Contentious Tax Quarterly Review – Autumn 2025

In this Contentious Tax Review, we consider several important decisions concerning: (1) hardship; (2) the need for adequate reasons in FTT decisions; and (3) changes to the FTT's approach to late appeals.

This blog is based on an article written by Adam Craggs and Liam McKay that was published in Tax Journal on 22 October 2025.

Recent procedural decisions

There have been a number of recent procedural decisions that are worthy of note.

Hardship

Clear Pay Payroll Ltd v HMRC [2025] UKFTT 916 (TC), concerned an application by the taxpayer that the First-tier Tribunal (FTT) should entertain its appeal against an assessment to VAT without the taxpayer having to pay the disputed VAT in advance. 

HMRC brought a winding-up against the taxpayer in respect of the unpaid assessment. The taxpayer subsequently advised HMRC that it wished to appeal the assessment and claimed hardship. HMRC requested that the taxpayer provide extensive documents and information in support of its claim of hardship. The taxpayer did not provide the requested documents and information. Instead, it argued that, as HMRC had sought a winding-up petition on the basis that it believed the taxpayer was unable to pay its debts as they fell due, it would be contradictory for HMRC not to accept that payment of the amount subject to the appeal could be made without the taxpayer suffering hardship. Following further correspondence between the parties, and in the absence of the information and documents requested being provided, HMRC ultimately refused the taxpayer's request for hardship.

Before the FTT, the taxpayer challenged the FTT's jurisdiction on the basis that the winding-up petition amounted to confirmation by HMRC that hardship was satisfied and effectively meant there was no hardship issue for the FTT to determine. Accordingly, the taxpayer argued that the right course was for the FTT to decline jurisdiction and make a finding of fact that HMRC was satisfied that the test for hardship was met. The FTT disagreed, finding that it was clear that HMRC did not agree that hardship had been made out. To that end, the FTT noted that the test for hardship, in section 84(3B), the Value Added Tax Act 1994 (VATA), was very different from the grounds for which a company may be wound up by the court under the Insolvency Act 1986. The FTT noted, for example, winding-up focuses on the position of the company alone in determining whether it is unable to pay its debts, whereas the test for hardship in VATA requires a broader review and, in appropriate circumstances, can encompass a review of the resources available to other connected persons. Accordingly, the FTT determined that it was not, at least in theory, inconsistent for HMRC to pursue its petition in the High Court for winding up of the company and, at the same time, oppose an application to the FTT that the company would suffer hardship if it were required to pay the amount of the disputed VAT.

As to the substantive point, the FTT was satisfied that the taxpayer would suffer hardship if required to pay the VAT in dispute, having regard to the principles set out in HMRC v Elbrook (Cash & Carry) Ltd [2017] UKUT 181 (TCC). In particular, the FTT held, amongst other things, that: the taxpayer was in no position to pay the disputed VAT; the test for hardship was 'all or nothing', such that the fact the taxpayer might have some limited funds to make part payment was irrelevant; the test for hardship was applied at the date of the hearing, and it was irrelevant that the taxpayer had not responded to HMRC’s requests for hardship information; and if the requirement to pay the disputed VAT was maintained, the taxpayer would be denied its right to appeal. 

The requirement to pay disputed VAT before pursuing an indirect tax appeal has long been viewed as an onerous condition, undermining taxpayers’ rights to appeal and the principles of natural justice. In today’s challenging economic climate, where many businesses face significant financial pressures, the unfairness of this rule is thrown into even sharper focus. Against that backdrop, the decision in Clear Pay offers valuable guidance on both the hardship process and the application of the relevant legal principles.

Reinstatement

In Parwinder Gill v HMRC [2025] UKFTT 930 (TC), the FTT considered an application by the taxpayer for the reinstatement of an appeal against a personal liability notice (PLN) issued to him for alleged deliberate inaccuracies contained in his VAT returns. The appeal had been automatically struck out by the FTT following the taxpayer's failure to file witness evidence in accordance with an 'unless order' issued by the FTT. The taxpayer, who had been represented by an agent, was unaware that his appeal had been struck out until he received a demand from HMRC for c.£1.8m.  

The taxpayer's appeal to the FTT was filed in December 2022. The taxpayer had suffered from ill-health for a number of years. He had been diagnosed with anxiety and depression, Type 2 diabetes, had had a transient ischemic attack, and had also been diagnosed with autistic spectrum disorder. In February 2023, the taxpayer's mother, who had lived with him for 62 years, also died. In the months that followed the filing of the taxpayer's appeal, HMRC's correspondence to the taxpayer's agent seeking to agree directions for the conduct of the appeal went unanswered. The FTT ultimately issued directions for the progress of the appeal to both HMRC and the agent, which included a requirement for the taxpayer to file witness evidence. The directions were not provided to the taxpayer by his agent, and the deadlines passed without the taxpayer providing any witness evidence. In addition, HMRC's correspondence to the agent continued to go unanswered. 

