“(1) The self-assessment that Mr Archer was required to file as part of his return was required to state the amount of tax for which he was liable. One would naturally expect that an amendment to that assessment must likewise state the amended amount of tax for which he is liable. The formal requirements for the validity of a closure notice must be the same irrespective of how sophisticated the particular taxpayer is or how skilled his professional advisers might be if he has any. Section 28A(2)(b) TMA 1970 requires the amendment of the return to be made by the closure notice itself; not merely by an officer of HMRC. Unless incorporated by reference, HMRC’s amendment of the on-line return cannot itself satisfy the words of the sub-section. (2) The two conclusions reached by Jay J regarding the application of section 114 TMA were irreconcilable in that he said on the one hand there was nothing on which section 114 could bite in the proceedings for judicial review, but on the other hand that section 114 could validate a closure notice, at least in the context of an appeal to the FTT. (3) The approach to the application of section 114 TMA 1970 set out in HMRC v Donaldson[2016] EWCA Civ 761 was applied. In applying an objective test the reader of the Closure Notices must be taken to be equipped with the knowledge that Mr Archer and KPMG had, including knowledge of what had led to the enquiry and what HMRC' s conclusions were. Mr Archer's liability could have been easily worked out, and he could have been in no doubt what he owed HMRC. He had in addition been informed by the APNs as to what HMRC asserted was his liability. (4) HMRC's omission to amend his return to accord with their conclusions was a matter of form rather than substance on the particular facts of this case. Therefore, the Closure Notices were validated by section 114. Section 114 applied irrespective of the forum in which it was relied upon. Therefore, Mr Archer owed HMRC a debt which exceeded the bankruptcy limit.”
“HMRC will, however, agree not to proceed to bankrupt the Appellant for the debt of tax due for 2001/02 and 2002/03 whilst the applications are being considered by the Supreme Court provided that the Appellant agrees in return not to ask the Supreme Court to consider the applications on an urgent basis.”
“107. Mr Archer maintains that he had a reasonable excuse for the later payment of tax for the Relevant Years because of the judicial review litigation concerning the existence of an obligation to pay HMRC. In the grounds of appeal it is said that the reasonable excuse consisted of: (1) the reasonable belief that no payment was due to HMRC in consequence of the Closure Notices on the basis that it was Mr Archer’s reasonable view that, as a matter of law, the Closure Notices did not make any amendments to his self-assessments for the Relevant Years and, accordingly, that the Closure Notices did not function to create any payment obligation under s.59B TMA 1970. That is to say, there was no tax debt due to HMRC as a result of the Closure Notices; (2) the fact that the Appellant had an arguable case that no payment was due, with (in the words of Lord Justice Henderson) a real prospect of success, and Mr Archer continued to have an arguable case with a real prospect of success until the decision of the Supreme Court on13 June 2018 ; (3) the general principle - reflected in the injunctions granted by the Administrative Court and the Court of Appeal by way of interim relief and in the undertaking given by HMRC's solicitor on7 December 2017 which had equivalent effect - that whilst the question of whether a payment is due or not is being considered by the courts in current legal proceedings with a real prospect of success, fairness requires the preservation of the status quo ante; that is to say, fairness requires that no payment of the claimed debt should be made until after the conclusion of the legal proceedings.”
“81. When considering a “reasonable excuse” defence, therefore, in our view the FTT can usefully approach matters in the following way: (1) First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer’s own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts). (2) Second, decide which of those facts are proven. (3) Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the FTT, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?” (4) Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased). In doing so, the FTT should again decide the 11 matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.”
“119. …Perrin identifies a non-exclusive list of factors which can be relevant to determining whether reasonable excuse exists, including a person’s belief at the relevant time as well as all other relevant circumstances. Indeed, the grounds of appeal refer to Mr Archer’s “reasonable belief”
“133. Mr Archer had lost his case in both the High Court and the Court of Appeal, albeit on differing bases and at that point, if not before, I would expect robust evidence of the likelihood of the Supreme Court overturning the Court of Appeal, in line with the approach taken in Chapman and Sheiling Properties to counteract the “evidence” from the decisions.”
