Background
HMRC appealed a First-tier Tribunal decision allowing John Douglas Wardle’s appeal against a closure notice denying entrepreneurs’ relief on the disposal of his interest in Biomass UK No 1 LLP. The underlying dispute concerns when the LLP began trading, including whether its electricity-generation business had commenced by the relevant date.
The Upper Tribunal appeal had been stayed pending Putney Power Ltd v HMRC, in which the Tribunal held that the commencement of a trade requires a multi-factorial assessment rather than application of a three-step test drawn from Mansell. After that decision, HMRC amended its sole ground of appeal accordingly. Mr Wardle, acting in person, applied for a protective costs order to cap or remove his exposure to HMRC’s costs.
The Court’s Holding
Judge Jonathan Cannan refused the application. Applying the approach in Drummond v HMRC, the Tribunal accepted that it had jurisdiction to grant a protective costs order and that the legal approach to trade commencement could be a matter of general public importance. But it held that there was no real public interest requiring this appeal to determine the fact-specific question of when this LLP’s trade commenced, because Putney Power had already supplied authoritative legal guidance.
Mr Wardle had a substantial private interest: about £87,000 of tax was at stake. Most importantly, however, he provided no evidence that he could not meet an adverse costs order and expressly did not contend that he lacked the resources to do so. The Tribunal was also not satisfied that he would probably withdraw if protection were refused. Balancing those factors, it held that a protective costs order was not fair or just. It likewise declined to make an appeal costs order, finding no evidence that one was needed to secure access to justice.
Key Takeaways
- A protective costs order in a Tax Chamber appeal remains exceptional and is assessed flexibly under the Corner House/Drummond principles.
- Existing authoritative guidance on the legal issue may mean there is no public interest in resolving a further, fact-specific appeal.
- An applicant who supplies no evidence of limited means faces a strong inference that they can meet any adverse costs order.
Why It Matters
The decision confirms that a taxpayer who won in the generally no-costs First-tier Tribunal does not automatically obtain costs protection when HMRC appeals to the Upper Tribunal. The move into a costs-shifting forum is relevant, but it does not displace the need to demonstrate that protection is fair and necessary.
It also illustrates the practical impact of Putney Power: disputes over when a trade begins must be addressed through a multi-factorial evaluation of the facts, rather than a rigid application of the steps identified in Mansell.