Tax Tribunal Tracks and Costs: What Your Case Category Means

You've filed your appeal. One of the first things to arrive from the tribunal is a letter telling you which category your case has been allocated to. It might say Default Paper, Basic, Standard, or Complex.

That single letter quietly determines three things: how much paperwork you'll face, whether you'll get a hearing, and whether you could end up paying HMRC's legal costs.

For most people reading this, the answer to that last question is no. But the exceptions matter—and one of them comes with a 28-day deadline that, if missed, cannot be undone.

What Your Case Category Means

The tribunal sorts every case into one of four categories under Rule 23 of the Tribunal Procedure Rules 2009. Each category carries different levels of formality, paperwork, and—critically—costs exposure.

Default Paper

These are the simplest cases. Penalties of £500 or less for late filing or late payment are typically allocated here.

Default Paper cases are decided on the documents alone—no hearing, no oral evidence. HMRC files a statement of case within 42 days. You then have 30 days to send a written reply. After that, a judge reads the papers and issues a decision.

If you want a hearing, you can request one in writing under Rule 26(7), and the tribunal must arrange one. But most people on this track are content to let the papers speak for themselves.

Basic

Most individual penalty appeals land here. The Practice Direction on case allocation (effective 1 June 2022) lists the following as typical Basic cases:

• Late filing and late payment penalty appeals (above £500)
• Inaccuracy penalty appeals (except where deliberate behaviour is alleged or combined assessment appeals are involved)
• Penalty appeals involving a reasonable excuse claim
• Appeals against information notices and non-compliance penalties
• Appeals against PAYE coding notices
• Applications for late appeal permission
• Applications for postponement of tax pending appeal

Basic cases get a hearing—usually by video. There is minimal paperwork beforehand. HMRC does not need to file a formal statement of case (Rule 24), though if they intend to raise arguments they haven't previously told you about, they must notify you as soon as reasonably practicable.

Standard

Standard is the residual category. If your case doesn't fit Default Paper, Basic, or Complex, it goes here. Most substantive tax disputes—disagreements about how much tax you owe, closure notice appeals, or disputes involving the interpretation of tax legislation—are Standard cases.

Standard cases involve fuller case management. HMRC must file a statement of case within 60 days—a document setting out their legal basis and factual position (Rule 25). After that, both sides exchange lists of documents within 42 days (Rule 27). The tribunal will issue directions covering witness statements (written accounts of relevant facts, signed with a statement of truth), skeleton arguments (a summary of your legal points for the judge to read before the hearing), and hearing arrangements.

This is where the process starts to feel more formal, but the tribunal is still designed to be accessible to unrepresented appellants. You won't be penalised for not using legal language—what matters is substance. Our guide to preparing for your hearing explains each of these documents and what to expect on the day.

Complex

Complex cases are the exception, not the norm. A case can be allocated as Complex only if the tribunal considers that it (Rule 23(4)):

• will require lengthy or complex evidence, or a lengthy hearing
• involves a complex or important principle or issue
• involves a large financial sum

The Practice Direction puts numbers on that last criterion: £750,000 or more for direct taxes (income tax, corporation tax, capital gains tax) or £2,000,000 or more for indirect taxes (VAT, customs duties, excise duties). A hearing expected to run more than five days is another indicator.

Complex cases follow the same case management process as Standard, but with two additional features. First, the case can potentially be transferred to the Upper Tribunal (Rule 28). Second—and this is the critical one—the costs rules change. Under the costs-shifting regime, HMRC's legal costs in a multi-day Complex hearing can run to tens of thousands of pounds. More on that below.

Comparison Table

How The Tribunal Decides Your Category

The tribunal allocates your case based on the Practice Direction issued by the Chamber President, most recently updated on 1 June 2022. You don't choose your category—the tribunal assigns it after reviewing your notice of appeal.

In practice, the allocation is usually predictable:

• Penalty under £500? Default Paper.
• Penalty over £500 with a reasonable excuse claim? Basic.
• Disagreement about how much tax you owe? Standard.
• Dispute involving £750,000+ (direct taxes) or £2,000,000+ (indirect taxes), novel legal issues, or a hearing expected to run more than five days? Complex.

Standard is the default. If none of the specific criteria for the other categories apply, your case will be Standard.

Changing Your Category

The tribunal can reallocate a case to a different category at any time, either on its own initiative or on your application (Rule 23(3)).

There are two common situations where reallocation matters:

You're on Default Paper but want a hearing. You can either request a hearing under Rule 26(7) without changing category, or ask for reallocation to Basic if you think your case requires more engagement than a paper-only process allows.

Your case is allocated as Complex and you want it reclassified as Standard. This is the more consequential request, because it determines whether the costs-shifting regime applies.

In Capital Air Services Ltd v HMRC [2010] UKUT 373 (TCC), the Upper Tribunal held that categorisation should be objective—based on the Rule 23(4) criteria in their ordinary meaning, not influenced by concern about the costs consequences. If your case genuinely meets the criteria for Complex, the tribunal is unlikely to reclassify it simply because you're worried about costs. But if the criteria aren't met, you have every right to challenge the allocation.

