HMRC’s treatment of appeal was reasonable

The taxpayers were paid bonuses by their employer. HMRC decided that the tax paid by the employer on these payments should be treated as the taxpayers’ earnings under ITEPA 2003 s 223. It raised assessments on the individuals who appealed. HMRC subsequently agreed that the tax liability fell on their company. The taxpayers applied for costs from HMRC on the basis that it had acted unreasonably in pursuing an appeal which was unmeritorious.

The First-tier Tribunal said that in considering whether HMRC had acted unreasonably it had to focus on the tax authority’s handling of the appeal rather than of the original decision ie the conduct after the taxpayers had filed notices of appeal.

It had been the taxpayers’ decision to instruct tax counsel to settle amended grounds of appeal because their original grounds had not been pleaded properly. It was not because of any...