Tribunal bars HMRC from further participation in appeal due to procedural failings

In Carbon Six Engineering Ltd v HMRC [2026] UKFTT 00177 (TC), the First-tier Tribunal (FTT) upheld a direction barring HMRC from further participation in the proceedings and allowed the taxpayer's appeal.

Background

HMRC carried out an investigation into managed service companies (MSC) and their providers. As part of that investigation, HMRC issued determinations and decisions to Carbon Six Engineering Ltd (CSE), pursuant to Regulation 80, Income Tax (Pay As You Earn) Regulations 2003 and section 8, Social Security (Transfer of Functions) Act 1999, respectively, in respect of income tax and National Insurances Contributions (NICs) which HMRC considered to be due. 

HMRC argued that additional tax and NICs was due as CSE was a MSC, for which the MSC provider was Churchill Knight & Associates (CKA). In fact, CSE did not contract with or otherwise engage with CKA. It did, however, engage with The App Accounting Group.  

CSE appealed the determinations and decisions to HMRC and requested a review. Following the conclusion of HMRC's review, which upheld its position, CSE appealed to the FTT.

During the course of the appeal, HMRC repeatedly failed to comply with various case management directions issued by the FTT, including to provide a point of contact email address, to serve its Statement of Case within a specified deadline and to clearly identify the MSC provider that it claimed was associated with CSE.

The FTT issued a direction to HMRC, pursuant to Rule 8 of the Tribunal Rules, stating that unless HMRC complied with the FTT's directions it would be barred from taking further part in the proceedings (the Unless Order).

HMRC failed to comply with the Unless Order and was automatically barred from taking further part in the proceedings (the Barring Order).

HMRC applied to the FTT, under Rule 8(5) of the Tribunal Rules, for the Barring Order to be set aside.

FTT decision

The application was refused and, exercising its case management powers, summarily allowed CSE's appeal. 

In considering whether to set aside the Barring Order, the FTT followed the approach set out in Dominic Chappell v The Pension Regulator [2019] UKUT 209 (TCC) and the three-stage test adopted in Martland v HMRC [2018] UKUT 178 (TCC). This required the FTT to evaluate the seriousness of HMRC's breach, the reasons for the breach, prejudice to CSE, and the overarching need for procedural discipline. 

In applying this approach, the FTT concluded that:

1)  HMRC's failure to comply with the directions issued by the FTT was a serious and significant breach.

2)  HMRC's reasons for the breach, that it was essentially an administrative error caused partly by a change in the legal team dealing with the appeal and it had not received the Barring Order into the appropriate email inbox, did not represent 'good' reasons for its failure to comply. 

3)  Having undertaken an evaluative exercise, the  FTT rejected HMRC's arguments that maintaining the Barring Order would be disproportionate because its failure to comply with the FTT's directions was caused by an administrative error which had not prejudiced a merits-based determination of the appeal. It also rejected HMRC's argument that maintaining the Barring Order would be disproportionate because the appeal concerned issues which would be determined in the context of wider lead case litigation.

Following the FTT's decision to refuse to set aside the Barring Order, it exercised its powers to summarily determine the appeal in favour of CSE, in accordance with the overriding objective (in Rule 2 of the Tribunal Rules) to deal with cases fairly and justly.

Comment

The FTT was clearly not impressed with HMRC's behaviour in this case,  describing HMRC's conduct as "shambolic and haphazard". The outcome of the case illustrates the serious and significant consequences of repeated failures to comply with case management directions issued by the FTT.  In this instance, due to its failings, HMRC was deprived of the ability to participate further in the appeal proceedings and ultimately the taxpayer's appeal was summarily allowed.

It is to be hoped that HMRC will review its processes to avoid similar failings in future cases.

The decision can be viewed here.