HMRC: Law firm did not act reasonably
A London law firm has been ordered to pay costs to HM Revenue & Customs (HMRC) for the “dilatory and obstructive manner” in which it approached its challenge to a VAT demand.
Judge Amanda Brown KC in the tax chamber of the First-tier Tribunal said The Khan Partnership (TKP) “unreasonably and without any explanation wasted the tribunal’s and HMRC’s time” in managing and preparing for a hardship hearing that became unnecessary.
In November 2022, the law firm filed a notice of appeal against VAT assessments. The law requires the taxpayer to pay the VAT in dispute unless HMRC, or the tribunal, are satisfied that this would cause hardship.
In its notice of appeal, TKP wrongly said the money had been paid when in fact it was pursuing a hardship application.
The judge noted that the firm cites tax as an area of expertise but it had not explained how the error happened and “it took 14 months of prevarication before any application for hardship was made”.
This happened in January 2024 but rejected four months later on the basis of insufficient evidence. In April 2024, TKP issued proceedings for the tribunal to determine the hardship application.
The chronology set out by the judge included multiple references to TKP not providing documents, even leading to an unless order at one point.
In May 2025, less than 24 hours before the hearing, TKP served a witness statement and new evidence. Based on these, HMRC accepted the application for the appeal to proceed in the absence of payment.
HMRC applied for just over £8,000 in costs to cover the period from November 2022 to May 2025.
Judge Brown found TKP’s conduct of the hardship proceedings unreasonable in failing to comply with the tribunal’s directions “willingly and on time”.
She went on: “Compliance was either forced or unreasonably late. It cannot be reasonable to refuse to provide documents which have been listed on a list of documents and for which there are directions for production unless and until threatened with the sanction of the appeal being struck out.
“Neither can it be reasonable to withhold the relevant information which would have permitted HMRC to have accepted hardship only to provide it less than 24 hours before a tribunal hearing to determine the issue.
“The documents produced and the explanation provided could have been provided months and possibly years earlier. “
Judge Brown rejected the argument that, by ordering costs, she was “undermining the protective function of the hardship application or impermissibly allowing cost shifting by the back door”.
Judge Brown said that had TKP provided the documents requested by HMRC, and which it “would have well known were required to determine a hardship application in its favour”, before April 2024, the hardship application would have been determined without the need for proceedings.
“Further, had the appellant behaved reasonably within the hardship proceedings it would not have rendered itself liable to costs. Instead, the appellant behaved in a dilatory and obstructive manner for which it now bears the costs consequences.”
Judge Brown awarded £3,150 in costs to the HMRC from April 2024 to May 2025. She did not award costs in relation to HMRC’s work on the appeal.
