Mark Gadsden v The Commissioners for HMRC [2026] UKFTT 1112 (TC)

[2026] UKFTT 01112 (TC)Case No TC 09972Hearing Heard on the papers
FIRST-TIER TRIBUNAL
TAX CHAMBER
Date Judgment date: 31 July 2026
Appeal reference: TC/2025/00207
Costs — Rule 10(1)(b) — unreasonable conduct — standard category case — witness evidence — alleged misleading evidence — failure adequately to review case — defence of proceedings — Class 2 National Insurance contributions — due care and diligence — reliance on professional advisers — costs not following the event — application refused
Before
TRIBUNAL JUDGE GERAINT WILLIAMS
Between
MARK GADSDENAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentThe Tribunal determined the application on the papers without a hearing, both parties having made representations in respect of the application.DECISION

Introduction

[1]This decision concerns an application by the Appellant for an order for costs under Rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 ("the Tribunal Rules").[2]The substantive appeal was determined by a decision released on 14 May 2026. The Tribunal allowed the appeal and concluded that the Appellant's failure to pay Class 2 National Insurance contributions within the statutory time limits was attributable to ignorance or error which was not due to any failure on his part to exercise due care and diligence. The Tribunal therefore directed that the relevant contributions should be treated as paid for contributory benefit purposes.[3]By an application dated 11 June 2026, the Appellant seeks an order that HMRC pay his costs of the proceedings, stated to total £21,500 plus VAT. The application is made on the basis that the proceedings were allocated to the standard category and accordingly no order for costs may be made unless one of the exceptions contained in Rule 10 applies.[4]The Appellant does not contend that the proceedings were allocated as a Complex case, nor does he rely upon the wasted costs jurisdiction. The application is founded solely upon Rule 10(1)(b), namely that HMRC acted unreasonably in defending and/or conducting the proceedings.[5]The application advances two principal grounds. First, the Appellant contends that HMRC's witness evidence on matters central to its case was materially inaccurate, incomplete and liable to mislead unless corrected through cross-examination. Secondly, the Appellant contends that, having regard to the evidence available to HMRC and the existing authorities concerning reliance upon professional advisers in cases involving late payment of Class 2 National Insurance contributions, HMRC's case was so weak that it was unreasonable to defend the appeal.[6]HMRC oppose the application. They submit that the appeal concerned a fact-sensitive evaluation of whether the Appellant had exercised due care and diligence and that they were entitled to advance and test an arguable case. They deny that any aspect of their conduct reached the threshold of unreasonableness required by Rule 10 and submit that the application represents an attempt to convert a successful outcome on the merits into an award of costs contrary to the purpose of the standard costs regime.[7]I have considered the Appellant's application dated 11 June 2026, HMRC's response dated 15 June 2026 and the Appellant's reply of the same date, together with the findings made in the substantive decision and the authorities relied upon by the parties.

