the goods are delivered to the garden centres in April or May as explained by Mr Kearney in his oral evidence. The working capital was not explained to us in any depth and we have had no evidence beyond Mr Kearney’s general comments as to the trading position in the year since 31 March 2024, the date of those accounts.[27]In conclusion, we accept that there may well be hardship but the accounts and Mr Kearney’s evidence do not on a balance of probabilities demonstrate that is the case.[28]The appellant’s application for hardship is rejected.

Right to apply for permission to appeal

[29]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date: 22nd MAY 2025