Chalmers
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 September 2018 |
| Neutral Citation | [2018] UKFTT 555 (TC) |
| Date | 25 September 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0555 (TC)
Judge Heidi Poon
Mr Richard Beattie, of KPP Accountants, appeared for the appellant, in attendance
Mr Matthew Mason, presenting officer of HM Revenue and Customs, appeared for the respondents
Income tax self-assessment – Late-filing and late-payment penalties – Whether notice to file effectively served – TMA 1970, s. 8 – Whether reliance on accountant reasonable excuse and whether reasonable care taken – Whether failure remedied without reasonable delay – Whether special circumstances existed for special reduction – FA 2009, Sch. 55, Sch. 56 – Appeal allowed in part.
In respect of penalties relating to three tax years, the First-Tier Tribunal (FTT) cancelled late-filing penalties for one year entirely on the grounds that the notice to file a self-assessment return had not been effectively served; in respect of the other years, certain late-filing penalties were discharged on the grounds of reasonable excuse and others confirmed; late-payment penalties for all three years were reduced by 50% on account of special circumstances.
The appellant worked as a contractor through the medium of a personal service company, acting on the advice of her accountant, from April 2013. She moved house on a number of occasions for personal and job reasons. Although her company's tax affairs were fully in order, she failed to file self-assessment returns or to pay income tax on time for the years in question (2013–14, 2014–15 and 2015–16). In the period from 2 June 2014 to 30 January 2017, HMRC's records showed an address for her that was not valid, a fact of which it was aware from 16 March 2015. Accordingly, HMRC cancelled the late-filing penalties for 2014–15 (on the grounds that the notice to file under TMA 1970, s. 8 had been sent (on 6 April 2015) to an invalid address) but not the late-payment penalties. The appeal therefore related to (a) the late-filing and late-payment penalties for 2013–14; (b) the late-payment penalties for 2014–15; and (c) the late-filing and late-payment penalties for 2015–16.
It was not in dispute that returns were filed and tax was paid late. The grounds of appeal were that the taxpayer had a reasonable excuse by virtue of relying on her accountant, who she had no reason to doubt was dealing professionally with all her tax affairs. When she began receiving further penalty notices, beginning in February 2017, she appointed new accountants. The 2014–15 return was eventually filed by the new accountants on 18 December 2017 and the 2015–16 return on 27 March 2018.
The issues to be determined by the Tribunal in relation to the various penalties were (a) whether the notice to file the 2013–14 return was validly served as a question of law and as one of fact; (b) whether the appellant had a reasonable excuse which depended on her taking reasonable care to avoid the failure; and (c) whether the reasonable excuse, if one existed, continued throughout the period in question and if it did not, whether the failure was remedied without unreasonable delay once it had ceased.
The question concerning notice under TMA 1970, s. 8 related only to the 2013–14 late-filing penalties. The appellant had given a valid notice that she was liable to self-assessment by means of submitting a form SA1. The initial fixed penalty under FA 2007, Sch. 55, para. 3 of £100 is, in this case, for failure to file on time a return under TMA 1970, s. 8(1). The Tribunal found that whereas the notice to file issued on 12 June 2014 was validly served as a question of law, the fact that it was addressed to an incorrect address meant that in the circumstances it failed the Interpretation Act 1978, s. 7 requirement that it be properly addressed, hence it was not validly served as a question of fact. The fixed penalty therefore fell to be discharged. Since the daily penalties under FA 2009, Sch. 55, para. 4 for continuing failure to file a return after three months may be imposed if and only if HMRC gives notice to the taxpayer specifying the date from which they are payable, they fell to be discharged by the same token, as they were also sent to an invalid address.
Once the appellant contacted HMRC on 30 January 2017 to obtain her Unique Taxpayer Reference (UTR), as she was prompted to do by her original accountant, the error concerning her address was remedied and HMRC reissued a notice to file the 2015–16 return on 23 February. The filing due date was hence 2 June 2017.
The appellant's original accountant had filed a Form 64-8 with HMRC as agent for her personal tax affairs in February 2017. He was licensed and regulated by the Association of Accounting Technicians and the appellant had no reason to doubt that he was competent to provide a comprehensive service as regards accounting and tax or that he was in fact properly doing so until after the filing due date. Hence she had a reasonable excuse for the late filing of her 2015–16 return, which persisted up to the filing due date and the fixed late filing penalty in respect of that return accordingly fell to be discharged.