Relevant Rules and Legal Principles

[8]Rule 10(1)(b) relevantly provides:
“The Tribunal may only make an order in respect of costs ... if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings.”
[9]The authorities establish that the question whether a party has acted unreasonably is distinct from the question whether that party was right or wrong on the substantive merits of the appeal. A successful appellant is not entitled to costs merely because HMRC's position failed. Equally, a party does not act unreasonably merely because arguments advanced in the proceedings are ultimately rejected. The Tribunal must focus on the conduct of the litigation rather than on the correctness of the underlying decision. The fact that an appeal succeeds does not establish that the defence of the appeal was unreasonable.[10]In Distinctive Care Ltd v HMRC [2019] EWCA Civ 1010 (“Distinctive Care CA”) the Court of Appeal approved the established approach that the focus of Rule 10 is on the handling of the case rather than the quality of the original decision. LJ Rose stated:
“the parties and the tribunal must always bear in mind first that the focus should be on the standard of handling the case rather than the quality of the original decision”
[11]The Court of Appeal further confirmed that Rule 10 is concerned with the bringing, defending or conducting of proceedings before the Tribunal and does not ordinarily permit a free-standing examination of conduct before proceedings were commenced. Earlier conduct may sometimes illuminate conduct during the proceedings, for example where bad faith is alleged, but the principal focus remains the conduct of the litigation itself.[12]In Distinctive CareCA the Court of Appeal approved the Upper Tribunal's observation in Distinctive Care v HMRC [2018] UKUT 155 (TCC) (“Distinctive Care UT”) at [39] that:
“the focus of the assessment remains on these relevant actions, not on any earlier actions.”
[13]The Court of Appeal also endorsed the proposition that Rule 10 is directed towards circumstances in which an appellant has pursued a case which should never have been brought or a respondent has persisted with a case which should not reasonably have been defended. Referring to the decision in Catanã v HMRC [2012] UKUT 172 (TCC) (“Catanã”), LJ Rose cited with approval at [19] the description of the relevant enquiry as encompassing: “an appellant [who] has unreasonably brought an appeal which he should know could not succeed" or "a respondent [who] has unreasonably resisted an obviously meritorious appeal”.[14]The leading authority on the meaning of unreasonable conduct in Rule 10 applications remains Market & Opinion Research International Ltd v HMRC [2015] UKUT 12 (TCC) ("MORI"), to which the Upper Tribunal and Court of Appeal referred in Distinctive Care CA.[15]The principles emerging from MORI may be summarised as follows:(1) the test is objective;(2) there may be a range of reasonable conduct available to a litigant;(3) conduct may be unreasonable even without bad faith;(4) a single act or omission may suffice;(5) conduct is judged in its litigation context;(6) the Tribunal must avoid turning Rule 10 into a general costs-shifting jurisdiction.[16]The authorities also establish that omissions may constitute unreasonable conduct. In Distinctive Care the Court of Appeal noted the Upper Tribunal's approval in MORI at [22] of the proposition that:
“actions for the purposes of 'acting unreasonably' also include omissions (Thomas Holdings Limited v HMRC [2011] UKFTT 656 (TC) at [39])”
