The First-tier Tribunal rejected a taxpayer’s application for unreasonable costs – Oakes v HMRC [2022] UKFTT 428 (TC).
The FTT referred to the decision in Ridehalgh v Horsefield, which had set out a three-stage test to be adopted when exercising discretion of award wasted costs.
The first of those tests was whether one party had acted unreasonably. In this case, the taxpayer argued that HMRC had so acted. However, the FTT did not accept this:
“The acid test for unreasonable behaviour is whether that behaviour permits of a reasonable explanation. It is my view that HMRC’s behaviour does permit of a reasonable explanation.”
Although the same tribunal had previously dismissed HMRC’s late evidence application, there was a reasonable explanation for why it was brought in the first place.
As the first test was not met, it was not necessary for the FTT to consider the second test, namely whether the taxpayer had been caused any unnecessary cost.
The FTT did, however, make the following observation in relation to the third test:
“Turning to the third limb of the test, namely whether it is just in all the circumstances to order costs, I am conscious that in Ridehalgh, the tribunal stated that the cost shifting rule was to be used in only the clearest of cases and should not be invoked without good reason (see paragraph [27]). It is also contrary to the general rule that in non-complex cases, each side bears their own costs. And my power to award costs should not be a back door method of cost shifting. I have found that HMRC’s conduct admits of a reasonable explanation. In these circumstances I do not consider that it would be just to allow the costs application. I therefore dismiss it.”
https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08646.pdf
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