HMRC's attempt to strike out appeal fails

In Phu Hung Ltd v HMRC [2023] UKFTT 00224 (TC), the First-tier Tribunal (FTT) rejected HMRC's application to strike out the taxpayer's appeal as HMRC had failed to demonstrate that the taxpayer had no reasonable prospects of success in its appeal.

Background

In August 2021, HMRC issued a review decision to Phu Hung Ltd (PHL), upholding an earlier decision to change PHL's effective date of registration for VAT.  The reviewing officer set out his understanding of the background facts, including the discussions that had taken place between the original officer and PHL's representative.  PHL had registered for VAT in July 2019, with an effective date of 1 May 2019.  The reviewing officer set out PHL's turnover figures, and noted that there was a steady increase in turnover until June 2019, and a more dramatic increase in turnover from June 2019 onwards.  The reviewing officer  confirmed the earlier decision to change the effective date of registration to 1 July 2017. 

PHL appealed HMRC's decision to change the effective date of registration. In PHL's grounds of appeal, it accepted that its earlier record keeping was inadequate but challenged HMRC's method of calculation and suggested an alternative method which would result in an effective date of registration of 1 August 2018.

HMRC initially applied to the FTT for PHL's appeal to be struck out on the basis that PHL had neither paid the VAT in dispute nor made an application for hardship. However, HMRC later confirmed that hardship was not in issue. HMRC then claimed that PHL's grounds of appeal were inadequate and applied to the FTT for a direction requiring PHL to provide further and better grounds of appeal and for a direction permitting it an extension of time in which to file its statement of case. The FTT rejected this application.

HMRC then made a further application to the FTT, under Rule 8(3) of the FTT Rules, for PHL's appeal to be struck out on the basis that PHL had no reasonable prospects of success as no evidence had been provided by it in support of its grounds of appeal. 

FTT decision

HMRC's application was dismissed. 

The FTT concluded that HMRC had not demonstrated, on the balance of probabilities, that PHL had no prospects of success in its appeal. On the contrary, if PHL was able to demonstrate that its turnover figures were correct, PHL could potentially be successful in its appeal. In addition, as the appeal was still at an early stage and no directions had been issued for either party to produce their evidence, it was premature for HMRC to have made its application. In addition to the application being dismissed, HMRC was directed to file and serve its statement of case without further delay.

Comment 

This decision is a reminder that when considering a strike out application, the FTT will not conduct a 'mini-trial'. It is for the applicant to demonstrate that the other party has no prospect of success. Where the dispute would involve determination of facts and the examination of documentary and/or witness evidence, an application to strike out is unlikely to succeed if proceedings are not advanced enough for the parties to have had the opportunity to provide documentary and/or witness evidence, or at the very least confirm that no such evidence is to be adduced.

The decision can be viewed here.