[17]Where a party withdraws or abandons its case, the fact of withdrawal does not itself establish unreasonable conduct. The relevant question is whether the party should reasonably have withdrawn sooner. In Shahjahan Tarafdar v HMRC [2014] UKUT 0362 (TCC) (“Tarafdar”) the Upper Tribunal stated that a tribunal considering a costs application after withdrawal should ask:(1) What was the reason for the withdrawal of that party from the appeal?(2) Having regard to that reason, could that party have withdrawn at an earlier stage in the proceedings?(3) Was it unreasonable for that party not to have withdrawn at an earlier stage?”[18]The Upper Tribunal further observed that the proper enquiry is: “whether HMRC had unreasonably prolonged matters once they were in the tribunal, or whether they should have withdrawn the assessment at an earlier stage”.[19]In Revenue and Customs Commissioners v Jackson Grundy Ltd [2017] UKUT 180 (TCC) ("Jackson Grundy"), the Upper Tribunal concluded that HMRC had acted unreasonably in defending the proceedings where it should have been apparent, reviewing the matter dispassionately and by reference to the information available at the relevant time, that the decision under appeal was so flawed that it could not properly be defended. The decision illustrates the principle that persistence in defending a position may amount to unreasonable conduct where its lack of merit ought reasonably to have become apparent.[20]The authorities further emphasise that the Rule 10 jurisdiction is intended to be exercised sparingly. In Distinctive Care the Court of Appeal at [7] described Rule 10 as an exception to the generally applicable no-costs regime and observed:
“Rule 10 should therefore be regarded as an exception to this general expectation that both sides will bear their own costs, whatever the result of the appeal.”
[21]Similar guidance appears in Willow Court Management Co (1985) Ltd v Alexander [2016] UKUT 290 (LC) (“Willow Court”). Although decided in the context of the Property Chamber, the Upper Tribunal was interpreting materially indistinguishable language. The Tribunal stressed that the threshold question concerns conduct related to the proceedings themselves and said at [95]:
“Only behaviour related to the conduct of the proceedings themselves may be relied on at the first stage of the rule 13(1)(b) analysis.”
[22]In Willow Court the Upper Tribunal adopted the observations of Sir Thomas Bingham MR in Ridehalgh v Horsefield [1994] Ch 205 that conduct is unreasonable if there is no reasonable explanation for it when viewed objectively.[23]In Marshall & Co v HMRC [2016] UKUT 116 (TC) at [24] the Upper Tribunal described the question whether litigation conduct is unreasonable as "effectively a value judgment", thereby recognising that the assessment is evaluative and fact-sensitive rather than dependent upon any mechanistic test.[24]Finally, Businessman v HMRC [2008] STC (SCD) 1151 (“Businessman”), relied upon by the Appellant, demonstrates that findings of misleading evidence or serious procedural misconduct may justify a costs award. However, that authority also illustrates the distinction between evidence that is simply rejected and evidence which is found to have been advanced irresponsibly or misleadingly. A tribunal's rejection of evidence does not, without more, establish unreasonable conduct.[25]It is against those principles that the Appellant's complaints concerning HMRC's witness evidence and HMRC's decision to continue defending the substantive appeal must be assessed. Submissions Appellant’s

