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J5: Postponement of tax: direct tax

Basic position: tax not postponed

"(1)     This section applies to an appeal to the tribunal against—

(a)     an amendment of a self-assessment—

(i)     under section 9C of this Act, or

(ii)     under paragraph 30 or 34 of Schedule 18 to the Finance Act 1998,

(aa)     a conclusion stated or amendment made by a closure notice under section 28A or 28B of this Act,

(b)     an assessment to tax other than a self-assessment,

(2)     Except as otherwise provided by the following provisions of this section, the tax charged—

(a)     by the amendment or assessment, or

(b)     where the appeal is against a conclusion stated by a closure notice, as a result of that conclusion,

shall be due and payable as if there had been no appeal." (TMA 1970, s.55(1) - (2))

Basic position: tax not postponed

Not a condition of appeal that tax paid before it is entertained

 

“Unlike the indirect provisions contained in s84(3) Value Added Tax Act 1994, there is no provision in the TMA which requires, in order for Tribunal to have jurisdiction to hear appeal,  the taxpayer to have paid the tax pending the hearing of the appeal.” (Dong v. NCA [2014] UKFTT 128 (TC), §66, Judge Mosedale).

Not a condition of appeal that tax paid before it is entertained

Right to apply for postponement if grounds for believing overcharged

"(3)     If the appellant has grounds for believing that the amendment or assessment overcharges the appellant to tax, or as a result of the conclusion stated in the closure notice the tax charged on the appellant is excessive, the appellant may—

(a)     first apply by notice in writing to HMRC within 30 days of the specified date for a determination by them of the amount of tax the payment of which should be postponed pending the determination of the appeal;

(b)     where such a determination is not agreed, refer the application for postponement to the tribunal within 30 days from the date of the document notifying HMRC's decision on the amount to be postponed.

An application under paragraph (a) must state the amount believed to be overcharged to tax and the grounds for that belief." (TMA 1970, s.55(1) - (2))

Time limit: 30 days of the specified date

See s.55(3)(a), above.

"(10A)     In this section “the specified date” means the date of—

(a)     the issue of the notice of amendment or assessment, or

(b)     in the case of an appeal against a conclusion stated or amendment made by a closure notice, the issue of the closure notice." (TMA 1970, s.55(10A))

Time limit extended if appeal notified late

"(3A)     An application under subsection (3) above may be made more than thirty days after the specified date [...] where the notice of appeal has been given after the relevant time limit (see section 49)." (TMA 1970, s.55(3A))

Time limit extended if there is a relevant change in the circumstances of the case

 

"(3A)     An application under subsection (3) above may be made more than thirty days after the specified date if there is a change in the circumstances of the case as a result of which the appellant has grounds for believing that he is over-charged to tax by the amendment or assessment, or as a result of the conclusion stated in the closure notice [...]." (TMA 1970, s.55(3A))

Should be determined speedily at the outset

 

“There is no time scale in which NCA or the Tribunal must make their determinations under s 55(3)(a) and (b) respectively, but it was inherent in the nature of s 55 that postponement determinations would be made speedily because otherwise that would defeat the object of the provision.” (Dong v. NCA [2014] UKFTT 128 (TC), §10, Judge Mosedale).

 

Not to wait for a party to gather evidence

 

“On the contrary, it is clear that s 55(3) determinations were meant to be made at the outset of the appeal process on the basis of the grounds that the appellant put forward at that time.  Section 55(4) contemplated the possibility of a revision of the determination in the event of a “change in circumstances”.  So if the appellant’s grounds of appeal improved, perhaps when new evidence was obtained, the appellant could apply to NCA for repayment of some of the tax that had not been postponed.” (Dong v. NCA [2014] UKFTT 128 (TC), §12, Judge Mosedale).
 

