Armstrong
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 July 2018 |
| Neutral Citation | [2018] UKFTT 404 (TC) |
| Date | 18 July 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0404 (TC)
Judge Richard Thomas
Income tax – Penalties for failure to file tax return – Taxpayer signed up for paperless contact and for notices to a secure mailbox on HMRC website – Effect of Income and Corporation Taxes (Electronic Communications) Regulations 2003 (SI 2003/282) and directions of HMRC made under them – appeal allowed – FA 2009, Sch. 55.
The First-tier Tribunal (FTT) allowed a taxpayer's appeal against late filing penalties.
Ms Armstrong (the appellant) had signed up to paperless contact from HMRC. She received a notice to file a 2015–16 tax return by electronic communication to a secure mailbox on her self-assessment online account on 7 April 2016. As the appellant did not submit her return until 13 December 2017, HMRC issued her with an initial £100 penalty under FA 2009, Sch. 55, para. 3, daily penalties of £900 under para. 4 because the return was more than three months late and a £300 penalty under para. 5 because her return was more than six months late. The appellant appealed against the second and third penalties. Her grounds of appeal were that:
- She ceased self-employment in January 2016 when she became employed, and she was unaware she was required to notify HMRC.
- She was unaware of electronic messages in her mailbox.
- She was not notified of her liability to penalties until they reached £1,200.
- Records would show she was on time in previous years.
- The penalty was disproportionate when she earned less than the tax threshold.
The appellant's appeal was out of time, but based on the guidance in Martland v R & C Commrs [2018] UKUT 178 (TCC) and using the approach set out in Denton v TH White Ltd [2014] EWCA Civ 906, the FTT decided to allow the appeals to be made late.
The FTT decided that the questions it needed to consider on the substantive issue were:
- Whether the appellant consented to delivery of penalty notices to a secure mailbox.
- Whether the Income and Corporation Taxes (Electronic Communications) Regulations 2003 (SI 2003/282), reg. 5(1) applied in this case to establish delivery to the appellant of relevant statutory notices, and whether the condition in the direction under reg. 5(1) was met.
Based on what would be reasonably understood by a non-tax expert of the terms and conditions for using HMRC's online services, the FTT found that a person would realise from the terms and conditions that:
- they would get a notice to file a return sent to their secure mailbox, replacing the paper notices to file;
- they would get reminders that returns and payments of tax were becoming due sent to their secure mailbox;
- they would get statements of their tax position from time to time sent to their secure mailbox,
i.e. things that they had been getting previously. What they would not necessarily realise was that if they came to be in the small minority of late filers, that not only would HMRC send any penalty notices to the secure inbox, but also that any email they sent to alert a person to that notice of penalty would be as bland and uninformative as the emails that the appellant had put in evidence.
Therefore, the FTT found that the appellant did not give consent within the meaning of SI 2003/282, reg. 3(1ZA) to the receiving of penalty notices by email.
Because of the FTT's decision about consent it did not need to consider any further questions. But in case it was found to be wrong it gave its views on those further questions. In particular it decided that if it had been necessary it would have found that based on the evidence provided by HMRC about the electronic communications and the requirements in SI 2003/282, reg. 5 neither notice of assessment had been given to the appellant, and it would have cancelled the penalties.
The FTT allowed the appeal and cancelled the penalties of £100, £900 and £300.
The FTT found that when the taxpayer signed up for paperless contact from HMRC and for notices to a secure mailbox on the HMRC website she had not consented to receive penalty assessments by email. Therefore, as the penalty assessments were notified electronically they were invalid.
[1] This was an appeal by Ms Hannah Armstrong (“the appellant”) against penalties imposed by the Respondents (“HMRC”) under Schedule 55 FA 2009 for her continued failure to deliver a tax return.
[2] HMRC's records indicate that a notice to make and deliver a tax return for the tax year 2015–16 was issued on 6 April 2016 by electronic communication to a secure mailbox on the self-assessment online account of the appellant. That notice required the appellant to deliver the return by 31 October 2016 if filed in paper form or by 31 January 2017 if filed electronically (“the due date”).
[3] HMRC's records indicate that on 7 February 2017 a penalty of £100 had been assessed for her failure to file the return by the due date. HMRC's records indicate that on 7 February 2017 HMRC issued a notice by electronic communication to a secure mailbox on the self-assessment online account of the appellant.