Submissions

[26]The application is advanced on the basis that HMRC acted unreasonably both in conducting the proceedings and in continuing to defend the substantive appeal.[27]Particular criticism is directed towards the evidence of Ms Crawford. The application contends that HMRC's case depended substantially upon assertions concerning the issue and content of deficiency notices said to have been sent during the 1980s. It is said that the witness statement presented those matters as established facts when the witness ultimately accepted under cross-examination that she had no direct knowledge of the notices, could not confirm their contents, could not explain aspects of the historical records and could not reliably support the inferences HMRC invited the Tribunal to draw from them. The evidence is characterised as inaccurate and misleading because assertions later shown to depend upon assumptions, general practice or conjecture were presented as statements of fact. It is said that these limitations ought to have been apparent before the witness statement was served and that a proper review of the available material would have revealed them.[28]The application contends that the position was aggravated by HMRC's failure, in response to the costs application, to provide any satisfactory explanation as to how the disputed assertions came to be included in the witness statement or what steps were taken to verify them before service. Reliance is placed upon authorities emphasising the importance of candour and proper conduct by public authorities engaged in litigation. The Tribunal's findings rejecting important aspects of HMRC's evidential case are said to demonstrate that HMRC's conduct crossed the threshold from mere forensic weakness into objectively unreasonable litigation conduct.[29]The second strand of the application concerns the continuation of the substantive appeal. The Appellant contends that HMRC knew or ought to have appreciated that its prospects of success were poor. Reliance is placed upon the approach to due care and diligence adopted by the Court of Appeal in Revenue and Customs Commissioners v Kearney [2010] EWCA Civ 288 ("Kearney") and a line of First-tier Tribunal decisions including Schonfield v HMRC [2013] UKFTT 244 (TC) (“Schonfield”), Murphy v HMRC [2014] UKFTT 734 (TC) (“Murphy”), Thomas v HMRC [2016] UKFTT 0735 (TC) (“Thomas”), Arens v HMRC [2017] UKFTT 79 (TC) (“Arens”) and Chilvers v HMRC [2018] UKFTT 517 (TC) (“Chilvers”) each of which recognised that a taxpayer may establish due care and diligence notwithstanding a failure to register or pay Class 2 National Insurance contributions where the taxpayer reasonably relied upon a competent professional adviser. Against that background, it is said that HMRC had little realistic prospect of establishing that the Appellant had failed to exercise due care and diligence. The Appellant emphasises that he had instructed accountants throughout the relevant period, that he believed his obligations were being dealt with through those advisers and that the authorities demonstrated a consistent approach favourable to taxpayers in comparable circumstances. HMRC's continuing reliance upon alleged deficiency notices is said to have rested on evidential foundations which were incapable of supporting the case ultimately advanced.[30]The application therefore contends that HMRC not only advanced unreliable evidence but also persisted in defending an appeal which, viewed objectively and having regard to the available evidence and authorities, ought not reasonably to have been contested. The Appellant maintains that the cumulative effect of those matters satisfies the Rule 10 threshold and justifies an order that HMRC pay his costs of the proceedings.

