Appeals, disputes and investigations
Application for a late appeal
In 2023, the First-tier Tribunal (FTT) refused Medpro Healthcare Limited (and others) permission to bring a VAT appeal against a penalty assessment and personal liability notices out of time. The Upper Tribunal (UT) subsequently allowed Medpro’s appeal and remitted the matter back to the FTT. However, the two UT members disagreed on ground of appeal four, which questioned the previous UT decision in the case of Katib (and in effect also the case of Martland) on the basis that it had “improperly constrained the FTT’s discretion to extend time for out-of-time appeals”.
Marcus Smith J considered that the UT is not permitted to give guidelines to the FTT as to what weight to place on particular factors when considering whether to extend time for an appeal and would have allowed the appeal on ground four. Judge Cannan, however, was “not convinced that Martland and Katib are wrong” and considered that providing such guidance is part of the function of the UT, to promote consistency in FTT decisions. As Marcus Smith J had the casting vote, his view prevailed, with both members agreeing that if it was permissible for the UT to give guidance, the guidance given by the UT in Martland was appropriate.
In considering HMRC’s appeal against the UT’s decision on ground four, the Court of Appeal (CA) has held that “Marcus Smith J was wrong, and Judge Cannan was right”. The CA considered that the UT is entitled to give guidance to the FTT on the exercise of a statutory discretion. The CA allowed HMRC’s appeal, and concluded that upon remittal of the application, the FTT should proceed on the basis that the Martland guidance, as amplified in Katib, is appropriate.
From the Business Tax Briefing dated 23 January 2026, published by Deloitte
Penalties
Upper Tribunal sets aside “careless” and “deliberate” inaccuracy penalties
On 19 January 2026, the Upper Tribunal (UT) issued its decision in the case of Delphi Derivatives Limited (in Members’ Voluntary Liquidation) v HMRC, which concerns penalties resulting from a failed tax avoidance scheme, involving the use of an employee benefit trust (EBT). The penalties involved alleged “careless” and “deliberate” inaccuracies in Delphi’s P35 returns. The First-tier Tribunal (FTT) dismissed Delphi’s appeal against both penalties. While the UT dismissed a number of Delphi’s grounds of appeal, it also identified errors of law in the FTT’s decision and ultimately set both penalties aside.
In respect of the "careless” inaccuracy penalty, the Tribunals considered the meaning of the words “due to” in para3(1)(a), Sch24, Finance Act 2007, which states that an inaccuracy is ““careless” if the inaccuracy is due to failure by P to take reasonable care”. The UT, with the benefit of the Court of Appeal’s decision in the case of Mainpay, found that it was necessary to determine what caused the inaccuracies in the P35 returns, and whether those inaccuracies were caused by carelessness on the part of Delphi, dismissing the wider attribution/mode of behaviour test of causation applied by the FTT. While Delphi was careless in proceeding with the scheme, this was not the cause of the inaccuracies in the return. Rather, the UT held that the cause was a reasonable but mistaken view of the law and set aside the penalty.
In respect of the “deliberate” inaccuracy penalty, the FTT found that the inaccuracy in Delphi’s return was attributable to deliberate action. However, the UT, citing case law such as the Supreme Court’s decision in Raymond Tooth, considered that this statement disclosed an error of law, as it is “not the action to which the inaccuracy is attributable that must be deliberate but rather it is the inaccuracy itself that must be deliberate.” In the UT’s view there was no evidence that the inaccuracies in Delphi’s return were deliberate. The UT therefore set aside the penalty.
From the Business Tax Briefing dated 30 January 2026, published by Deloitte
Practical Points
Every month, the Tax Faculty publishes short, practical pieces of guidance to help agents and practitioners in their day-to-day work.