To apply, write to the tribunal explaining why you believe a different category is appropriate, citing the Practice Direction criteria. There's no special form.

The General Rule: Each Side Pays Its Own Costs

This is the single most important thing for unrepresented appellants to understand about the First-tier Tribunal.

In most FTT cases, each side pays its own costs. The tribunal is not like a civil court, where the losing party typically pays the winner's legal bills. The GOV.UK guidance (T242) puts it simply: "Each side will pay their own costs."

This means that if you appeal and lose, you will not normally have to pay HMRC's solicitors. And if you win, you will not normally be able to recover the cost of any professional help you obtained. Each side bears its own expenses.

There is no fee to file an appeal—it costs £0. If you represent yourself, your only financial exposure in a Default Paper, Basic, or Standard case is the time you spend preparing.

HMRC's own internal guidance confirms this. ARTG8660 instructs HMRC officers that "each party generally pays their own costs" in the FTT.

There are three exceptions.

The Three Exceptions

Complex Case Costs—And The 28-Day Opt-Out

If your case is allocated as Complex under Rule 23, the costs-shifting regime applies. This means the losing party may have to pay the winning party's costs—similar to how costs work in the civil courts.

But there's a safety valve. Rule 10(1)(c) gives you the right to opt out of the costs regime. To do this, you must send a written request to the tribunal within 28 days of receiving notice that your case has been allocated as Complex.

The opt-out is straightforward:

• How: Write to the tribunal (a simple letter or email is sufficient) requesting exclusion from the costs regime under Rule 10(1)(c)
• Deadline: 28 days from the date you receive the allocation notice
• HMRC's consent: Not required. HMRC has no say in your opt-out decision. (HMRC cannot opt out—only the appellant can.)
• Irrevocable: Once you opt out, you cannot reverse the decision. In N Brown Group and JD Williams v HMRC [2016] UKFTT 445 (TC), the tribunal held there is no provision in the Rules permitting withdrawal of an opt-out. It is a "one-off event available for a limited time only."

There is a trade-off. If you opt out, you are protected from having to pay HMRC's costs if you lose. But you also give up the right to recover your costs from HMRC if you win. For most unrepresented appellants, who have limited or no professional costs to recover, the protection from HMRC's costs is likely the more significant factor. But if you have engaged solicitors or counsel, the ability to recover costs may also matter.

Do not miss the 28-day deadline. The tribunal has power to extend it under Rule 5(3)(a), but extensions are granted only in exceptional circumstances—do not rely on this. If you receive a Complex allocation and do nothing, you remain within the costs-shifting regime for the duration of the case.

Unreasonable Conduct Costs

This exception applies on every track—Default Paper, Basic, Standard, and Complex. Under Rule 10(1)(b), the tribunal may order costs where "a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings."

The test is demanding. In GC Field & Son Ltd v HMRC [2022] UKFTT 314 (TC), the tribunal described the "acid test" as whether the conduct "permits of a reasonable explanation." If it does—even if the conduct was wrong or optimistic—it's not unreasonable. Costs for unreasonable conduct should be ordered "in only the clearest of cases."

The assessment follows three stages:

1. Did the party act unreasonably?
2. Did the unreasonable conduct cause the other side to incur unnecessary costs?
3. Is it just to make a costs order in all the circumstances?

Conduct that tribunals have found unreasonable includes:

• Filing appeals you know are hopeless and then failing to engage with the process
• Repeatedly failing to attend hearings
• Ignoring tribunal directions
• Making unsubstantiated allegations of fraud without supporting evidence
• Persisting with arguments that the evidence clearly cannot support

This list is not exhaustive, and the test is always fact-specific. Being wrong is not the same as being unreasonable—a genuine but mistaken belief in your case is not unreasonable conduct.

Being unrepresented does not protect you. It does not shield you from costs orders. In Wheeler v HMRC [2019] UKFTT 336 (TC), Mr Wheeler—unrepresented—appealed penalties for failing to comply with an information notice. He filed two appeals but attended neither hearing and provided no evidence supporting his position. The tribunal found his conduct unreasonable and awarded HMRC costs of £4,695.15. On top of the tripled penalties (£4,800), his total liability reached £9,495.15.

The tribunal did take his financial circumstances into account—his weekly income was £166—and suspended enforcement of the costs order. But HMRC can enforce collection at any future time, with no expiry date.

The lesson is not that costs are likely—they're rare. It's that the tribunal expects you to engage meaningfully once you've filed an appeal. Respond to directions. Attend your hearing. If your position is no longer sustainable, withdraw rather than let the case drift.

The tribunal must consider an individual's financial means before making a costs order (Rule 10(5)). This doesn't prevent the order being made, but it affects the amount and enforcement.

For the full legal framework—including the six principles from Jackson Grundy, the "acid test" from Ridehalgh, and practical guidance on making or defending a costs application—see our guide to unreasonable conduct costs.