HMRC's submissions

[31]HMRC contend that the application seeks to convert success in the substantive appeal into an award of costs in circumstances where the requirements of Rule 10 are not satisfied.[32]HMRC emphasise the limited nature of the costs jurisdiction in standard category cases and contend that a party does not act unreasonably merely because its arguments fail. They reject the suggestion that criticism of Ms Crawford's evidence establishes unreasonable conduct. Witnesses commonly make concessions or accept limitations in cross-examination and the fact that evidence is weakened or rejected does not mean that it was unreasonable to adduce it. The Tribunal's conclusions concerning the weight to be attached to the evidence do not amount to findings of dishonesty, bad faith or deliberate misconduct.[33]HMRC further maintain that the substantive appeal was capable of proper argument and turned on disputed factual issues. The decisions relied upon by the Appellant were not binding and depended upon their own facts. HMRC were entitled to argue that the present case should be distinguished and to invite the Tribunal to reach a different evaluative conclusion.[34]HMRC therefore characterise the application as no more than a complaint that their evidence was not accepted and that their case was unsuccessful. On their analysis, Rule 10 requires something substantially more serious than the advancement of a case which proves unsuccessful after a contested hearing. In the absence of findings of bad faith, abuse of process, deliberate misrepresentation or persistence in an obviously hopeless position, HMRC contend that the statutory threshold is not met and that the application should be dismissed.

Discussion

[35]The applicable legal principles are well established and not in dispute. The dispute concerns their application to the particular circumstances of this case. The Appellant's case focuses on two matters: first, the preparation and presentation of HMRC's evidence concerning the alleged deficiency notices and related matters and secondly, HMRC's decision to continue defending the appeal notwithstanding the evidence available to it and the existing authorities concerning reliance on professional advisers. HMRC contend that the application does no more than identify evidential weaknesses exposed at trial and invite the Tribunal to infer unreasonableness from HMRC's ultimate failure on the merits. The central question is whether HMRC's conduct fell outside the range of reasonable litigation behaviour contemplated by Rule 10 or whether the Appellant's complaints amount to no more than criticism of an unsuccessful case.

Scope of the Rule 10 enquiry

[36]Before considering the particular complaints made by the Appellant, it is necessary to identify the conduct which may properly be examined under Rule 10(1)(b). Both parties' submissions referred to events which occurred before the commencement of these proceedings, including HMRC's handling of the Appellant's affairs, the evidential basis for the decision under appeal and the steps taken before the appeal was notified to the Tribunal. The authorities make clear, however, that the Tribunal's focus must remain upon the bringing, defending and conduct of the proceedings rather than upon the correctness of the underlying decision or the adequacy of HMRC's pre-litigation decision-making.[37]In Distinctive Care CA, the Court of Appeal approved the Upper Tribunal's analysis that, in an application against a respondent, the conduct to be considered is the respondent's conduct in defending the proceedings together with its conduct during the proceedings themselves. LJ Rose endorsed the Upper Tribunal's observation that:
“the focus of the assessment remains on these relevant actions, not on any earlier actions.”
[38]The Court of Appeal further emphasised that:
“the focus should be on the standard of handling the case rather than the quality of the original decision”
[39]The same approach was adopted in Willow Court. Although that case concerned the Property Chamber, the relevant costs provision was materially identical. The Upper Tribunal stated:
“Only behaviour related to the conduct of the proceedings themselves may be relied on at the first stage of the rule 13(1)(b) analysis.”
[40]It follows from Distinctive Care CA and Willow Court that the fact that the Appellant ultimately succeeded in the substantive appeal does not itself advance the Rule 10 enquiry. Nor is the Tribunal concerned with whether HMRC ought never to have made the decision under appeal. The issue is whether HMRC acted unreasonably in defending or conducting these proceedings after they commenced. Earlier events may be relevant insofar as they illuminate HMRC's conduct during the proceedings or the reasonableness of positions subsequently adopted, but they do not themselves constitute unreasonable conduct for the purposes of Rule 10.[41]Accordingly, in determining this application I do not treat the correctness of HMRC's original decision, the ultimate success of the Appellant's appeal or the Tribunal's rejection of parts of HMRC's evidential case as determinative. Rather, the issue is whether HMRC's conduct in preparing, maintaining and advancing its case during these proceedings fell outside the range of conduct that a reasonable litigant could properly adopt in the circumstances then prevailing. I now turn to the specific complaints advanced by the Appellant.