Variation of amount postponed if there is a change of circumstances

"(4)     If, after any determination of the amount of tax the payment of which should be so postponed—

(a)     there is a change in the circumstances of the case as a result of which either party has grounds for believing that the amount so determined has become excessive or, as the case may be, insufficient, and

(b)     the parties cannot agree on a revised determination,

the party mentioned in paragraph (a) may, at any time before the determination of the appeal, apply to the tribunal for a revised determination of that amount." (TMA 1970, s.55(4))

Discovering additional relevant facts may be a change in the circumstances of the case

 

“Since that date all the transactions since the sale of the taxpayer company to Nightingale have emerged. That, in my view, is a substantial change in the circumstances of the case.” (Sparrow Ltd v. Inspector of Taxes [2001] STC (SCD) 206, §101).

 

Change of legal advice may be change in circumstances

 

“[HMRC] accepted that a change in the legal advice given to the taxpayer could amount in some cases to a relevant change of circumstances, but he submitted it did not in the present case. He did not dispute that the advice Mr Rogers had been given had changed radically. Indeed, a letter written by his previous advisors apparently accepted that a charge to tax might be appropriate. He submitted that, in the present case, the advice that the Beardsley principle might apply was unrealistic given the absence of any contemporaneous reference to the shares having been allocated as a gift. He relied very heavily on Mr Rogers' statement in an earlier witness statement that he had become "entitled" to the shares. I think the Revenue's submission on this point confuses two matters. If the change of advice given to Mr Rogers is capable of being a change of circumstances I do not see how it ceases to be a change of circumstances because of the Revenue's submission that the advice was wrong. It seems to me that either legal advice given to a taxpayer is not a relevant circumstance at all, or it is a relevant circumstance and one then turns on to the question of whether it is reasonable in consequence to believe on the basis of the advice that the sum charged is excessive… It is well arguable at the very least that the matters relied on by Mr Rogers did indeed amount to a change in circumstances and that the Commissioners were applying an incorrect approach in law.” (HMRC v. Rogers [2009] EWHC 3433 (Ch), §§13…14).
 

Right to apply for postponement if grounds for believing overcharged
Variation of amount postponed if there is a change of circumstances

Parties agreeing amount to be postponed in writing​

 

"(7)     If the appellant and HMRC reach an agreement as to the amount of tax the payment of which should be postponed pending the determination of the appeal, the agreement shall not have effect unless—

(a)     the agreement is in writing, or

(b)     the fact that the agreement has been reached, and the terms of the agreement, are confirmed by notice in writing given—

(i)     by the appellant to HMRC, or

(ii)     by HMRC to the appellant.

(8A)     Where an agreement is made which has effect under subsection (7), references in subsection (6)(a) and (b) above to the date of the determination shall be construed as references to the date that the agreement is confirmed in writing." (TMA 1970, s.55(7) - (8A))

Parties agreeing amount to be postponed in writing​

Agreements and notices may be by/to person acting on appellant's behalf​

"(10B)     References in this section to agreements between an appellant and HMRC, and to the giving of notices between the parties, include references to agreements, and the giving of notices, between a person acting on behalf of the appellant in relation to the appeal and HMRC." (TMA 1970, s.55(10B))

Agreements and notices may be by/to person acting on appellant's behalf​

HMRC decision on postponement

Must be a determination by HMRC before referral to FTT

 

“S 55(3)(b) only permits a referral to the tribunal after NCA has made a determination. Of course, if there had been no determination, that would mean the appellants would be in the position of having made an application to NCA which had not yet been determined so that (under s 55(6)(b)) they would not currently be liable to pay the assessments.” (Dong v. NCA [2014] UKFTT 128 (TC), §25, Judge Mosedale).

 

HMRC must determine an amount to be postponed rather than propose an amount or invite counter proposals

 

“The writer’s “proposal” was clearly that 0% of the tax be postponed.  Yet s 55(3)(a) required a determination, not a proposal.  While the word “determination” would not necessarily have to be used, it is quite clear that a “proposal”, especially one which invites counter-proposals,  is not a determination.  It is an invitation to treat and not a decision.  In conclusion I find that the Letter was not a determination within s 55(3)(a) of the amount to be postponed.” (Dong v. NCA [2014] UKFTT 128 (TC), §34, Judge Mosedale – a subsequent letter was, however, a determination as it did not say it was a proposal or invite counter-proposals).

