O'Donnell
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 November 2016 |
| Neutral Citation | [2016] UKFTT 743 (TC) |
| Date | 04 November 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jonathan Richards
The appellant appeared in person
Aparna Nathan, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Income tax – Partner payment notice – Penalty – Whether “reasonable excuse” for not making accelerated partner payment on time – No – Whether to stay appeal pending Supreme Court's decision in R (on the application of De Silva) v R & C Commrs [2016] BTC 6 – No – Appeal dismissed – Finance Act 2014 (“FA 2014”), Sch. 32, s. 226 – Finance Act 2009, (“FA 2009”)Sch. 56, para. 9–18.
The First-tier Tribunal (FTT) found that the taxpayer did not have a reasonable excuse for not paying two accelerated partner payments (APPs) and that it should not vary HMRC's decision that there were no special circumstances under which the penalty should be reduced.
The appellant (Mr O'Donnell) was issued with two partner payment notices (PPNs), triggering obligations to make APPs in relation to his participation in two tax avoidance schemes. On 10 February 2015, Mr O'Donnell made representations to HMRC against both PPNs, that as they related to losses carried back and set off against previous tax years and HMRC had not opened an enquiry under the Taxes Management Act 1970 (“TMA 1970”), Sch. 1A they were now out of time to assess him in relation to the relevant tax years (the FTT noted that these were similar issues to those raised in the judicial review case of R (on the application of De Silva) v R & C Commrs TAX[2016] BTC 6). On 29 June 2015, HMRC wrote to Mr O'Donnell to advise him that, having considered his representations, both PPNs were confirmed without amendment. On 8 July 2015, Mr O'Donnell again wrote to HMRC requesting a review of their demand for payment, but this letter was not received by HMRC. On 15 September 2015, HMRC advised that because of errors in the original PPNs regarding when surcharges would be charged if payment was not paid on time, they would allow an extra 28 days in which to pay. So rather than the payments being due by 29 July 2015 (being 30 days after HMRC confirmed the PPNs as detailed in FA 2014, Sch. 32, para. 6(5)(ii)) they were due on 26 August 2015. As Mr O'Donnell had not paid either APP by the extended deadline, HMRC issued penalty notices of 5% of the amount owed. On 22 September 2015, Mr O'Donnell explained to HMRC that he had not paid either APP because he was waiting for a response to his letter of 8 July 2015. On 16 October 2015 HMRC acknowledged that Mr O'Donnell should have received a response to his letter of 8 July 2015 to say that the conclusion in their letter of 29 June 2015 was final and would not be revisited, but they did offer a review of the decision to charge penalties. Mr O'Donnell accepted the offer of a review and requested the penalties be set aside, because: he had received lots of correspondence from different HMRC departments and it was confusing; he had dealt with HMRC in an honest and timely manner and was not trying to delay matters; until 22 September 2015 he did not think that he had to pay the APPs until HMRC had responded to his 8 July 2016 letter. HMRC's review concluded that the penalties should be upheld as Mr O'Donnell did not have a reasonable excuse (pursuant to FA 2009, Sch. 56, para. 16) and there were no special circumstances to justify a special reduction (pursuant to FA 2009, Sch. 56, para. 9).
At the hearing, Judge Richards informed Mr O'Donnell that the appellants in the De Silva case had been given permission to appeal to the Supreme Court. As a consequence Mr O'Donnell asked for his appeal against the penalties to be stayed pending the Supreme Court's decision in that appeal. While noting that the Supreme Court's judgment in De Silva might be of material assistance in enabling a court or Tribunal to decide whether Mr O'Donnell was liable for the amount of tax that HMRC had assessed, the Tribunal simply had no jurisdiction in relation to this issue. The FTT therefore did not stay the appeal.
On the issue of whether Mr O'Donnell had a reasonable excuse, the FTT found as follows:
1) Until 22 September 2015, Mr O'Donnell had a genuine belief that he would not be required to make an APP until his letter of 8 July 2015 was answered. However, while genuinely held, that belief was not reasonable. HMRC's correspondence had been clear and he simply made an incorrect and unreasonable assumption that he was entitled to a review of HMRC's decision in their letter of 29 June 2015.