HMRC's witness evidence

[42]The Appellant's principal complaint concerns the preparation and presentation of the witness evidence upon which HMRC relied at the substantive hearing. The focus of that complaint is not merely that the evidence was ultimately rejected. Rather, the Appellant contends that the witness statement advanced factual assertions which could not properly be supported and that the limitations in the evidence only became apparent through cross-examination. It is therefore necessary to distinguish between two separate questions. The first is whether the Tribunal ultimately accepted the evidence advanced by HMRC. The answer to that question is clearly no in respect of a number of important matters. The second, and materially different, question is whether the preparation and deployment of that evidence was itself unreasonable for the purposes of Rule 10. The findings in the substantive decision are relevant to the latter enquiry but do not determine it.[43]HMRC's defence relied in part upon the proposition that the Appellant had been notified of deficiencies in his National Insurance contribution record over a number of years and that he ought therefore to have been aware that contributions remained unpaid. That contention depended substantially upon HMRC records said to indicate that deficiency notices had been issued and upon the evidence of Ms Crawford concerning HMRC practices and procedures.[44]At paragraphs [31]-[35] of the substantive decision the Tribunal recorded the limitations which emerged in Ms Crawford's evidence during cross-examination. At paragraphs [72]-[73] and [81]-[84] the Tribunal explained why that evidence did not permit the inferences for which HMRC contended. As recorded there, Ms Crawford was unable to give direct evidence of the content of any deficiency notice issued to the Appellant. She was unable to identify with certainty how many notices had been issued or explain aspects of the historical records upon which HMRC relied. She accepted that she had no direct knowledge of what documents the Appellant had received and that historical records were capable of containing errors. The Tribunal also found that there was insufficient evidence to establish that the historical notices relied upon by HMRC would have been materially similar to exemplar notices produced many years later.[45]Those findings (at [72]-[73] and [81]-[84] of the substantive decision) led to a number of conclusions adverse to HMRC. The Tribunal concluded that the evidence did not permit a reliable inference to be drawn either as to the content of any notice sent to the Appellant or as to whether any notice would have explained the obligation to pay Class 2 National Insurance contributions. The Tribunal therefore attached little weight to HMRC's case regarding the deficiency notices and ultimately rejected a significant part of the factual foundation upon which HMRC relied.[46]The Appellant places particular reliance upon those findings. It is said that they demonstrate that the witness statement advanced propositions which could not be supported by the available evidence. The Appellant further argues that the deficiencies identified during cross-examination should have been apparent before the statement was finalised and served. On that footing, the complaint is not simply that the witness proved to be mistaken but that HMRC failed adequately to investigate the evidential basis for the assertions advanced on their behalf.[47]I accept that there is force in the Appellant's observation that the Tribunal's findings went beyond a mere preference for one witness over another. The decision records substantial difficulties in HMRC's evidential case on a matter which HMRC regarded as important. The deficiencies revealed in cross-examination were not peripheral. They concerned the basis upon which HMRC invited the Tribunal to conclude that the Appellant had received information sufficient to alert him to the existence of unpaid Class 2 contributions. That issue formed a significant component of HMRC's overall case. It is also relevant that HMRC's response to the costs application does not substantially engage with the detail of those criticisms. HMRC contend, correctly, that evidence may properly be tested in cross-examination and that the rejection of evidence does not of itself establish unreasonable conduct. However, little explanation is provided as to the evidential enquiries undertaken before the witness statement was served or the basis upon which some of the more confident assertions contained within it came to be made.[48]Nevertheless, the threshold imposed by Rule 10 remains a high one. The Tribunal did not find that Ms Crawford acted dishonestly. Nor did it find that she knowingly gave false evidence, deliberately sought to mislead the Tribunal or advanced assertions which she knew to be unsupported. Equally, the substantive decision contains no finding of bad faith, abuse of process or breach of any procedural obligation owed by HMRC.[49]In many appeals a witness's evidence is materially weakened through the process of cross-examination. Assumptions are exposed, limitations become apparent and inferences which appeared plausible in a witness statement are shown to be incapable of bearing the weight placed upon them. The ordinary forensic process exists precisely so that such matters can be tested. The fact that a witness ultimately accepts limitations in their evidence does not necessarily mean that it was unreasonable to adduce that evidence in the first place.[50]As MORI and Businessman demonstrate, the Tribunal must therefore be careful not to equate evidential weakness with unreasonable conduct. The findings made in the substantive decision establish that important aspects of HMRC's evidence were unreliable and that the inferences sought by HMRC could not properly be drawn. They do not automatically establish that HMRC acted unreasonably in relying upon that evidence. The question remains whether, viewed objectively and in light of the material available at the time, no reasonable litigant could properly have advanced it.