 

HMRC not bound by mistaken notification of postponement of tax if taxpayer knew it was mistaken

 

“Applying those principles to the facts of the present application it will be recalled that the letter of 12 January 2001 from the Revenue made it clear that the tax would not be postponed. Accordingly, when the taxpayer company received the form 64-5 of 15 January 2001 it must have known that it had been issued under a mistake… Thus the letter of 12 January 2001 meant that the form 64-5 of 15 January did not induce the taxpayer company reasonably to believe that the Revenue had agreed to postpone the whole of the tax charged by the assessment. The taxpayer company knew that the Revenue had no such intention. The mistake of the Revenue was known to the taxpayer company. Thus there was no agreement to postpone.” (Sparrow Ltd v. Inspector of Taxes [2001] STC (SCD) 206, §§93…94).
 

HMRC decision on postponement

Originating application to FTT to determine amount postponed

"(5)     Any such application is to be subject to the relevant provisions of Part 5 of this Act (see, in particular, section 48(2)(b))." (TMA 1970, s.55(5))

Originating application to FTT to determine amount postponed

Test: amount postponed if reasonable grounds for believing taxpayer is overcharged

"(6)     The amount of tax the payment of which shall be postponed pending the determination of the appeal shall be the amount (if any) in which it appears, that there are reasonable grounds for believing that the appellant is overcharged to tax; and—

(a)     in the case of a determination made on an application under subsection (3) above, other than an application made by virtue of subsection (3A) above, the date on which any tax the payment of which is not so postponed is due and payable shall be determined as if the tax were charged by an amendment or assessment notice of which was issued on the date of that determination and against which there had been no appeal; and

(b)     in the case of a determination made on an application under subsection (4) above—

(i)     the date on which any tax the payment of which ceases to be so postponed is due and payable shall be determined as if the tax were charged by an assessment notice of which was issued on the date of that determination and against which there had been no appeal; and

(ii)     any tax overpaid shall be repaid." (TMA 1970, s.55(6))

Test: amount postponed if reasonable grounds for believing taxpayer is overcharged

- Overcharged

 

“So in looking at whether the appellants have reasonable grounds for believing they are overcharged, I need to consider their case for saying that their income was in a figure lower than assessed.  It is not really a question of whether the assessment was wrong, but whether the appellants can show reasonable grounds for believing their income was lower than assessed.” (Dong v. NCA [2014] UKFTT 128 (TC), §60, Judge Mosedale).

- Overcharged

- Procedural disputes

 

Not clear how this applies to procedural issues where the taxpayer argues that there is no assessment/valid closure notice etc. Such cases may fall outside this rule and within the rule that a statutory demand will be set aside where it is disputed on substantial grounds.

Taxpayer is overcharged by assessment if it is invalid

“In my view, he would be “overcharged” if an assessment was made and one of the conditions specified by the legislation for the making of that assessment was not met.  The process of amending a return through the issue of closure notices is an integral part of the process of assessing and charging tax under the legislation.  In that context, a taxpayer is just as much “overcharged” if an assessment is made on the taxpayer when it should not have been because a condition contained in the legislation for making the assessment has not been met as he or she would be if the tax charge contained in the assessment is not computed in accordance with the tax legislation.” (Scott v. HMRC [2017] UKFTT 385 (TC), §163, Judge Greenbank).

- Procedural disputes

- Belief requires less than proof

 

“I agree that “belief” is an easier test for the appellant to meet than, say, if the legislation had required the Tribunal to only allow postponement where there  are reasonable grounds “for finding” an overcharge.  Belief is not the same as proof.” (Dong v. NCA [2014] UKFTT 128 (TC), §55, Judge Mosedale).

- Belief requires less than proof

- Tribunal need not believe the taxpayer is overcharged

 

“Moreover, the test is whether there are reasonable grounds for such a belief:  it does not require this Tribunal to actually hold that belief.” (Dong v. NCA [2014] UKFTT 128 (TC), §56, Judge Mosedale).
 

