Talbot Kwok v The Commissioners for HMRC

On 16 November 2024, the Appellant filed a notice of appeal against a refusal to allow £62,990.26 as input VAT tax for periods 12/23 and 01/24, and on 13 November 2025, five days before the hearing of his appeal (the Listed Hearing), HMRC withdrew. On 12 December 2025 the Appellant made an application for costs under rule 10(1)(b) of the First-tier Tribunal (Tax Chamber) Rules 2009 (FTTTC Rules), claiming costs of £168,573.45 (the Costs Application).

By their response to the Costs Application of 28 January 2026 (HMRC’s Response), HMRC accept liability for the Appellant’s reasonable and proportionate costs, to be assessed on the standard basis, but submit that the Costs Application does not include a schedule in sufficient detail to allow the Tribunal to undertake a summary assessment; that the claimed costs are unreasonable and disproportionate; and that the appropriate direction is that the costs be assessed by way of detailed assessment if not agreed.

It follows that the issues before me for determination are:

For the reasons set out below, I direct that HMRC should pay the Appellant’s costs of and incidental to the appeal, on the standard basis, to be determined by detailed assessment if not agreed.

In considering the Appellant’s Cost Application, I have the following papers before me:

The following outline chronology is to provide a broad context for the discussion of the issues before me and is not intended to be exhaustive:

Section 29 Tribunal Courts and Enforcement Act 2007 provides that the award of “The costs of and incidental to all proceedings” in the Tribunal shall be at the discretion of the Tribunal and subject to the FTTTC Rules.

Rule 10(1) FTTTC Rules provides that the Tribunal may only make an order for costs in certain limited cases including: a) wasted costs; b) “if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings” and c) in a case allocated to the complex track and in respect of which the appellant has not opted out of the costs’ regime. The intention behind Rule 10 of the FTT rules is “that the First-tier Tribunal is designed in general to be a ‘no costs shifting’ jurisdiction … Rule 10 should therefore be regarded as an exception to this general expectation that both sides will bear their own costs, whatever the result of the appeal”, Distinctive Care v HMRC [2019] EWCA Civ 1010 per Rose LJ at [7].

In respect of the approach to be taken to considering whether a decision to withdraw amounts to unreasonable conduct under rule 10(1)(b), the Upper Tribunal in Tarafdur v HMRC [2014] UKUT 362 set out the principles, including whether it was unreasonable for the withdrawing party not to have withdrawn at an earlier stage. However, given that HMRC accept liability for paying the Appellant’s costs under rule 10(1)(b), it is unnecessary to consider these points further.

A claim to costs must be made, in writing (rule 10(3)(a)); may be made at any time but no later than 28 days after the final determination of the appeal (rule 10(4)) and must be accompanied by a schedule of costs (rule 10(3)(b)). The Costs Application was made in writing and made within 28 days of the Tribunal letter of 14 November 2025. Even though there may be issues with regards to the schedule in the Costs Application in this case, considered further below, any deficiency does not of itself preclude a costs order being made, see the lengthy consideration of this issue in Harris v HMRC [2022] UKFTT 00447 (TC). Consistent with that, although HMRC contend that the Costs Application does not provide sufficient detail to enable summary assessment, they do not contend that there should be no order as to costs for that reason.

I am satisfied in these circumstances that the Tribunal can and should make the order that HMRC should pay the Appellant’s costs of and incidental to the appeal.

Part 44.3 CPR explains the difference between standard and indemnity costs:

In essence under the standard basis the court will disallow costs which are unreasonably or disproportionately incurred and unreasonable or disproportionate in amount. Any doubt under the standard basis is resolved in favour of the paying party. By contrast costs awarded on an indemnity basis will exclude only costs unreasonably incurred or unreasonable in amount and the benefit of the doubt is in favour of the receiving party.

The test for whether indemnity costs are payable requires that the conduct of the litigation must be unreasonable to a high degree and “out of the norm”, see Excelsior Commercial & Industrial Holdings Ltd v Sailsbury Hammer Aspden & Johnson [2002] EWCA 879 as applied in a Tribunal context in Ad Hoc Property Management Ltd v HMRC [2019] UKFTT 315. In Ad Hoc Property Management,Judge Canaan noted that in considering whether there has been unreasonable conduct to a high degree, he should be wary of placing too much weight on the fact that the respondents effectively capitulated. He cited Arcadia Group Brands Ltd v Visa Inc [2015] EWCA Civ 883

In Cheshire Centre for Independent Living v HMRC [2020] UKUT 275 (TCC), the Upper Tribunal made clear that the threshold for an order for costs under rule 10(1)(b), and that for indemnity costs, is not the same: for indemnity costs, the conduct must be unreasonable to a high degree. It does not follow that if costs are awarded under rule 10(1)(b), it must be on the indemnity basis.