“[70] … the task facing the FTT when considering a reasonable excuse defence is to determine whether facts exist which, when judged objectively, amount to a reasonable excuse for the default and accordingly give rise to a valid defence. The burden of establishing the existence of those facts, on a balance of probabilities, lies on the taxpayer. In making its determination, the tribunal is making a value judgment which, assuming it has (a) found facts capable of being supported by the evidence, (b) applied the correct legal test and (c) come to a conclusion which is within the range of reasonable conclusions, no appellate tribunal or court can interfere with. [71] In deciding whether the excuse put forward is, viewed objectively, sufficient to amount to a reasonable excuse, the tribunal should bear in mind all relevant circumstances; because the issue is whether the particular taxpayer has a reasonable excuse, the experience, knowledge and other attributes of the particular taxpayer should be taken into account, as well as the situation in which that taxpayer was at the relevant time or times (in accordance with the decisions in The Clean Car Co and Coales). [72] Where the facts upon which the taxpayer relies include assertions as to some individual’s state of mind (eg ‘I thought I had filed the required return’, or ‘I did not believe it was necessary to file a return in these circumstances’), the question of whether that state of mind actually existed must be decided by the FTT just as much as any other facts relied on… [73] Once it has made its findings of all the relevant facts, then the FTT must assess whether those facts (including, where relevant, the state of mind of any relevant witness) are sufficient to amount to a reasonable excuse, judged objectively.”
“68. … the situation in the current appeal raises a particular question. Leaving aside for the moment the separate challenge to the FTT’s finding in relation to insufficiency of funds, how should objective reasonableness be assessed in relation to a belief by the taxpayer that an APN he has received has not been validly issued? More particularly, to what extent does the legislative policy underpinning the APN regime affect that assessment?”
“69. It must be noted at the outset that (real or perceived) “invalidity” can arise in two situations. The first is where the taxpayer believes that the tax payment accelerated by the notice is not owed by him, either because he does not owe it at all or because it has been wrongly calculated. We call that “substantive invalidity”
“74. HMRC submitted that Beadle was authority that reasonable excuse could never be a defence in respect of any alleged invalidity of a PPN, whether procedural or substantive. We disagree. It is clear on the facts that the Court was dealing only with an excuse founded on substantive invalidity. In the absence of binding authority, we begin by considering whether, in principle, a belief as to procedural invalidity is capable of forming a reasonable excuse. In doing so, we are looking at the objective element of the test, and not the subjective element of the taxpayer’s actual belief. We then consider whether the FTT erred in this case in finding on the facts that a reasonable excuse on such a basis was not made out.”
“78. These arguments have given us pause for thought. However, we have concluded on balance that it would be unduly restrictive to determine that a belief as to procedural invalidity could never be a reasonable excuse in respect of a penalty for non-payment of the APN. In our opinion, there is a difference between substantive invalidity and procedural invalidity, because in relation to procedural invalidity the policy considerations considered in Beadle and in other cases cannot simply be assumed to apply in undiluted form. Where the taxpayer’s belief is essentially that what purports to be on its face an APN is not an APN at all, because it does not 26 satisfy the statutory conditions, the policy considerations driving the APN code are necessarily less persuasive in determining the objective reasonableness of that belief.”
“80. However, the objection that a penalty appeal before the FTT is the wrong forum in which to debate the procedural validity of an APN remains a substantial concern. Where the taxpayer who alleges that the APN is invalid (for whatever reason) has not begun judicial review proceedings, he should do so. Where judicial review proceedings have begun, in our view it cannot be desirable for the hearing of those proceedings to have been preceded, and to a degree prejudged, by a “mini-trial” before a specialist tax tribunal of the objective strength, and effective merits, of the taxpayer’s case.”
“81. We consider, therefore, that in assessing the objective reasonableness of a belief which a taxpayer had been found to hold that the APN issued to him is procedurally invalid, the FTT’s assessment should take into account the following points: (1) In line with Perrin, it should consider all the surrounding facts and circumstances, including the foundation for the taxpayer’s belief, any advice on which he has relied, and whether that advice is specific to his APN. (2) It should identify precisely what the taxpayer does believe; is it that the APN is obviously procedurally invalid, or merely that it is arguable (however strongly) that it is? (3) It should take into account the reason for the alleged procedural invalidity. We observe that in Francis Chapman, to which the FTT referred in this case in forming its view, the FTT referred at [72] to “an obvious or gross error” in the notice, such as where the decimal point had slipped in the statement of the amount to be paid. One can postulate other similar errors. One would hope that in practice such errors would be corrected through the process of representations. In any event, the assessment of objective reasonableness in such a situation will be much more straightforward than one where the determination of validity turns on detailed legal arguments and the outcome of a judicial review. (4) In view of the concerns we have set out above, it would not be desirable or appropriate for the FTT to conduct a “mini-trial” of the arguments which a taxpayer asserts mean that his judicial review into procedural invalidity will or is likely to be successful. (5) It must be borne in mind that substantive invalidity cannot form the basis for a reasonable excuse. While the dividing line between substantive and procedural invalidity is clear in principle, there may be instances where the taxpayer’s excuse is really the former dressed up as the latter.”