Wasted Costs

Wasted costs are costs caused by the improper, unreasonable, or negligent conduct of a legal or other representative—not a party personally. This power comes from section 29(4) of the Tribunals, Courts and Enforcement Act 2007.

If you are representing yourself, wasted costs cannot be ordered against you. This provision applies to solicitors, barristers, and other persons exercising a right of audience or right to conduct proceedings. If you have a professional representative who acts improperly, the tribunal can order them to pay costs personally rather than passing the bill to you.

When HMRC Might Have To Pay Your Costs

The costs rules work both ways. If HMRC acts unreasonably in defending or conducting proceedings, you can apply for a costs order against them.

The leading test for cases where HMRC withdraws comes from Tarafdar v HMRC [2014] UKUT 362 (TCC). The Upper Tribunal established a three-stage test:

1. What was the reason for withdrawal?
2. Could HMRC have withdrawn at an earlier stage?
3. Was it unreasonable for HMRC not to have withdrawn at that earlier stage?

If HMRC defends a case for months—causing you to prepare documents, take time off work, and arrange representation—then concedes shortly before the hearing on grounds that were apparent much earlier, you may have a basis for a costs application.

In Aftab Ahmed v HMRC [2024] UKFTT 236 (TC), HMRC argued the taxpayer was careless for not notifying them of written-off loans—but the evidence in HMRC's own hearing bundle showed he had done exactly that through his auditors. The tribunal found HMRC's continued reliance on the argument to be unreasonable.

In First Choice Recruitment Ltd v HMRC [2019] UKFTT 412 (TC), costs were awarded against HMRC for making fraud allegations without producing the evidence they relied upon—"unparticularised and unsupported allegations" of fraud without "credible evidence upon which to make even a prima facie case."

There is also a timing element established by the Court of Appeal. In Distinctive Care Ltd v HMRC [2019] EWCA Civ 1010, the court held that proceedings begin when the notice of appeal is lodged with the FTT under Rule 20—not when HMRC first made the decision. This means HMRC's conduct before proceedings is outside the scope of unreasonable conduct costs, though materials prepared before proceedings may be recoverable as "incidental to" the proceedings if they proved useful.

Procedure for applying. Costs applications must be made in writing, with a schedule of costs in sufficient detail, within 28 days of the decision notice or withdrawal notice (Rule 10(3)–(4)). If you win and believe HMRC acted unreasonably, do not let this deadline pass.

Upper Tribunal: A Different Costs Regime

If your case goes to the Upper Tribunal—either because you appeal an FTT decision or HMRC appeals against you—the costs picture changes significantly.

The Upper Tribunal follows its own Rule 10, which permits costs orders in transferred or referred proceedings, cases of unreasonable conduct, and wasted costs cases. In practice, a party that loses in the Upper Tribunal will normally be ordered to pay the other side's costs. There is no opt-out mechanism equivalent to the FTT's Rule 10(1)(c).

HMRC's internal guidance (ARTG8665) confirms that costs in the Upper Tribunal are the norm rather than the exception. Applications must be made within one month of the decision.

The Upper Tribunal must still consider a party's financial means. But the risk is materially greater than in the FTT, and this is one reason to think carefully before taking—or defending—an appeal at that level.

Key Deadlines

What To Do Now

1. Check your allocation letter. It will tell you which category the tribunal has assigned. If you haven't received one yet, it will arrive shortly after the tribunal acknowledges your appeal.
2. If your case is Complex, note the 28-day opt-out deadline. Write to the tribunal requesting exclusion from the costs regime under Rule 10(1)(c) if you want that protection. Do this promptly—extensions are only granted in exceptional circumstances.
3. If you think your category is wrong, apply to change it. Write to the tribunal explaining why the Practice Direction criteria point to a different category. There is no special form.
4. Respond to tribunal directions on time. Whatever your category, ignoring directions or failing to engage is the fastest route to a costs order.
5. If you win and believe HMRC acted unreasonably, apply for costs within 28 days of the decision or withdrawal notice.

If settlement is an option you'd consider—particularly in a Complex case where costs risk is a factor—see our guide to settling your tribunal case. For what happens after the tribunal decides, including appeals to the Upper Tribunal, see our guide on what happens after your decision.

Further Reading

• Tribunal Procedure Rules 2009 — the full rules governing FTT proceedings, including Rule 10 (costs) and Rule 23 (categories)
• Practice Direction: Allocation of Cases to Categories — the Chamber President's guidance on how cases are sorted
• How to Appeal to the First-tier Tax Tribunal (T242) — GOV.UK step-by-step guide including costs summary
• Section 29, Tribunals, Courts and Enforcement Act 2007 — the statutory basis for tribunal costs powers
• Upper Tribunal Rules, Rule 10 — costs in the Upper Tribunal
• ARTG8660 — HMRC's own guidance on FTT costs
• How to appeal to the tax tribunal — our step-by-step filing guide
• Understanding your HMRC appeal rights — what to do when you first receive an appealable decision
• HMRC's internal review — a free step that changes the outcome more often than you'd expect

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.