- Tribunal need not believe the taxpayer is overcharged

Some firm basis for factual and legal assertions (but full proof not required)

 

“The Special Commissioner, by her decision in writing on 10th July 2001, correctly directed herself when she said in paragraph 70: "Although section 55(5) provides that this application is to be heard and determined in the same way as an appeal, I am not required to determine the appeal. Also, section 55(6) refers to 'reasonable grounds for believing that' the Appellant is overcharged. That means that the Appellant at this stage does not have to prove all the facts or succeed in all the legal arguments which will have to be proved or established at the hearing of the substantive appeal. Thus my limited task is to determine whether the Appellant has demonstrated reasonable grounds for believing that it is overcharged to tax. However, section 55(6) does require me to have some firm basis for believing that the Appellant has been overcharged by the assessment and here I must have regard to the evidence adduced."” (Williams v. Pumahaven Limited [2003] EWCA Civ 700, §6, Peter Gibson LJ).

 

"[46] I agree with that approach [in Kent v. NCA, see below] and have adopted it here." (Ravicher v. HMRC [2022] UKFTT 454 (TC), Judge Anne Scott)

“The approach to be taken on applications for postponements of tax under s55 of TMA 1970 was considered by the Court of Appeal in Williams (HM Inspector of Taxes) v Pumahaven Ltd 75 TC 300 and in Parikh v Curry 52 TC 366. From those cases we have derived the following principles:
(1) In order to succeed with their applica
tion, Mr and Mrs Kent do not need to prove all relevant facts or succeed in all legal arguments which will have to be proved or established at the hearing of the substantive appeal. They simply have to show “reasonable grounds” for believing that they are overcharged by the assessments in question.
(2)  To be “reasonable”, the grounds must not be “fanciful, imaginary or contrived” and must be “agreeable to reason, not irrational, absurd or ridiculous”.
(3) There must be some firm basis, in the form of evidence, for the grounds put forward.” (Kent v. NCA [2016] UKFTT 228 (TC), §17)

- Some firm basis for factual and legal assertions (but full proof not required)

Possibly requires more than not being absurd

 

“Mr Connolly’s proposition is that the s 55(6) test is the same test as for summary judgment or striking out.  But as a matter of Parliamentary intent, this makes little sense.  If the postponement of tax test was the same as the striking out test, it would make the provisions on postponement of tax otiose.  NCA would not need to refuse postponement of the tax pending the appeal:  they would be able to have the appeal struck out instead.  Logically, Parliament must have intended the s 55(6) test to require upfront payment of tax by taxpayers with an intermediate category of case, cases which have better grounds than cases ripe for being struck out, but not such good grounds that they should be permitted to postpone the payment of tax pending the hearing of the appeal…  Therefore I will consider whether the appellants have reasonable grounds for a belief that they are overcharged to tax.  The test is not whether their grounds for such a belief are “not absurd” although the line between the two might be narrow.” (Dong v. NCA [2014] UKFTT 128 (TC), §§65…74, Judge Mosedale).

- Possibly requires more than not being absurd

- Not required to assume that factual evidence is true

 

“But while I will not decide whether any of the evidence is true or false, neither will I make my decision on the assumption that what any witness says is true (indeed that would be impossible as some evidence by witnesses contradicts evidence by other witnesses).  I will look at the appellant’s evidence as a whole in order to consider whether it amounts to reasonable factual grounds for believing that the appellants were overcharged.” (Dong v. NCA [2014] UKFTT 128 (TC), §47, Judge Mosedale).

- Not required to assume that factual evidence is true

- Internally contradictory case does not provide reasonable grounds

 

“Similarly, if factual case that the appellants put forward (comprising the evidence which the appellants rely on, together with any evidence of NCA which is accepted by them and will not be challenged at the hearing) is internally inconsistent and/or contradictory in a material matter then they will not have reasonable grounds for believing that they are overcharged to tax.” (Dong v. NCA [2014] UKFTT 128 (TC), §49, Judge Mosedale).
 

- Internally contradictory case does not provide reasonable grounds

- Complete lack of credible documentation insufficient

 

"[65] In summary, I find that the appellant has signally failed to provide evidence to underpin his primary argument that insofar as there were remittances they were repayments of a loan.  Not only is there a lack of complete documentation for the loan, but, for the reasons given, the documentation that does exist does not appear to be credible or reliable.

