William Archer v The Commissioners For His Majesty’s Revenue And Customs

A taxpayer need not give witness evidence of a subjective belief in order to establish a reasonable excuse for late payment. The tribunal must assess all proved facts objectively, and may infer from documentary and external evidence both the taxpayer’s reason for non-payment and its causal effect.

An unanswered accelerated payment notice does not require payment. The exceptional pay-now-argue-later regime therefore does not govern a reasonable-excuse defence based on a challenge to the effectiveness of closure notices. A live judicial review, supported by an arguable case and interim relief, may provide a reasonable excuse where payment risks undermining the proceedings. The excuse must nevertheless persist throughout the default, and payment must follow without unreasonable delay after it ends under the Taxes Management Act 1970.

HMRC issued closure notices disallowing losses claimed under tax avoidance schemes. William Archer did not appeal the notices to the First-tier Tribunal. Instead, he brought judicial review proceedings challenging their effectiveness because they did not state the amount of tax due. Interim relief restrained bankruptcy enforcement while the claim proceeded.

The judicial review ultimately failed. The Court of Appeal held that the defect in the closure notices was curable. Mr Archer paid the tax after the Supreme Court refused permission to appeal. HMRC imposed surcharges for late payment.

The First-tier Tribunal dismissed his reasonable-excuse appeal. The Upper Tribunal set aside that decision but remade it against him: [2022] UKUT 00061 (TCC). The central issue was whether the judicial review and its progress supplied a reasonable excuse throughout the period of default, and whether payment followed without unreasonable delay after any excuse ended.

1. Appeal dismissed. The court set aside the Upper Tribunal’s reasoning but remade the decision and upheld the surcharges. Lady Justice Whipple gave the judgment, with which Lady Justices Falk and Simler agreed.

2. The Upper Tribunal erred in treating subjective witness evidence as indispensable. The reasonable-excuse inquiry requires the tribunal to identify and prove the relevant facts, then decide objectively whether they amount to a reasonable excuse, taking account of the taxpayer’s circumstances. The taxpayer must show that the asserted excuse was the real cause of non-payment. However, that may be established by documentary or external evidence, and the tribunal may draw an appropriate inference. The approach in [2018] UKUT 0156 (TCC) did not impose a mandatory personal-evidence requirement.

3. The unconfirmed accelerated payment notices did not require payment because HMRC had not answered the taxpayer’s representations. Consequently, the exceptional pay-now-argue-later policy did not apply. The dispute concerned the logically prior question whether the closure notices were effective, rather than statutory postponement under section 55 of the Taxes Management Act 1970.

4. During the first period, up to Jay J’s dismissal of the judicial review, there was an objectively reasonable excuse. The closure notices had an obvious defect; the claim was arguable; interim relief prevented enforcement; and payment risked undermining or rendering the proceedings nugatory. The court could infer that the judicial review caused the non-payment.

5. After the first-instance defeat, the continued existence of the appeal alone no longer established a reasonable excuse. Further evidence was needed to show why payment remained unreasonable. In any event, by mid-December 2017, after the Court of Appeal had held the notices validly curable, a responsible taxpayer would have paid. HMRC’s pragmatic agreement not to enforce while a Supreme Court permission application was pending, and its internal payment-suspension marker, gave no assurance against surcharges. Waiting over six months for the permission decision was unreasonable delay under section 118(2).

• Court of Appeal (Civil Division): Dismissed the taxpayer’s second appeal, while rejecting the Upper Tribunal’s requirement for subjective witness evidence and remaking the decision against him: [2023] EWCA Civ 626.
• Upper Tribunal (Tax and Chancery Chamber): Set aside the First-tier Tribunal’s decision because parts of its reasoning were erroneous, but remade the decision by dismissing the surcharge appeals: [2022] UKUT 00061 (TCC).
• First-tier Tribunal (Tax Chamber): Dismissed the surcharge appeals, save for notices conceded by HMRC to be unenforceable: [2020] UKFTT 0288 (TC).