Accordingly, in October 2023, the FTT wrote to the agent to remind them of the directions and indicated that, in the absence of a response within 14 days, the FTT may issue a direction which might lead to the striking out of the appeal. Four days before the FTT's letter, the taxpayer was taken to hospital by emergency ambulance and diagnosed with end stage renal failure and Covid, receiving treatment over the following month. During that period, the taxpayer's wife was also seriously hurt in a car accident.   

In the absence of any response from the agent to the FTT's letter, the FTT issued the 'unless order' and the appeal was subsequently struck out. Around the same time, the taxpayer was diagnosed with heart failure. Upon learning that his appeal had been struck out, the taxpayer applied for reinstatement, noting there had been a breakdown in communication with his agent and that the taxpayer had assumed that there was a backlog in arranging the hearing due to Covid. HMRC objected to the appeal being reinstated. 

In considering the taxpayer's application, the FTT applied the three stage test in Martland v HMRC [2018] UKUT 178 (TCC). In that regard, the FTT found that the length of the taxpayer's delay in complying with the FTT's directions was both significant and serious. Further, the FTT did not accept that the reason for the delay was because of the taxpayer's ill-health, but rather because of the agent's failure to tell the taxpayer about the requirement to file evidence, the FTT's letter, and the unless order. The FTT noted that the case law established that it should not normally find that a person’s reliance on their adviser provides a good reason for delay and that the usual position was that the reasonable taxpayer would check with their adviser, which the taxpayer had failed to do. However, the FTT determined that the reasonable taxpayer in the specific taxpayer’s position would not be closely monitoring their adviser to make sure the appeal was on track. Instead, they would be focused on their life-threatening health conditions and the consequences of their wife’s car accident. Accordingly, the FTT found that it was reasonable for the taxpayer not to contact his agent during the relevant periods. 

Finally, balancing all of the circumstances of the case, and placing particular weight on the need to enforce compliance with statutory time limits and to conduct litigation efficiently and at a proportionate cost, the FTT concluded that the factors favoured allowing the application.

It is well established that taxpayers face significant difficulty in securing the reinstatement of appeals once they have been struck out. The decision in Gill exemplifies the high threshold that must be satisfied: only where non-compliance with FTT directions can be justified by particularly strong reasons will reinstatement be permitted. Notably, however, Gill was determined by reference to the Martland test prior to the Medpro modifications, discussed below. In any event, Gill serves as a reminder of the critical importance of adherence to FTT directions and of the obligation on practitioners to implement robust systems to ensure timely compliance.

Inadequate reasons

In Medpro Healthcare Ltd & Another v HMRC [2025] UKUT 255 (TCC), the Upper Tribunal (UT) considered an appeal against the FTT’s refusal to admit late appeals against PLNs and VAT penalties under section 83G, VATA. Although the FTT’s decision was, somewhat unusually, not published, it appears that the taxpayers had relied on ill-health as the reason for their delay. The FTT nevertheless concluded that the taxpayers had failed to satisfy the criteria for permitting late appeals, applying the three stage test in Martland.

Before the UT, the taxpayers contended, amongst other things, that: 

• the FTT had provided insufficient reasons for its decision;
• the FTT had failed to consider the third stage of the Martland test (namely, the overall balancing exercise); and
• Martland had improperly embedded within the discretionary power under section 83G(6), VATA, the ex ante additional weight to be attached to the two factors under CPR 3.9(1), namely, the need for litigation to be conducted efficiently and at a proportionate cost, and the need to enforce compliance with rules, practice directions and orders.

The UT upheld the taxpayers' appeal on all grounds. In terms of the FTT's approach, the UT observed that there were a number of problems with the FTT's written decision, including:

• Much of the first 109 paragraphs of the decision were cut and pasted from the parties' written submissions without any acknowledgement that most of the decision was not in the FTT’s own words or its own consideration of the evidence and the authorities.
• There was an asymmetric use of the written submissions, with the losing side's submissions not set out or dealt with in the decision.
• There were occasional, but only very brief, references to the oral evidence, such that the UT could not be sure that the oral evidence was properly taken into account by the FTT.
• The FTT included what purported to be a quotation from a Court of Appeal decision, when in fact it came from a decision of the UT. 

In assessing the parties' arguments on sufficiency of reasons, the UT noted that the requirement for a tribunal or court to give reasons for its decision was a function of due process, and therefore of justice. The UT noted the rationale for the duty had a number of aspects, including fairness, allowing the losing party to understand whether there had been an appealable error of law, and acting as a constraint on the judiciary's exercise of power. A failure to give reasons was therefore a free-standing ground of appeal, and a failure to give reasons for a decision, or material part of a decision, itself constitutes a good ground of appeal. In concluding that the FTT's decision did not contain adequate reasons, the UT found that the dispositive parts of the decision were not reasoned, and did not identify the route by which the FTT determined that the taxpayers' applications to bring late appeals were refused. 