...

[71] Looking to the test in Kent, I find that Feyla and Marvel were trading companies and there were remittances of £1,594,895.29 in 2016/17.  The appellant has not established that there was a loan or, even if there was one, that there were any repayments made in respect thereof.  There is no evidence that the remittances were capital in nature.  The grounds advanced by the appellant are contrived.  The arguments advanced have been contradictory at times and, looked at in the round, are not credible. 

[72] The appellant does not have any grounds to believe that he has been overcharged to tax,  let alone reasonable grounds; looking at all of the evidence, in all probability he has been undercharged.  There is no credible evidence, let alone on a firm basis, for the grounds put forward." (Ravicher v. HMRC [2022] UKFTT 454 (TC), Judge Anne Scott)

- Complete lack of credible documentation insufficient

- Improbable case does not provide reasonable grounds

 

“[51] My reading of [the Special Commissioner decision in Sparrow Ltd] is that the appellant’s case was that a bank had loaned it an extremely large sum of money without documentation.  That was internally inconsistent evidence because it was inherently unlikely that a bank would make such a large loan without documentation.  Because the appellant did not provide a reasonable or indeed any explanation for such unlikely conduct, its story did not amount to a reasonable case on the facts.

[106] I find that there are two incredible elements to Mr Dong’s case which are not supported by anything more than Mr Dong’s say so and in particular were not given a credible explanation or supported by documentary or other evidence. Those are (a) that he earned so little in comparison to the turnover of his wholly owned company and (b) that without consulting records he knows that all the untraced funds over a five year period from his personal accounts were not personal income.  Therefore, on Mr Dong’s case as it stands, I do not consider that there are reasonable grounds for believing that he will successfully challenge the assessment in whole or in part.” (Dong v. NCA [2014] UKFTT 128 (TC), Judge Mosedale).

- Improbable case does not provide reasonable grounds

FTT decision final​ (or not)

"(6A)     Notwithstanding the provisions of sections 11 and 13 of the TCEA 2007, the decision of the tribunal shall be final and conclusive." (TMA 1970, s.55(6))

However

“We note that s 55(6A) of TMA 1970 quoted at [16] above suggests that there is no right of appeal against our decision. However, s 55(6A) was purportedly enacted under authority delegated to the Treasury, and the Tribunal in Dong v National Crime Agency [2014] UKFTT 369 (TC) has suggested that the Treasury were not actually given the power to enact s 55(6A) and that, accordingly, the provision is of no effect.  Moreover, the Tribunal made that decision having decided that it was bound by the reasoning of the judgment of the Court of Appeal in ToTel Ltd [2013] QB 860. We will not in this decision go over the question of whether  s 55(6A) of TMA 1970 has been validly enacted. Instead we will direct that any party dissatisfied with this decision should make an application that complies with Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.” (Kent v. NCA [2016] UKFTT 228 (TC), §42, Judge Jonathan Richards).

Appeal against FTT decision is supervisory

 

“Provided that the specified matter does appear to the designated person and provided that that is not a perverse conclusion, it is irrelevant that it might reasonably appear otherwise to another person. There is a significant difference between section 50(6) and section 55(6), in that what must appear to the Commissioners on a substantive appeal against an assessment is that the taxpayer is overcharged by the assessment, whereas under section 55(6) what must appear to the Commissioners is that there are reasonable grounds for believing that the taxpayer is overcharged to tax in some specified amount.” (Williams v. Pumahaven Limited [2003] EWCA Civ 700, §19, Peter Gibson LJ).
 

