Using your professional judgement: The Horder case
By Justine Riccomini, Head of Tax (Employment and Devolved Taxes)
6 February 2024
We set out the key issues arising from the Horder case, where an accountant agreed to act as a director for a shadow director client.
This case, which was decided in May 2023 at the Upper Tribunal, was unusual because the person who had become jointly and severally liable for the tax was an accountant, who freely admitted to being an unpaid director of the company and was working under the direction of a shadow director.
Background
Mr Horder, a qualified accountant, was introduced to a client, Mr Yousuf who asked him to establish a company by the name of Quadragina. Mr Yousuf asked Mr Horder to be a director, and Mr Horder duly appointed himself and his own sister Jane as director/shareholders. Neither was to receive remuneration, and Mr Horder’s sister was not involved with the business.
Mr Horder then became responsible for paying employees, undertaking bookkeeping and accounts work, paying the rent and reimbursing expenses, and payments to HMRC of PAYE, NICs and VAT. It quickly became clear that the company was making a loss and owed money to HMRC. In fact, after some initial payments, no PAYE or VAT was remitted to HMRC for over two years. The expenses claims were covered by receipts at the outset, but then became ever larger with no covering receipts.
On 27 February 2018, HMRC issued Quadragina and the two directors with a NOR (Notice of Requirement) to provide security in respect of the outstanding liabilities totalling almost £80,000. The deadline was 8 April 2018. Suffice to say, the security still hadn’t been paid over, despite HMRC making it clear that criminal charges would result if the security against the debt remained unpaid.
HMRC also offered Mr Horder the opportunity to have the case independently reviewed, but he did not respond to the offer. As such, s.49H TMA 1970 was invoked, which results in any appeal to the Tribunal made after the acceptance period has ended only being allowed to proceed with the Tribunal’s permission.
Note that insofar as unpaid amounts of PAYE goes, Regulation 97N et seq. of the Income Tax (PAYE) Regulations 2003 provides for the requirement for security, and Regulation 97P(2)(b) permits HMRC to require more than one person to give security. In such an instance, they are deemed to be jointly and severally liable.
Paying the security – or not
Another entity called Notamvis Ltd (apparently also controlled by Mr Yousuf) then lent Quadragina enough money to pay the security value and yet, the dates of payment and the amounts settled by Mr Horder were both found to be deficient. HMRC noted that in addition to the deficient payments, the wrong reference had been used when the payments had been made. The payments had simply been allocated to the PAYE account rather than allocated as a security part-payment. HMRC then issued a final reminder to Quadragina and Mr Horder asking for payment to be made within seven days. Failure to comply would result in a criminal investigation.
Criminal charges
In November 2018, the Crown Prosecution Service issued notices to Quadragina and Mr Horder, both containing separately drawn charges under s. 684 (4A) ITEPA 2003 for PAYE and NICs offences. Notices of Appeal were filed with the First Tier Tribunal, both appeals were received late by 10 and 14 months respectively.
The appeals were refused – but why?
The First Tier-Tribunal (FTT) made use of the Martland Principle which was established in Martland v HMRC [2018] UKUT 178 (TCC). This case established a three-stage process containing the questions:
Stage one: Is the delay serious?
The FTT concluded that Mr Horder’s delay of approximately 14 months was ‘serious and significant’.
Stage two: Reasons for the delay?
Mr Horder had submitted a medical report as grounds for submitting a late appeal. However, the FTT disagreed that this was the cause as although he did have a significant health problem, the medical report did not attribute the illness as a direct influence in Mr Horder’s ability to make decisions in relation to his affairs. Other evidence suggested that he was capable of doing so, including that he was running his own accountancy practice throughout. Mr Horder had also claimed that he was not practiced in relation to appeals etc and was unrepresented. However, this did not wash with the FTT who concluded that Mr Horder had contacted HMRC and argued successfully that the NOR should be withdrawn against his sister.
Stage three: All other relevant circumstances?
Allowing leave to appeal would be in the FTT’s view, most likely to result in Mr Horder not being convicted. If a late appeal had been allowed, the likelihood of criminal conviction would be almost nil due to the deferments of the payments dates in question, meaning that no debt would exist at that point in time. The point in the question was, should the FTT allow the appeal, or not?
The FTT denied the application for an appeal to both Quadragina and Mr Horder based on the way in which Mr Horder, whom the judge described as a “patsy” and with which Mr Horder himself agreed, had conducted the affairs of the company which had by then ceased trading and was insolvent. Money had been paid out of the business for anything and everything - except to pay HMRC.
The Upper Tribunal concurred and found the FTT’s conclusions to be sound, which serves to remind us that no matter how strong the case, the lateness of a submission can be fatal.
Conclusion
It seems odd that this accountant allowed himself to become embroiled in such a tricky situation – but it can and does happen, and for any number of reasons. The main thing for you to remember is that help is always at hand, and there is never any justification for allowing the client to take full control. Nothing is worth getting into trouble for, and the accountant can choose to end the relationship with the client at any time.
A final point of note: HMRC has just published some updated guidance on how to appeal a self assessment penalty for late filing or late payment.
If you wish to contribute to the debate…why not join an ICAS tax committee and bring your expertise straight to the Tax Team?
