Chartridge Developments Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 November 2016 |
| Neutral Citation | [2016] UKFTT 766 (TC) |
| Date | 16 November 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Robin Vos
Mr Liam Henry of Hillier Hopkins LLP, accountants, appeared for the appellant
Mr Steve Goulding, Tribunal Caseworker of HM Revenue and Customs, appeared for the respondents
Annual tax on enveloped dwellings – Tax returns – Finance Act 2013 (FA 2013), s. 159 and Sch. 35 – Penalty for late filing of returns – Finance Act 2009 (FA 2009), Sch. 55 – Whether defects in the penalty notices affected the penalties – Yes – Taxes Management Act 1970 (TMA 1970), s. 114 – Whether taxpayer had a reasonable excuse for filing the returns late – No – Whether HMRC's decision on special circumstances could be revisited – No – Appeal allowed in part.
The First-tier Tribunal (FTT) found that four of five penalties issued by HMRC for the late filing of ATED returns should be cancelled, and for the fifth relying on an employee did not provide the company with a reasonable excuse for the failure to file on time.
The appellant, Chartridge Developments Ltd (Chartridge), was a property development company. Although, as such, it was exempt from paying the annual tax on enveloped dwellings (ATED) it was required to submit five ATED returns for the ATED periods ending on 31 March 2014 and 31 March 2015. Chartridge submitted the returns late. HMRC decided that the failures were careless and therefore charged penalties under Finance Act 2009 (FA 2009), Sch. 55 for the late submissions. Chartridge appealed against the penalties.
The FTT found that there were mistakes in the dates set out in each of the penalty notices.
Four of the penalty notices contained the wrong date for the last date by which the ATED returns should have been filed due to HMRC's misunderstanding of the ATED legislation. This error affected the calculation of all of the dates for the various penalties and was clearly not in substance and effect in conformity with or according to the intent and meaning of the ATED legislation and was also not cured by any other part of the penalty notices as they did not contain any explanation as to what the cut-off date for filing the ATED returns should have been. In the FTT's view, this fell within the category of gross error likely to mislead the taxpayer referred to in Pipe v R & C Commrs TAX[2008] BTC 558 and could not therefore be cured by the Taxes Management Act 1970 (TMA 1970), s. 114. In deciding that these penalties should be cancelled, the FTT examined the penalties which had been assessed and determined the issue on the basis of the information in the penalty notices and the legislation in question.
In relation to the fifth penalty notice, although it was defective in that it contained incorrect dates relating to the period for which the penalties were charged and the wrong number of days for the daily penalty, it also contained a very clear explanation as to how the penalties were charged. The FTT found that as a result of TMA 1970, s. 114, the defects did not invalidate the notice and therefore the penalties in this notice were affirmed.
The FTT found that even though Chartridge delegated the task of submitting the ATED returns to a senior employee, as it did not take steps to check the return had been submitted, this did not provide a reasonable excuse for the failure to make the return on time. In the FTT's view it was also not reasonable, as Chartridge had argued, to expect HMRC to remind a taxpayer of his obligation to submit a tax return. The FTT therefore concluded that Chartridge did not have a reasonable excuse for its failure to file the ATED return on time.
The FTT finally found that by HMRC briefly considering whether there were any special circumstances which could have justified a special reduction as set out in FA 2009, Sch. 55, para. 16 in their statement of case HMRC had made a valid decision. Therefore as the decision was not flawed in the judicial review sense the tribunal could not reach a different view on whether there should be a reduction or the amount of the reduction. Even if the FTT had found that HMRC's decision was flawed it found that there were no special circumstances which would have justified a reduction in the amount of the penalties.
In summary, the FTT found that of the five penalty notices, four should be cancelled and one affirmed without amendment.
This case highlights the need for taxpayers and/or their advisers: (1) to have adequate checks in place to ensure tax compliance issues are dealt with appropriately; and (2) to carefully check the details in HMRC penalty notices, including what they are required by legislation to contain, and not just accept them as correct.
[1] The annual tax on enveloped dwellings is a relatively new tax introduced by Finance Act 2013 (FA 2013) with effect from 1 April 2013. The legislation provides for an annual tax charge on UK residential properties over a certain value which are held by companies, partnerships or collective investment schemes. In some cases, an exemption from the charge is available but a return still has to be made in order to claim the exemption.