In Harris, the Tribunal observed, by extension of the Court of Appeal’s reasoning in Distinctive Care, that when considering whether indemnity costs should be awarded the Tribunal does not consider the length of the enquiry to be a relevant factor, as the focus of the Tribunal was to be on the handling of the litigation and not as to the quality of the original decision, and the earliest conduct that was relevant in the context of whether a party had behaved unreasonably was the point at which the proceedings commenced [100-101].

Accordingly, the question I must address is whether HMRC’s conduct of the litigation was “unreasonable to a high degree” such as to warrant assessment of costs on an indemnity basis.

As to this, it is notable that the Cost Application itself did not claim costs on an indemnity basis. At Part 9, conclusion, it asserted the “reasonableness and proportionality” of the costs claimed, which is consistent with costs on the standard basis. Rather, it is only after HMRC’s Response had sought an order on the standard basis that in his Reply, the Appellant advanced a contention for the indemnity basis. That contention was put as follows:

Part 3 of the Costs Application had set out the six aspects of conduct relied upon (emphasis in original):

In my judgment, there would be potential procedural unfairness here were I to make a finding on indemnity costs in the Appellant’s favour, in that the Appellant did not raise indemnity costs until his Reply, and HMRC in their Response did not therefore know that this was a point that they might need to respond to. But in any case I do not consider that there is sufficient basis for a finding that HMRC’s conduct was unreasonable to a high degree such as to warrant the penal imposition of an assessment on the indemnity basis. I do not consider that the complaints at 3.1, 3.2, 3.3 and 3.5, even taken at their highest as asserted, would be sufficient to amount to conduct that was unreasonable to a high degree. As to 3.4, the withholding of VAT between January 2024 and October 2024 was all a period prior to the appeal, and for that reason would not be a sufficient basis of itself for indemnity costs. In any case, I would not consider that the steps taken within that period involving HMRC undertaking checks of the Appellant’s VAT returns and the evidential basis for them to be outside the norm, in light of the witness evidence of Officer Campbell and contemporaneous documentation to which she refers in Exhibit A to the Costs Application. As regards the period from October 2024 up to November 2025 when HMRC was defending the Decision, HMRC implicitly concede, in accepting an order of costs against them under rule 10(1)(b), that their withdrawal was unreasonably late. But of itself, the fact that HMRC persisted in defending this appeal until the last moment is not sufficient to meet the higher threshold for indemnity costs, see paragraphs 14 and 15 above, and the same applies to the complaint at 3.6. I therefore conclude that costs should be assessed on the standard basis.

A key difference between summary assessment and detailed assessment is that summary assessment would be undertaken by the Tribunal, whereas detailed assessment is not. Rule 10(6) and rule 10(7)(a) provide as follows:

In Harris, Judge Amanda Brown KC considered in detail the nature of summary assessment and when it is appropriate. In particular:

In the present case, HMRC contend that the Costs Application does not provide sufficient detail to enable summary assessment to take place. The Appellant disputes this, referring to the comprehensive breakdown of the work undertaken across pages 26-151 of the Costs Application.

While it is very lengthy, and detailed in certain respects, I do not consider that the Cost Application is drafted in such a way as to facilitate a summary assessment of costs. Take, for example, the claim to 312 hours of work in June 2025. At pages 116 to 120, the Appellant sets out what he did. Under 3, he identifies the “Detailed Tasks Performed” as follows:

The Appellant does not state how much time was spent on each task. Instead, he asserts at a later point that his daily average working time that month was 12-13 hours a day. This is not in keeping with the approach in Form N260 (nor indeed is it like the way in which costs are itemised for the purposes of detailed assessment in the model form of bill of costs under CPR Part 47 schedule of costs precedents).

Even were it not for this difficulty, I am firmly of the view that summary assessment would not be appropriate in any case in this matter, given the following:

For these reasons I decline the Appellant’s invitation to undertake a summary assessment of his costs and order detailed assessment if the costs cannot be agreed.

For the above reasons, I order HMRC to pay the Appellant’s costs of and incidental to the appeal on the standard basis by way of detailed assessment if they cannot be agreed.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.