[51]The position in the present case falls some distance short of the circumstances considered in decisions such as Businessman where the conduct complained of involved findings of misleading evidential conduct going well beyond mere unreliability. Here, the criticism is that the evidence proved incapable of supporting the propositions advanced not that HMRC knowingly advanced evidence which was false.[52]Standing back and considering the issue as a whole, I accept that the Appellant has identified genuine and significant weaknesses in HMRC's evidential preparation. The findings in the substantive decision provide a substantial foundation for that criticism. However, those findings do not inevitably lead to the conclusion that HMRC acted unreasonably in the Rule 10 sense. The evidence was tested, important limitations emerged and the Tribunal ultimately rejected significant parts of HMRC's case. Whether that analysis crosses the boundary from unsuccessful litigation conduct into objectively unreasonable conduct requires consideration of the wider context, including whether HMRC ought reasonably to have appreciated, before or during the proceedings, that those evidential deficiencies rendered continued reliance on that aspect of the case untenable. It is to that issue that I now turn.[53]In Tarafdar, the Upper Tribunal explained that where a party ultimately withdraws from proceedings the relevant enquiry includes whether that party could reasonably have withdrawn earlier and whether it was unreasonable not to have done so. Similarly, in MORI, approval was given to the proposition that a failure adequately to review a case once proceedings have commenced may in an appropriate case amount to unreasonable conduct.[54]Applying those principles to the present case, the difficulty for the Appellant is that there is limited evidence before me as to the state of HMRC's knowledge during the course of the proceedings and the reviews of the case that were undertaken. The application invites the Tribunal to infer, from the weaknesses exposed during cross-examination, that those weaknesses must have been apparent, or should have been apparent, before the hearing. That is a permissible submission, but it does not necessarily follow.[55]The substantive decision establishes that Ms Crawford was unable at the hearing to provide reliable support for a number of propositions concerning the alleged deficiency notices and that the Tribunal ultimately rejected the inferences HMRC invited it to draw from the available records. It does not, however, contain any finding that HMRC were aware before the hearing that those propositions could not be supported. Nor does it contain findings as to the extent of any review undertaken by HMRC when preparing the evidence or maintaining its defence of the appeal.[56]The Appellant points to the absence of any satisfactory explanation from HMRC as to how the disputed assertions came to be included in the witness statement or why their limitations were not recognised earlier. There is some force in that observation. Where a costs application identifies specific evidential deficiencies, an explanation of the enquiries undertaken and the basis upon which the evidence was advanced may assist in determining whether HMRC acted reasonably. In the present case, no explanation has been provided.[57]Nevertheless, the absence of an explanation does not reverse the burden resting upon the Appellant to establish unreasonable conduct. The Tribunal must still be satisfied, on the material available, that HMRC's conduct fell outside the range of behaviour reasonably open to a litigant in its position.[58]In my view the substantive findings do not establish that conclusion. Although the Tribunal ultimately rejected HMRC's case concerning the deficiency notices, it does not follow that the case was incapable of being advanced. HMRC possessed records suggesting that notices had been issued. They possessed a witness able to explain aspects of HMRC's systems and historical practices. The fact that those matters proved insufficient to satisfy the Tribunal does not necessarily mean that a reasonable review of the case would have led to their abandonment.[59]It is also significant that HMRC did not abandon this aspect of the case during the proceedings. The authorities concerning a failure to review a case most commonly arise where a party eventually concedes an issue and the question becomes whether that concession should have been made earlier. Here, HMRC continued to maintain the evidential case until it was rejected by the Tribunal. The question is therefore not whether HMRC delayed an inevitable concession but whether the case had become so obviously untenable that a reasonable litigant would no longer have pursued it.[60]I do not consider that threshold to have been reached. The deficiencies identified by the Tribunal emerged most clearly through the process of oral evidence and cross-examination. While they ultimately proved fatal to this aspect of HMRC's case, I am not persuaded that they were of such an obvious character that continued reliance upon the evidence became unreasonable before the Tribunal reached its conclusions.[61]Accordingly, while the findings made in the substantive decision provide some support for the Appellant's criticism of HMRC's case preparation, they do not in my judgment establish a failure adequately to review the case of a kind sufficient, either alone or in conjunction with the matters discussed in the previous section, to satisfy the threshold imposed by Rule 10(1)(b). The remaining issue is whether, notwithstanding those conclusions, HMRC acted unreasonably in continuing to defend the appeal itself.