FTT decision final​ (or not)

Postponed tax becomes due on determination of appeal

"(9)     On the determination of the appeal—

(a)     the date on which any tax payable in accordance with that determination is due and payable shall, so far as it is tax the payment of which had been postponed, or which would not have been charged by the amendment or assessment, or as a result of the conclusion stated in the closure notice, if there had been no appeal, be determined as if the tax were charged by an amendment or assessment—

(i)     notice of which was issued on the date on which HMRC issue to the appellant a notice of the total amount payable in accordance with the determination, and

(ii)     against which there had been no appeal; and

(b)     any tax overpaid shall be repaid." (TMA 1970, s.55(6))

Postponed tax becomes due on determination of appeal

Accelerated payment notice overrides any postponement of tax

(8B)     Subsections (8C) to (8E) apply where a person has been given an accelerated payment notice or partner payment notice under Chapter 3 of Part 4 of the Finance Act 2014 and that notice has not been withdrawn.

 

(8C)     Nothing in this section enables the postponement of the payment of (as the case may be)—

(a)     the understated tax to which the payment specified in the notice under section 220(2)(b) of that Act relates,

(b)     the disputed tax specified in the notice under section 221(2)(b) of that Act, 

(c)     the understated partner tax to which the payment specified in the notice under paragraph 4(1)(b) of Schedule 32 to that Act relates,

(ca)     any amount of tax specified in the notice by virtue of an amendment made under section 227(7A) of that Act, or

(d)     the amount of tax specified in an assessment under paragraph 76 of Schedule 18 to the Finance Act 1998 where—

(i)     an asserted surrenderable amount is specified in the notice under section 220(2)(d) of the Finance Act 2014 or under paragraph 4(1)(d) of Schedule 32 to that Act, and

(ii)     the claimant company has failed to act in accordance with paragraph 75(6) of Schedule 18 to the Finance Act 1998.

 

(8D)     Accordingly, if the payment of an amount of tax within subsection (8C)(b) is postponed by virtue of this section immediately before the accelerated payment notice is given, it ceases to be so postponed with effect from the time that notice is given, and the tax is due and payable—

(a)     if no representations were made under section 222 of that Act in respect of the notice, on or before the last day of the period of 90 days beginning with the day the notice or partner payment notice is given, and

(b)     if representations were so made, on or before whichever is later of—

(i)     the last day of the 90 day period mentioned in paragraph (a), and

(ii)     the last day of the period of 30 days beginning with the day on which HMRC's determination in respect of those representations is notified under section 222 of that Act.

 

(8E)     If the payment of an amount of tax within subsection (8C)(ca) is postponed by virtue of this section immediately before notice of the amendment is given, it ceases to be so postponed with effect from the time that the notice of the amendment is given, and the tax is due and payable on or before—

(a)     the last day of the period of 30 days beginning with the day on which the notice is given, or

(b)     if later, the last day on which it would have been payable under subsection (8D) if it had been included in the amount specified in the accelerated payment notice or partner payment notice when that notice was given."

(TMA 1970, s.55(6))

Accelerated payment notice overrides any postponement of tax

Payment of tax pending further appeal​

See Chapter P14: (Re)payment of tax pending further appeal

Payment of tax pending further appeal​

Inheritance tax postponed pending first appeal

 

"(1)     The Board shall not take any legal proceedings for the recovery of any amount of tax or of interest on tax which is due from any person unless the amount has been agreed in writing between that person and the Board or has been determined and specified in a notice under section 221 above.

(2)     Where an amount has been so determined and specified but an appeal to which this subsection applies is pending against the determination the Board shall not take any legal proceedings to recover the amount determined except such part of it as may be agreed in writing or determined and specified in a further notice under section 221 above to be a part not in dispute.

(3)     Subsection (2) above applies to any appeal under section 222 above but not to any further appeal; and section 222 above shall have effect, in relation to a determination made in pursuance of subsection (2) above, as if subsections (4) to (4B) of that section were omitted." (IHTA 1984, s.242(1) - (3))

But not tax shown in an APN

(4)     Where a person has been given an accelerated payment notice under Chapter 3 of Part 4 of the Finance Act 2014 and that notice has not been withdrawn, nothing in this section prevents legal proceedings being taken for the recovery of (as the case may be)—

(a)     the understated tax to which the payment specified in the notice under section 220(2)(b) of that Act relates, or

(b)     the disputed tax specified in the notice under section 221(2)(b) of that Act." (IHTA 1984, s.242(4))

Inheritance tax postponed pending first appeal​
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