Donaldson v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Master of the Rolls,Lord Justice Kitchin,Lord Justice Hamblen |
| Judgment Date | 18 July 2016 |
| Neutral Citation | [2016] EWCA Civ 761 |
| Docket Number | Case No: A3/2015/0266 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 July 2016 |
[2016] EWCA Civ 761
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
FTC/98/2013
Royal Courts of Justice
Strand, London, WC2A 2LL
The Master of the Rolls
Lord Justice Kitchin
and
Lord Justice Hamblen
Case No: A3/2015/0266
Rebecca Murray (instructed by Bar Pro Bono Unit) for the Appellant
Richard Vallat (instructed by General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing date: 27/06/2016
Approved Judgment
Schedule 55 of the Finance Act 2009 ("the Schedule") makes provision for the imposition by Her Majesty's Revenue and Customs ("HMRC") of penalties on taxpayers for the late filing of tax returns. The date for filing a return on paper (as opposed to online) is 31 October. If a person (P) fails to file an income tax return by the "penalty date" (the day after the "filing date" i.e. the date by which a return is required to be made or delivered to HMRC), para 3 of the Schedule provides that he is liable to a penalty of £100. Para 4 provides:
"(1) P is liable to a penalty under this paragraph if (and only if)–
(a) P's failure continues after the end of the period of 3 months beginning with the penalty date,
(b) HMRC decide that such a penalty should be payable, and
(c) HMRC give notice to P specifying the date from which the penalty is payable."
Para 5 provides that P is liable to a penalty under that paragraph if (and only if) his failure continues after the end of the period of 6 months beginning with the penalty date. The penalty under this paragraph is the greater of (a) 5% of any liability to tax which would have been shown in the return in question and (b) £300.
Para 18 provides:
"(1) Where P is liable for a penalty under any paragraph of this Schedule HMRC must—
(a) assess the penalty,
(b) notify P, and
(c) state in the notice the period in respect of which the penalty is assessed".
This appeal concerns the paper tax return filed by Mr Donaldson for 2010/11. He failed to file the return by 31 October 2011. On 18 December 2011 he was sent a computer generated reminder called an SA Reminder which stated that it was too late to file a paper return "without having to pay a £100 late filing penalty". It also stated that, if he failed to file his return by 31 January 2012, "a £10 daily penalty will be charged every day it remains outstanding. Daily penalties can be charged for a maximum of 90 days starting from 1 February for paper tax returns".
He still did not file his return. On 6 January 2012, HMRC sent another computer generated reminder called an SA 326 D notice. This stated that he was liable for a penalty of £100 in accordance with para 3. Like the SA Reminder, it also stated that, if the tax return was more than 3 months late, "we will charge you a penalty of £10 for each day it remains outstanding. Daily penalties can be charged for a maximum of 90 days starting from 1 February".
Mr Donaldson filed his return on 1 May 2012. He was then sent a Notice of Penalty Assessment which informed him that he had incurred a total penalty of £1,200 comprising (i) £900 in daily penalties (pursuant to para 4); and (ii) £300 for filing the return more than 6 months after the due date (pursuant to para 5).
Mr Donaldson appealed to the First-tier Tribunal ("FTT") on the ground that he was not liable to pay a daily penalty. Having appealed, he took no further part in the appeal. The FTT on its own initiative considered possible arguments in his favour, including whether the conditions in para 4(1)(b) and (c) of the Schedule were satisfied. It held that HMRC had "decided" that a daily penalty should be payable and that the condition in para 4(1)(b) was satisfied. But it also held that HMRC had not given notice to Mr Donaldson specifying the date from which the penalty was payable, so that the condition in para 4(1)(c) had not been satisfied. Accordingly, the FTT allowed his appeal.
HMRC appealed to the Upper Tribunal ("UT"). Again Mr Donaldson was not represented and took no part in the appeal. He did not cross-appeal or serve a respondent's notice in order to argue that the condition in para 4(1)(b) had not been satisfied. The UT appointed an amicus curiae to ensure that "all relevant issues were fully ventilated". The UT itself identified as a relevant issue the question of whether the condition in para 4(1)(b) had been met. At para 5 of its decision, the UT stated that, because Mr Donaldson had not cross-appealed on the question of whether the condition in para 4(1)(b) had been met, it was not necessary or appropriate to determine this point. At para 38, the UT noted that HMRC's notice of penalty assessment failed to state the period in respect of which Mr Donaldson had been assessed as required by para 18(1)(c). It said, however, that "this point is not…before us and we shall not address it further".
The UT decided that the condition in para 4(1)(c) was met and on that ground allowed HMRC's appeal. Mr Donaldson applied to the UT for permission to appeal against the decision of the UT not only on the para 4(1)(c) point, but also on both the para 4(1)(b) point and on the para 18(1)(c) point. He now has permission to appeal on all three points.
Paragraph 4(1)(b)
The HMRC case is that it had taken a decision within the meaning of para 4(1) (b) either (i) by taking the high policy decision that it took in June 2010 that all Ps who were at least 3 months late in filing their returns would be liable to a daily penalty or (ii) by its computer, programmed in accordance with that decision, automatically issuing a penalty notice.
Ms Murray, who appears pro bono on behalf of Mr Donaldson, submits that neither of these amounts to a "decision" within the meaning of para 4(1)(b). She advances three reasons. First, the words "such a penalty" in para 4(1)(b) are a reference back to the opening words of para 4(1) so that sub-para (b) means "HMRC decide that a penalty under this paragraph should be payable by P". The condition is referring to a penalty decision taken by HMRC with reference to a particular P.
Secondly, Parliament intended that HMRC should exercise its judgment with regard to a particular P in the light of the circumstances applicable to him, so as to decide whether he "should" be liable to a penalty. Thus, the HMRC must decide whether P is liable to a daily penalty and, if so, the date from which it should begin to run, which date must be specified in the notice.
Thirdly, the structure of paragraph 4(1) indicates that the three conditions must be successively met, in chronological order, so that the decision in (b) must be taken only after P has failed to submit his return for the relevant period. The policy decision relied on by HMRC was taken years earlier and therefore cannot satisfy condition (b).
I start by saying that I agree with the observation made at para 43 of the decision of the UT:
"We do not think it could have been within the contemplation of the draftsman that HMRC should be required to make a decision on a taxpayer-by-taxpayer basis, since he must have been aware that it would be impractical to exercise a discretion (meaning a discretion exercised in respect of each taxpayer individually, rather than in relation to defaulting taxpayers as a body) in that way. Rather, we think, this provision too contemplates what HMRC have in fact done, that is decide in advance that all taxpayers who default for more than three months should suffer daily penalties. In other words, what was contemplated was that the discretion conferred by the provision should be capable of being exercised in respect of all taxpayers who default for the requisite period, or none; and if that is so the purpose of the notice is to inform taxpayers who are in danger of incurring daily penalties that HMRC have decided to impose them.
It seems to me that it is inherently unlikely that Parliament intended that HMRC should be required to make a decision by exercising a discretion on an individual taxpayer-by-taxpayer basis. Parliament has addressed the issue of the individual circumstances of P by providing at para 23 that:
"(1) Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a return if P...
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