In light of the UT's finding that the FTT's reasons were inadequate, the UT could not be satisfied that the FTT had carried out the balancing exercise required by Martland, largely because the FTT had not explained its reasoning. The UT noted that the dispositive section of the FTT's decision did not specifically refer to stage 3 of the Martland test, there was no reference to the balancing exercise at stage 3, or to taking into account all the circumstances of the case. Further, and although not a ground of appeal raised by the taxpayers, the UT observed that it was also in some doubt as to what consideration the FTT gave to stage 2 of the Martland test (establishing the reason, or reasons, why the default occurred), noting that a failure properly to consider stage 2 was a strong indicator that the FTT did not properly consider stage 3 of the Martland test. Overall, the UT determined that the FTT’s approach meant that it disabled itself from conducting a meaningful stage 3 assessment.

The UT was, however, divided on the wider challenge to Martland itself. By casting vote, it accepted the taxpayers’ argument that paragraph [45] of Martland had wrongly fettered the FTT’s discretion by elevating efficiency, proportionality and compliance, above other factors in the balancing exercise to be carried out by the FTT, when considering an application for a late appeal. In that regard, the UT observed that it could not, by way of binding guidance, direct the FTT as to what weight to place on particular factors when it is considering whether to extend time for appealing. Given the force of the point as advanced by the taxpayers, and the frequency with which the FTT is required to apply the Martland test, the UT considered it was vital that this area of the law was clearly stated. To that end, the UT concluded that the practice adopted in the FTT with regard to Martland and the power in section 83G(6), VATA, was clearly wrong. 

The decision in Medpro is significant in two respects. First, it reinforces the need for FTT decisions to be clear, reasoned and complete. Given the time and costs involved in FTT proceedings, and the fact that appeals therefrom may only be brought on points of law, parties must be left in no doubt about the FTT’s findings and the reasoning behind them. Medpro therefore sets a clear benchmark for the standard of decision-making expected of FTT judges. But perhaps of more importance, is the UT's departure from a key aspect of the Martland test. Martland has imposed an exceptionally high bar for late appeals. As we have noted in previous Reviews, the application of Martland has led the FTT to refuse applications even in what appear to be compelling circumstances. Medpro clarifies that the discretion under section 83G(6) is a genuinely holistic one: the FTT must weigh all the circumstances, without according predetermined priority to particular factors such as efficiency or compliance. 

While the threshold for a late appeal is likely to remain high, taxpayers will view Medpro as a welcome recalibration that restores some level of balance and fairness to FTT procedure.

Late appeals after Medpro

In Remiglio di Lellio v HMRC [2025] UKFTT 1071 (TC), the taxpayer sought permission to appeal assessments, penalties and PLNs between six and seven years late. The taxpayer contended that the reason for the delay was that he and his agent believed that appeals had been made, and that he had been diagnosed with cancer around the time some of the assessments had been issued and he had requested HMRC liaise with his agent because of the time and energy required to deal with his medical treatment. 

The FTT refused the taxpayer's application. Applying stage 1 of the Martland test, the FTT found that the taxpayer's delay was serious and significant. In considering the reasons for the taxpayer's delay under stage 2 of the Martland test, the FTT concluded that the taxpayer's belief that appeals had been made was both wrong and unreasonable, given HMRC had repeatedly told him that there were no open appeals. Rather, the FTT determined that, in the face of HMRC's assertions, a reasonable taxpayer would have asked their agent to show them a copy of the appeals as well as copies of the related correspondence from HMRC. The FTT did not accept that the taxpayer's particular circumstances, namely, his serious illness, prevented him from asking his agent for that information. In particular, the FTT noted that, notwithstanding his medical treatment, the taxpayer continued to work in his restaurant and corresponded with HMRC on a number of occasions. Finally, in applying the balancing exercise in stage 3 of the Martland test, the FTT noted that, in light of Medpro, it should not give any special weight to the need for litigation to be conducted efficiently and at proportionate cost, or to the need to enforce compliance with rules, practice directions and orders. The result of that balancing exercise was that, in the FTT's view, the range of factors against allowing late appeals significantly outweighed those in favour, and the application was therefore refused.     

The extent to which Medpro will affect taxpayers’ prospects of success in late appeal applications remains uncertain. In Remiglio, the taxpayer faced particularly unfavourable facts, compounded by a substantial delay, making the case especially difficult to advance. While the decision may reinforce the perception that taxpayers continue to face significant obstacles in persuading the FTT to admit late appeals, the FTT is bound by Medpro and the guidance provided by the UT and if it is ignored or misapplied by the FTT, a taxpayer is likely to receive a favourable reception on appeal to the UT.