“83. For the reasons we have given, we consider that the FTT was correct to conclude, at [52], that it was not impossible for a belief in the likely success of the judicial review proceedings to amount to a reasonable excuse. We also consider that it was correct, at [53], to take into account in assessing objective reasonableness the clear parliamentary intent of the APN regime. However, we consider that the FTT’s approach of requiring the taxpayer “to demonstrate that, viewed objectively, there is a high degree of confidence that the APNs are invalid” is not the best way to 27 make that assessment. We do not favour some separate test of objective reasonableness in relation to a belief in the procedural invalidity of an APN; in our view the better approach is to apply Perrin, but taking into account the considerations we identify above. Further, a focus on the objective degree of confidence in the belief, where the basis of that belief turns on legal arguments which will be heard in full in the judicial review proceedings, is likely to lead to the disadvantages and problems we have described in relation to forum.”
“84. As we have explained, this is a debate which the FTT should resist the temptation to be drawn into. Indeed, if the alleged ground of procedural invalidity requires detailed submissions by the parties on competing legal arguments, it is by definition not a gross or obvious error, and, as such, is considerably less likely to be objectively reasonable in this context. We do not accept that the FTT’s assessment in this respect was one which no reasonable tribunal could have reached, but, more importantly, there was no need in any event for a “mini-trial” of Sheiling’s judicial review case in order to assess its objective reasonableness as an excuse for not paying the APNs.”
“85. …Importantly, [the taxpayer’s] belief at the relevant time was not that the APNs were without doubt invalid, as he would likely have believed in the case of an obvious or gross error of the type contemplated by Judge Hellier in Francis Chapman. Rather, it was that there was a “good prospect” that the judicial review proceedings would show the APNs to have been issued unlawfully, although he was not certain that they were unlawful: [27] and [28]. In relation to such a belief, in principle it is reasonable to conclude that a reasonable and responsible taxpayer would be likely to pay the APNs and argue his case in the judicial review.”
“… the legislative intention is that insufficiency of funds can never of itself constitute a reasonable excuse, but that the cause of that insufficiency, ie the underlying cause of the default, might do so. 30 The difficulty which then arises is that Parliament has not specified what underlying causes of an insufficiency of funds which lead to a default are to be regarded as reasonable or as not being reasonable…”
“86. The third ground is that the FTT erred in finding that insufficiency of funds was the predominant reason for non-payment of the APNs, and that in the circumstances this was not a reasonable excuse. At [58], this was expressed to be “another reason” for the FTT’s decision. We consider that this was an inference drawn from findings of primary fact which the tribunal was entitled to make. We accept Mr Elliott’s submission that the reason for non-payment is not necessarily the same as the taxpayer’s excuse for non-payment. However, it is for the FTT to find as a fact, at the first stage of the Perrin approach, what the taxpayer believed was its excuse for non-payment. The conclusion at [58] must be read against the FTT’s findings of fact at [32] in relation to “the precise reasons” why Sheiling did not pay the APNs. As we read that conclusion, it is a finding of fact that Sheiling’s excuse for non-payment was not only what it had offered as its excuse (belief in the invalidity of the APN) but was also its concern as to the financial consequences of payment. Further, the FTT found that of those two reasons or excuses for non-payment the latter was predominant. Those were findings which it was for the FTT to make on the basis of the evidence before it, and they were not irrational or perverse so as to give rise to an error of law.”
“7. At the hearing Mr McDonnell confirmed that it was no longer being argued that Section 118(2) had been applied to mean that the tax liability for the Relevant Years was not due and payable until after the Supreme Court refusal of permission to appeal. The amount of tax had remained due and payable, but the undertaking given by HMRC not to pursue the debt was part of the reasonable excuse for the late payment of the tax.”