[2] The appellant, Chartridge Developments Limited (Chartridge) is a property development company. As it owns valuable UK residential property, it is, on the face of it, within the charge to ATED. However, one of the exemptions from ATED is where the property is held by a property development company.
[3] Chartridge did not submit ATED returns for the ATED period ending on 31 March 2014 and the ATED period ending on 31 March 2015 until 7 August 2015 which was well beyond the date when the returns should have been submitted.
[4] HMRC decided that Chartridge had been careless in failing to submit its returns on time and therefore charged penalties under Schedule 55 Finance Act 2009 (FA 2009) for the late submission of the returns. As there were five properties involved and, at the time in question, it was necessary to submit a separate return for each property, there are five separate sets of penalties. The total amount of the penalties charged is £3,200 for the ATED period ended 31 March 2014 and £3,580 for the ATED period ended 31 March 2015.
[5] Chartridge appeals against the penalties on a number of different grounds:
1) The penalty notices are defective as they specify incorrect dates.
2) There is a reasonable excuse for filing the returns late.
3) HMRC should have allowed a reduction for special circumstances.
[6] Technically, Chartridge's appeal to the Tribunal was lodged three days late. HMRC notified Hillier Hopkins of its conclusions in a letter dated 15 January 2016. This was not however received by Hillier Hopkins until 20 January 2016. The appeal to the Tribunal was sent by Hillier Hopkins to the Tribunal on 12 February 2016 but was not received by the Tribunal until 17 February 2016 whereas it should have been received by 14 February 2016.
[7] HMRC did not object to the late appeal.
[8] Given that the appeal was only three days' late and that there were delays in the post both in relation to the review letter and the notice of appeal, the Tribunal gave permission for the appeal to be made out of time.
[9] The evidence consisted of two bundles, one prepared on behalf of the appellant and one prepared by the respondents.
[10] The facts are relatively straightforward and, for the most part, are agreed. The salient facts are set out below.
[11] Throughout the relevant period, Chartridge traded as a property development company.
[12] In the ATED period ended 31 March 2014, Chartridge owned two properties which were potentially within the scope of ATED. Both were new build properties. The first, Tilehurst first came within the scope of ATED on 10 May 2013. The second, Chancing Rye first came within ATED on 26 July 2013.
[13] There were three properties within the scope of ATED in the period ended 31 March 2015. The first property, Amberley, was not a new build property and first came within the scope of ATED on 7 July 2014. The other two properties were both new build properties. 71 Fulmer Drive came within the scope of ATED on 26 April 2014 and 80 Fulmer Drive on 9 December 2014.
[14] Chartridge was fully aware that it was within the scope of ATED and that ATED returns would need to be submitted.
[15] The directors of Chartridge delegated the job of finding out all about the ATED regime and submitting the relevant tax returns to a senior employee. That employee had proved to be competent and reliable in relation to similar tasks in the past.
[16] The employee in question ceased employment with Chartridge in acrimonious circumstances sometime prior to August 2015. After the employee left, it was discovered that a number of matters delegated to that employee, including submission of the ATED returns, had not been completed.
[17] There is contradictory evidence as to whether the employee's failure to submit the ATED returns was deliberate and malicious or whether it was as a result of a misunderstanding that the directors would submit the ATED returns. Given the seriousness of the allegation of wilful misconduct on the part of the employee, I am far from satisfied on the balance of probabilities on the basis of the evidence before me that the failure to submit the returns was a deliberate act.
[18] As soon as the failure to submit the ATED returns became apparent, Chartridge made arrangements for the returns to be submitted. This was done on 7 August 2015.
[19] HMRC notified the late filing penalties to Chartridge on 14 September 2015 in respect of the period ended 31 March 2014 and on 15 September 2015 in respect of the period ended 31 March 2015.
[20] For the ATED periods ended 31 March 2014 and 31 March 2015, it was necessary to submit an ATED return in respect of each property which was within the charge to ATED (s 159(1) FA 2013). This was the case even if a relief was available so that no...
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