Whether HMRC acted unreasonably in defending the appeal

[62]The Appellant's remaining complaint is broader in scope. It is contended that, quite apart from the deficiencies in the witness evidence, HMRC acted unreasonably in continuing to defend the substantive appeal. The Appellant relies in particular upon a line of First-tier Tribunal decisions concerning late payment of Class 2 National Insurance contributions where taxpayers had relied upon professional advisers. Those decisions include Thomas, Arens, Murphy, Chilvers and Schonfield. The Appellant contends that they established a consistent body of reasoning which ought to have led HMRC to recognise that the appeal had little realistic prospect of success.[63]I accept that those authorities provided support for the Appellant's position in the substantive appeal. As was discussed in the substantive decision, each concerned the application of the due care and diligence test in circumstances where a taxpayer relied, to a greater or lesser extent, upon professional advisers and believed that their tax and National Insurance affairs were being appropriately managed. The substantive decision noted a number of similarities between those cases and the present appeal and ultimately found them persuasive in a number of respects.[64]However, the existence of favourable decisions does not of itself render it unreasonable for HMRC to defend an appeal. None of the decisions upon which the Appellant relies was binding on this Tribunal. Neither Thomas, Arens, Murphy, Chilvers nor Schonfield established a general rule that reliance upon an accountant necessarily demonstrated due care and diligence. Rather, each involved the fact-sensitive evaluative exercise required by the governing legislation and explained in Kearney.[65]Indeed, the substantive decision itself recognised the fact-sensitive nature of the enquiry. Consideration was given not only to the Appellant's reliance upon professional advisers but also to the length of the period during which Class 2 contributions remained unpaid, the Appellant's understanding of his affairs, the alleged deficiency notices and the extent of any personal responsibility which remained notwithstanding the appointment of accountants. The decision ultimately resolved those matters in the Appellant's favour but only after a detailed examination of the facts and authorities.[66]In my judgment, the very nature of the substantive decision tends to undermine the proposition that HMRC's defence was unreasonable. The Tribunal was required to engage in a detailed evaluation of the evidence and the authorities before reaching its conclusion. This was not a case in which a short or straightforward point disposed of HMRC's position at the outset. Nor was it a case in which a binding authority rendered HMRC's arguments unsustainable.[67]The Appellant relied upon the observations in Catanã, approved by the Court of Appeal in Distinctive Care CA, concerning a respondent “unreasonably resist[ing] an obviously meritorious appeal”. That formulation is a useful one but, in my judgment, it does not describe the present circumstances. While the Appellant's appeal ultimately succeeded, I do not regard it as having been so obviously meritorious that HMRC acted unreasonably in inviting the Tribunal to reach a different evaluative conclusion on the facts.[68]Nor do I consider that this is a case analogous to Jackson Grundy or similar cases in which a party persisted in a position that had become demonstrably untenable. HMRC maintained an evidential and legal case which was ultimately rejected. However, for the reasons already given, the fact that significant elements of that case failed does not establish that they were incapable of proper argument. The Tribunal's findings show that HMRC's case was unsuccessful. They do not demonstrate that it was hopeless.[69]I also bear in mind the guidance in MORI and Distinctive Care CA that Rule 10 should not become a mechanism by which costs routinely follow the event. If a costs order were justified whenever HMRC unsuccessfully defended an appeal in circumstances where earlier First-tier Tribunal decisions had favoured taxpayers on similar facts, the exceptional nature of Rule 10 would be substantially diluted. The authorities do not support such an approach.[70]Standing back and viewing the matter as a whole, I do not conclude that HMRC acted unreasonably in defending the appeal. The appeal raised a fact-sensitive issue requiring evaluative judgment. HMRC had evidence, albeit evidence which ultimately proved insufficient. HMRC also had legal arguments which required consideration and determination. The fact that those arguments failed, even emphatically, does not establish that it was unreasonable for them to have been advanced.[71]I therefore reject the Appellant's contention that HMRC's decision to continue defending the appeal satisfied the threshold imposed by Rule 10(1)(b). The remaining question is whether, considering the various matters cumulatively, HMRC's conduct nevertheless crossed that threshold.

Overall assessment of whether the Rule 10 threshold is met

[72]It is necessary to stand back from the individual allegations and consider whether, viewed cumulatively, HMRC's conduct in defending and conducting these proceedings crossed the threshold imposed by Rule 10(1)(b).[73]I accept that the Appellant has identified significant weaknesses in HMRC's evidential case and that those weaknesses explain why the substantive appeal succeeded. I also accept that the costs application raises more than a mere complaint that HMRC lost. It focuses upon identified deficiencies in HMRC's evidence and its continued reliance upon that evidence. Nevertheless, for the reasons already given, I do not consider that those matters demonstrate bad faith, dishonesty, procedural misconduct, failure adequately to review the case or persistence in a position which no reasonable litigant could maintain. The deficiencies identified by the Tribunal provide a basis for criticism of HMRC's case, but they do not establish unreasonable conduct within the meaning of Rule 10(1)(b).[74]Standing back and looking at the proceedings as a whole, I conclude that what occurred was the unsuccessful pursuit of a case which was capable of proper argument rather than the unreasonable defence or conduct of proceedings. The criticisms advanced by the Appellant explain why HMRC lost. They do not establish that HMRC acted unreasonably in the sense required by Rule 10(1)(b).[75]I therefore conclude that the Appellant has not established that HMRC acted unreasonably in defending or conducting the proceedings. The threshold condition required by Rule 10(1)(b) is not satisfied.[76]In those circumstances the Tribunal has no jurisdiction to make an order for costs under Rule 10(1)(b) and the application must be refused.

Conclusion

[77]For the reasons given above, the Appellant has not established that HMRC acted unreasonably in defending or conducting the proceedings within the meaning of Rule 10(1)(b).[78]The application for costs is therefore refused.

Right to apply for permission to appeal

[79]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: 31 July 2026