2) Mr O'Donnell had experienced financial difficulties in making the APPs, but: (i) he did not suggest the insufficiency of funds was attributable to events beyond his control; and (ii) a large part of those financial difficulties were because of the time needed to sell illiquid assets and to borrow money against his house, and he could have done this earlier if he had not made an unwarranted, and unreasonable, assumption that he was entitled to a review of the decisions in HMRC's letters of 29 June 2015.
3) The volume of correspondence that Mr O'Donnell received from HMRC or the number of departments he had to deal with did not give him a reasonable excuse for not paying the amounts due on time.
HMRC had considered the question of “special circumstances” and had concluded that there were none. Mr O'Donnell made no suggestion that this decision was “flawed” in the sense set out in FA 2009, Sch. 56, para. 15(4) and the FTT was satisfied that it was not flawed. Therefore, the FTT had no power to alter HMRC's determination on that issue, but even if it had the power, it would not have altered that decision since it was not satisfied that there were any “special circumstances” such as to justify a reduction of the penalties charged.
Although Mr O'Donnell had entered into a time to pay arrangement, this was not done until after the payment was due and therefore FA 2009, Sch. 56, para. 10 did not prevent the penalties being due.
The FTT accordingly dismissed Mr O'Donnell's appeal.
The judge was at pains to point out that while he did not accept the taxpayer's submission that he had a “reasonable excuse”, he was not casting any aspersions as to his integrity. The evidence he had seen demonstrated that the taxpayer had dealt fairly and promptly with HMRC in relation to both the PPNs and the penalties charged. While he had made a mistake as to his right to request a review of an HMRC's decision, that was a “genuine mistake and was not part of any strategy to protract matters”.
[1] Mr O'Donnell is appealing against two penalties that HMRC imposed for late payment of accelerated partner payments set out in partner payment notices (“PPNs”) issued pursuant to Schedule 32 of Finance Act 2014. The penalties imposed were as follows1:
Tax Year |
Date of PPN |
Amount of accelerated partner payment |
Date of penalty |
Amount of penalty |
2004–05 |
14 November 2014 |
£300,164 |
15 September 2015 |
£15,003 |
2005–06 |
28 November 2014 |
£45,104.68 |
15 September 2015 |
£2,255.23 |
[2] Very few facts were in dispute. Mr O'Donnell gave oral evidence himself and Ms Nathan cross-examined him. I found Mr O'Donnell to be a reliable and honest witness. HMRC did not rely on witness evidence but produced documentary evidence in the form of a bundle of documents.
[3] From the evidence, I find the following facts.
[4] Mr O'Donnell was, at material times, a member of Ingenious Film Partners LLP. On 10 October 2014, HMRC wrote to Mr O'Donnell informing him that, in the next two to four weeks, they would issue him with a PPN in relation to the 2004–05 tax year. In that letter, HMRC notified Mr O'Donnell that the issue of a PPN would trigger an obligation to make an accelerated partner payment within 90 days (although that deadline might change if he chose to make representations on the PPN). HMRC's letter included the following section:
There is no right of appeal against the partner payment notice. However, if you disagree with the notice, you can make representations to us, objecting to the notice.
You can find more information about making representations in the enclosed factsheet.
[5] With their letter, HMRC enclosed a copy of factsheet CC/FS24 (the “Factsheet”). The Factsheet was six pages long and included a large amount of information on HMRC's right to require accelerated payment in connection with tax avoidance schemes. Mr O'Donnell accepted that the Factsheet was clear and he understood it. The Factsheet included the following sections:
Payment will be due 90 days after the date you receive the accelerated payment notice.
If you make representations objecting to the accelerated payment notice, the date the payment is due may change. There is more information about this in the section headed “What to do if you disagree with the accelerated payment notice” on page 4 of the factsheet.
…
If you do not pay the full amount shown in your partner payment notice by the date it is due, you will be liable to a penalty. If we charge you a penalty, you will have to pay that as well as the accelerated partner payment.
If your payment is not made in full on or before … the date it is due, you will be liable to a penalty equal to 5% of the amount you still owe.
…
There is no right of appeal against an accelerated payment notice. However, you can make representations to us if you believe that one or both of the following applies:
– the conditions for issuing the notice have not been met – these are shown in the section headed “When we may send an accelerated payment notice”, on page 1 of this fact sheet
– The amount shown in the notice is not correct – if this is the case you will need to tell us what you think the correct amount is and why
…
If you make representations, you cannot ask for postponement of the...
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