As to the daily penalties, the Tribunal held, somewhat arbitrarily, that the appellant's reasonable excuse ceased to apply on 2 November 2017 (exactly five months after the filing due date for the return). After receiving further penalty notices in June 2017, she decided to change accountants and a new firm was registered with HMRC as agent on 11 September 2017. The appellant was first notified in May 2017 that all three returns were still outstanding. A reasonable taxpayer, especially one in the appellant's professional rôle as a complaints handler, would have acted with greater diligence to remedy the situation. The daily penalties for the first 60 days were thus discharged but the balance of daily penalties and the six-month penalty were confirmed.
The underlying cause of both defaults had been the failure to notify HMRC of the change of address. However, the Tribunal considered that there would be “easy pickings to be made” if any late-payment penalty were automatically to be discharged in the absence of a live address for the service of a notice under TMA 1970, s. 8. It was a taxpayer's simple and fundamental obligation to notify HMRC of any change of address. The appellant had exhibited a “nonchalant disengagement” with respect to her tax affairs. Given this attitude, the appellant, though she had engaged accountants, had failed to take the reasonable care to avoid the failure required by FA 2009, Sch. 56, para. 16(2)(b) and that a reasonable and prudent taxpayer would have taken. Accordingly, the penalties could not be discharged on the grounds of reasonable excuse. However, the Tribunal did consider that special circumstances within the meaning of FA 2006, Sch. 56, para. 9, citing in particular the disjuncture before February 2017 between the appellant's expectations of the scope of the services she believed her original accountant was providing (company and personal tax affairs) and the reality of what he undertook to do (apparently, company affairs only). Furthermore, the accountant “would most likely have advised” the appellant that she had no tax liability for the years in question, as he had so asserted to HMRC in March 2017. In the circumstances, the late-payment penalties would be reduced by 50%.
This is another of several recent Tribunal decisions in which late-filing penalties have been cancelled on the grounds that a notice under TMA 1970, s. 8 to file a return had not been validly served – O'Neill [2016] UKFTT 866 (TC), Goldsmith [2018] TC 06284 and Crawford [2018] TC 06594, to all of which the Tribunal judge made reference. HMRC has been granted leave to appeal in Goldsmith. See also Lennon [2018] TC 06453, Wood [2018] TC 06339 and Smith [2018] TC 06639.
As regards reasonable excuse, the Tribunal drew rather a fine distinction in its reasoning as between the late-filing penalties and the late-payment penalties. The Tribunal judge ruled that the appellant failed at any time to take reasonable care to avoid failure concerning the late-payment penalties yet did consider that she took reasonable care in the same circumstances until a certain date, well after her suspicions must have been aroused sufficiently for her to instruct new accountants, in respect of the late-filing penalties.
[1] Miss Jade Chalmers appeals against penalties that HMRC have imposed under Schedule 55 of the Finance Act 2009 (“Sch 55 FA 2009”) for a failure to submit her self-assessment returns for the three years 2013–14, 2014–15 and 2015–16 on time.
[2] Penalties under Schedule 56 FA 2009 have also been imposed in relation to the late payment of the tax liability for the said years.
[3] Miss Chalmers gave evidence concerning her employment history, the timing and reasons for her relocation to Glasgow, and on her state of knowledge as respects her personal tax affairs. Mr Beattie, of KPP Accountants (“KPP”), made representations on behalf of Miss Chalmers. HMRC provided a witness statement from an officer outlining the internal system of issuing penalty notices and updating of address and individual taxpayers' SA Notes but did not call any witnesses. The parties provided a joint bundle of documents.
[4] The following penalties have been levied on Miss Chalmers and were appealed:
| Year | FA 2009 | Penalty | Amount £ | Date penalty notice issued |
| 2013–14 | Sch 55 | Late filing penalty | 100 | 18/02/15 |
| Daily penalty | 900 | 21/02/17 | ||
| 6-month late filing penalty | 300 | 21/02/17 | ||
| 12-month late filing penalty | 300 | 21/02/17 | ||
| Sch 56 | 30-day late payment penalty | 100 | 19/12/17 | |
| 6-month late payment penalty | 100 | 19/12/17 | ||
| 12-month late payment penalty | 100 | 19/12/17 | ||
| 2014–15 | Sch 55 | Late... |
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