[4] HMRC's records indicate that on 11 August 2017 [HMRC's statement of case (“SoC”) says 15 August, but this is belied by the documentation] a penalty of £900 had been assessed for her failure to file the return by a date 3 months after the due date and a penalty of £300 had been assessed for her failure to file the return by a date 6 months after the due date.
[5] The return was filed electronically on 13 December 2017.
[6] On 21 December 2017 the appellant appealed to HMRC against the two penalties totalling £1,200 (ie excluding the initial penalty of £100).
[7] On 19 January 2018 HMRC told the appellant that the appeals were out of time and, in accordance with s 49 Taxes Management Act 1970 (“TMA”), HMRC did not agree to the notices of appeal being given to them. They informed her that she could request permission from the Tribunal to give the notices to HMRC.
[8] On 18 February 2018 the appellant, acting through her brother Matthew Armstrong, notified her appeals to the Tribunal.
[9] The law imposing these penalties is in Schedule 55 Finance Act (“FA”) 2009 (and references below to “Schedule 55” without more are to that Schedule to FA 2009). In a case of this sort where the relevant item in the Table in paragraph 1 Schedule 55 is item 1, the relevant penalties are in paragraph 3 (initial penalty of £100), paragraph 4 (daily penalty) and paragraphs 5 and 6 (fixed or tax geared penalty after 6 and 12 months respectively). A penalty may only be cancelled, assuming assessment of it is procedurally correct, if the appellant had a reasonable excuse for her failure to file the return on the due date, or if HMRC's decision as to whether there were special circumstances was flawed in the judicial review sense.
[10] The text of the relevant parts of Schedule 55 is attached as an Appendix.
[11] The position is that the appeals made by the appellant were notified to HMRC after the time allowed by law. HMRC have not accepted that the appellant had a reasonable excuse for making the appeals late, and have refused to accept them. The appellant was informed of her right to seek permission from the Tribunal to require HMRC to accept them and has used the online facility to apply to be allowed to make a late appeal.
[12] But the online Notice of Appeal to the Tribunal has been completed on the basis that it is the appeals that are being notified, not, as is properly the case, that an application to give a late appeal to HMRC is being made.
[13] It seems to me however that, if I do give permission to allow the appeals to be given to HMRC, it would be an unnecessary waste of the appellant's and HMRC's time, not to mention the Tribunal's, to do other than go on to consider the appeals as they have been formulated by the appellant and argued in the SoC prepared by HMRC. To achieve an efficient use of the Tribunal's time and resources, as well as those of both parties and in accordance with the overriding objective of this Tribunal, I would waive any formalities that might be needed to ensure that the appeals are before the Tribunal.
[14] But first I need to consider the application for permission.
[15] Although the appellant's brother, Mr Matthew Armstrong, has put forward a well argued submission with citations from statute law and from cases relating both to tax and public law issues, the only part of that submission directed to the lateness of the appeals was his contention that the appellant was unaware that the notice of assessment of the two penalties (a single notice included both penalties) had been issued and thus she had received no notice of the assessments.
[16] HMRC say in their SoC that the officer of HMRC dealing with the appeal considered that the appellant did not have a reasonable excuse for the lateness of her appeals. This is wrong, as the officer did not comment at all on the point: they merely set out what HMRC regarded as not constituting a reasonable excuse and asked the appellant to provide one if she thought she had one.
[17] In their decision in Martland v R & C Commrs [2018] UKUT 178 (TCC) (“Martland”), the Upper Tribunal has given guidance to this Tribunal about dealing with applications of this type. Their conclusion is that the appropriate approach to be taken (in England and Wales at least, where I am dealing with this case) is that set out in Denton v TH White Ltd [2014] EWCA Civ 906, [2014] 1 WLR 3926 (“Denton”), and in particular the consideration of the matter in three stages as set out in that case. I have little to go on, but must look at the application in the three Denton stages.
[18] Denton Stage 1 is to ask whether the delay is serious or significant. In Romasave (Property Services) Ltd v R & C Commrs [2015] BVC 518 the Upper Tribunal found a delay of 3 months in the context of a 30 day time limit to be serious and significant. The delay here is just over 3 months which I also...
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