Ahammed (as representative partner of Rangeela Spice)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 February 2018 |
| Neutral Citation | [2018] UKFTT 0040 (TC) |
| Date | 06 February 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0040 (TC)
Judge Richard Thomas
Income tax – Penalties under FA 2009, Sch. 55 for failure to file partnership return – Whether there was a partnership in the tax year.
The First-tier Tribunal cancelled penalties for failure to file a partnership return on time; the onus was on HMRC to prove the penalty notices were validly issued, and they had not shown there was an actual partnership in the relevant tax year.
A partnership as being between the taxpayer (“A”) and B was notified to HMRC in September 2011. HMRC issued a notice to file a partnership tax return for tax year 2011/12, in April 2012. No return was filed by 31 January 2013, and fixed and daily penalty notices were issued in, respectively, February 2013 and August 2013.
A partnership return was filed electronically in August 2013, showing all the profit (of £3,150) as allocated to A (and no individual partner page for B). This amount of £3,150 was the amount shown on A's personal self-assessment return, but as employment income.
In April 2014, A appealed to HMRC against the penalties. The appeal was rejected, but the taxpayer was informed of a pending case before the Upper Tribunal and that HMRC would write again once the outcome of that case was known. Some 30 months later, HMRC did write offering a review or to go to the Tribunal directly. Following such review, which upheld the penalties, A notified his appeal to the Tribunal in August 2017.
The judge said that penalties imposed under FA 2009, Sch. 55 could only be cancelled if A had a reasonable excuse for failure to file the return on time, or if HMRC's decision as to whether there were special circumstances was flawed.
A's grounds of appeal were primarily that although a SA400 form (registering a partnership for self-assessment) was filed in September 2011, the partnership was not agreed until May 2012; and that prior to then A was operating the business on his own account. A's accountants had only submitted the partnership tax return because of the penalty notice.
HMRC's response was that a partnership record was set up because both partners registered with HMRC; a notice to file a partnership return was properly issued to the partnership address (as were the subsequent penalty notices); a return was not filed until August 2013, and when filed showed a commencement date of 1 September 2011. It showed partnership profit of £3,150, all allocated to A; it was not necessary for partners to share equally.
In the judge's view:
- As this was a penalty appeal, the burden was on HMRC to show that the notice to file a partnership return and the penalty notices were valid and that there was a relevant person who failed to file a partnership return that they were legally obliged to file by the due date. If there was no partnership in the tax year 2011–12 then the notice to file beat the air because there was no one who fitted the description of the person required to file it and indeed no persons on whom it could be served under TMA 1970, s. 12AA.
- HMRC had accepted that in fact no SA400 was filed in this case, only SA401s (the form for completion by an individual becoming a partner) for each partner. Whilst there was evidence at least that there was an intention by A to take B into partnership to operate the restaurant which A had hitherto been operating himself as a sole trader, HMRC had not produced any evidence from outside the four corners of the Self Assessment system to demonstrate that there was a partnership actually in operation in 2011–12 (thinking here in particular of VAT registration details and VAT returns, and possibly other similar evidence available such as from PAYE and NIC systems).
- Considering all the evidence including the unchallenged evidence of A's accountant, the judge considered HMRC had not persuaded the Tribunal that it was more likely than not that there was an operating partnership. There was in particular no evidence that A agreed to share profits or losses with B.
As a result, the penalties had to be cancelled. It was not necessary to decide if there might have been a reasonable excuse for the failure to file if there had been a partnership, although the judge said he was inclined to think not; however, he would still have cancelled the daily penalties because, in the absence of any “SA reminder” or “SA 326D” in the materials produced to the Tribunal, HMRC had not shown that the condition in Sch. 55, para. 4(1)(c) had been complied with. Finally, the judge said he would not have found fault with HMRC's conclusion that there were no “special circumstances”, but again this was academic.
In the event, this case did not, as the judge saw it, turn on reasonable excuse – he found a prior, more fundamental objection to the raising of penalty notices in relation to the “partnership return”: namely that it had on balance not been shown that an actual partnership existed in the relevant tax year.
[1] This was an appeal by Mr Zakir Ahammed (“the appellant”) against the assessment of penalties on him and a Mr B Babul as a result of the failure by the appellant, as the nominated partner of Rangeela Spice, a partnership, to file a partnership return by the due date.
[2] From the bundle of papers I had I find the facts as follows.
[3] Rangeela Spice, a partnership notified to HMRC as being between the appellant and Mr B Babul, was issued with a notice to file a partnership return for the tax year 2011–12 on 6 April 2012. That notice required the appellant, as the nominated partner, to deliver the return by 31 October 2012 if filed in paper form or by 31 January 2013 if filed electronically (“the due date”).
[4] On 12 February 2013 HMRC issued a notice informing each of the partners that a penalty of £100 had been assessed on him for failure to file the return by the due date.
[5] On 14 August 2013 HMRC issued a notice informing each of the partners that a penalty of £900 had been assessed on him for failure to file the return by a date 3 months after the due date.
[6] It appears from the bundle that there may have been an assessment on a penalty of £300 for a failure to file more than 6 months after the filing date. It is not mentioned in the Statement of Case.
[7] The return was filed electronically on 7 August 2013. Screenshots of the computer record of the partnership statement (not the return as a whole) show
- the accounting period 1 September 2011 to 31 March 2012
- profit from trade £3,150
- no UTR for the partnership
- a declaration showing the number of partners as 2, the nominated partner as the appellant declaring himself to be a partner.
- individual partner details for the appellant showing his UTR and his share of the profits as £3,150 (ie all of them)
No individual partner details are given for Mr Babul.
[8] There is also a page from...
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