The Horder case, decided in May 2023 at the upper tribunal, was an unusual one. The person who had become jointly and severally liable for the tax was an accountant who freely admitted to being an unpaid director of the company and was working under the direction of a shadow director.

The accountant, Charles Horder, was introduced to a client, Yakub Yousuf, who asked him to establish a company by the name of Quadragina and to become a director.  Horder duly appointed himself and his sister Jane as director/shareholders. Neither was to receive remuneration, and Jane Horder was not involved with the business.

Charles Horder assumed responsibility for paying employees, undertaking bookkeeping and accounts work, paying rent and reimbursing expenses, and paying PAYE, NICs and VAT to HMRC. It quickly became clear that the company was making a loss and owed money to HMRC. After some initial payments, no PAYE or VAT was remitted for more than two years. The expenses claims were covered by receipts at the outset, but then became ever larger with no covering receipts.

In 2018, HMRC issued Quadragina and the two directors with an NOR (Notice of Requirement) to provide security for outstanding liabilities totalling almost £80,000. Despite it being clear criminal charges would follow, the directors missed the payment deadline. HMRC gave Horder the opportunity to have the case independently reviewed, but he did not respond.

Paying the security – or not

Another entity, Notamvis, apparently also controlled by Yousuf, then lent Quadragina enough money to pay the security value, but the dates of payment and the amounts settled by Horder were both deficient. Further, the wrong payment reference was used: the payments had simply been allocated to the PAYE account rather than as a security part-payment. HMRC then issued a final reminder to Quadragina and Horder, asking for payment within seven days.

In November 2018, the Crown Prosecution Service issued notices to Quadragina and Horder, both containing separately drawn charges for PAYE and NICs offences. Notices of Appeal for each were filed, but the appeals were received late by 10 and 14 months respectively.

The appeals were refused – but why?

The First Tier-Tribunal (FTT) made use of the Martland principle, established in Martland v HMRC. This case set a three-stage process containing the questions:

STAGE ONE: Is the delay serious?

The FTT concluded that Horder’s delay of approximately 14 months was “serious and significant”.

STAGE TWO: Reasons for the delay?

Horder submitted a medical report as grounds for the late appeal. However, the FTT, while accepting Horder had a significant health problem, said the medical report did not attribute the illness as a direct influence on his ability to make decisions relating to his affairs. Other evidence suggested he was capable of doing so, including that he was running his own accountancy practice throughout. The FTT rejected Horder’s claim that he wasn’t practised in relation to appeals etc, pointing out he had argued successfully that the NOR against his sister should be withdrawn.

STAGE THREE: All other relevant circumstances?

Allowing leave to appeal would, in the FTT’s view, most likely result in Horder not being convicted. If a late appeal had been allowed, the likelihood of criminal conviction would be almost nil due to the deferments of the payments dates in question, meaning that no debt would exist at that point in time. The point in question was, should the FTT allow the appeal, or not?

The FTT denied the application for an appeal to both Quadragina and Horder based on the way in which Horder – whom the judge described as a “patsy”, a claim with which Horder himself agreed – had conducted the affairs of the company, which had by then ceased trading and become insolvent. Money had been paid out of the business for anything and everything – except to pay HMRC. The upper tribunal concurred and found the FTT’s conclusions to be sound – which serves to remind us that no matter how strong the case, the lateness of a submission can be fatal.

Conclusion

It seems odd that this accountant allowed himself to become embroiled in such a tricky situation – but it can and does happen. The lesson for other accountants is that help is always at hand, and there is never any justification for allowing the client to take full control. No client is worth getting into legal trouble for, and the accountant can choose to end the relationship at any time.

A final point of note: HMRC has just published some updated guidance on how to appeal a self-assessment penalty for late filing or late payment.

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Land and buildings transaction tax

Learn how changes to land and buildings transaction tax in Scotland from April 2024 could affect you or your clients. Read Chris Campbell CA’s article here

Susan Cattell, Head of Tax Technical Policy, welcomes the FBSC report on the draft Finance Bill

The Finance Bill Sub-Committee (FBSC) of the House of Lords Economic Affairs committee holds an inquiry each year into aspects of the bill concentrating on issues of tax administration, technical clarification and simplification. Their 2023 report was published in February. ICAS evidence is cited throughout, and we welcome many of the recommendations.

The 2023 inquiry examined the following draft legislation:

• Reforms to merge the two existing R&D tax relief schemes and to give additional tax relief to R&D-intensive SMEs.
• The requirement for certain taxpayers to provide additional data to HMRC.
• New measures to tackle promoters of tax avoidance, including the introduction of a criminal offence.

R&D

We stressed the undermining of the simplification benefits that should have arisen from the new merged scheme, because of the introduction of the SME R&D intensive scheme. We suggested that integration of the intensive scheme into the merged scheme should be considered. We were pleased to see the FBSC’s specific recommendation that the government consult in the near term on bringing the two schemes together to create a fully merged and simplified scheme.

Provision of additional information

We raised concerns about the possibility that HMRC would be collecting additional data that would be shared with other government departments. We specifically commented that if information is to be shared, there should be further consultation and a clear explanation of what will be shared, with whom and why. The FBSC called on the government to clarify its intentions on sharing data with other departments and agencies and said that it should consult with relevant stakeholders before any such sharing takes place.

Promoters of tax avoidance

We were pleased that the FBSC noted the doubts expressed by witnesses about HMRC’s capacity to take on the extra work that would arise from the new measures. It mentioned our concern that without additional resources for HMRC the measures could lead to the further deterioration of core services. It recommended that resourcing within HMRC for these measures be kept under review so that any lack of capacity can be remedied as quickly as possible.

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