Fulbrook as agent for AEI group Ltd Appellant and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 June 2015 |
| Date | 18 June 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Ashley Greenbank, G. Noel Barrett
Mrs Samantha Baker and Mr Craig Tully of Gilbert Tax appeared for the appellants
Mr Brian Horton, presenting officer of HM Revenue and Customs, appeared for the respondents
Corporation tax – Notices to file company tax returns – Penalties for failure to file returns – Whether returns required for periods prior to incorporation – Whether notices validly served by delivery to an address other than place of business or registered office – Whether reasonable excuse where notices to file returns issued to both company and agent – Whether breach in taxpayer's human rights – Appeal allowed in part.
The First-tier Tribunal (FTT) partially allowed appeals against penalties for failures to file company tax returns. The FTT found that: returns were not required to be filed for the periods prior to the company's incorporation; penalty notices were validly served even though they did not go to the company's place of business nor registered office; and there was no reasonable excuse nor breach of human rights as a result of HMRC requiring returns from both the company and the company's UK agent.
A company incorporated in the Bahamas, known as Associated Engineering Industries Ltd (“AEI”) was registered for VAT in the UK in February 2000. The company's registered office was in the Bahamas and its UK address for VAT purposes was Mr Fulbrook's home address in Truro. In July 2010 Mr Fulbrook advised HMRC that the company had changed its name to AEI Group Ltd (“AEI Group”). At that stage there was no indication that AEI Group was anything other than the same company operating under a new name. However, later Mr Fulbrook described AEI Group as located in Belize and during the appeal the appellants (Mr Fullbrook as agent for AEI Group and AEI Group itself) submitted that it was in fact a different company from AEI, with AEI ceasing in 2010 and AEI Group being incorporated on 4 January 2010 (as evidenced by a certificate of incorporation of the company in Belize). The evidence was not conclusive, but on the balance of probabilities the FTT found that AEI Group was a different company from AEI. The FTT also found that AEI and, from 4 January 2010, AEI Group conducted business in the UK through the agency of Mr Fullbrook and that there was amply evidence to raise reasonable concerns that AEI and AEI Group were resident in the UK for corporation tax purposes.
Following a VAT visit in 2012, HMRC issued notices to file tax returns to AEI Group, to the address of the registered office of AEI in the Bahamas. The notices were not sent to the registered office of AEI Group in Belize nor to Mr Fulbrook's home address. Following correspondence between HMRC and Mr Fulbrook's tax agent, HMRC became concerned that the company might not have been resident in the UK for tax purposes and may instead have been trading in the UK through a permanent establishment and HMRC therefore issued notices to file corporation tax returns to Mr Fulbrook as agent of AEI Group. As no tax returns were forthcoming, HMRC issued penalty determinations against both Mr Fullbrook acting as agent for AEI Group and AEI Group for failure to deliver company tax returns. The penalties were both flat-rate penalties under Finance Act 1998, Sch. 18, para. 17 and tax-related penalties under Finance Act 1998, Sch. 18, para. 18 and were appealed.
The FTT first considered whether the penalty determinations for periods ending before 4 January 2010 should be set aside on the grounds that AEI Group was only incorporated on that date. The FTT found that it was open to HMRC to require a return to be made for periods where it did not have sufficient information to determine whether or not a company was incorporated in order to ascertain whether or not there was a liability to which the Corporation Tax Acts may apply. However, for the periods before AEI Group was incorporated Finance Act 1998, Sch. 18, para. 5(5) applied and therefore no tax returns were required and therefore for periods falling wholly before 4 January 2010 (when AEI Group was incorporated) the FTT set aside the penalty determinations.
The FTT then addressed whether the notices to file company tax returns issued to AEI Group at the address of registered office of AEI in the Bahamas had been properly served on the company. The FTT took the view that the notices were validly served because: they were delivered to the registered office of the company that had previously carried on the business; this was the only address available to HMRC at the time (other than Mr Fulbrook's home address); and it inferred that because Mr Fulbrook and his agent acted upon the notices almost immediately the contents must have been effectively communicated to them.
The appellants also argued, unsuccessfully, that they had a reasonable excuse for failure to file returns because
a) HMRC had agreed that returns could not be filed until the question as to the identity of the correct taxpayer was resolved,
b) HMRC had failed to decide whether it should be AEI Group or Mr Fulbrook as agent for AEI Group that should be submitting the returns and had therefore required returns from both and
c) they could not file returns on alternative bases as required by HMRC without at least one of the sets of returns being incorrect.
The FTT also rejected the appellants' argument that HMRC's actions had denied them the right to a fair trial and so were in breach of the appellants' rights under the European Convention on Human Rights, art. 6.
The FTT therefore set aside the penalty determinations raised on Mr Fullbrook acting as agent for AEI Group and AEI Group for the periods falling wholly before AEI Group was incorporated, consequently reduced some of the flat rate penalty determinations and confirmed the other penalty determinations.
HMRC was unclear whether the company in question was resident in the UK and therefore itself required to submit UK company tax returns or whether the company was not UK resident, but carrying on a trade in the UK through a permanent establishment and therefore its UK agent required to submit tax returns. HMRC therefore issued notices to file to both, but as neither submitted returns penalties were issued to both in the alternative. The FTT found that as the identity of the correct taxpayer was not immediately clear it was entirely appropriate for HMRC to proceed on alternative bases in order to prevent loss of tax.
[1] These are the consolidated appeals of Mr Christopher Fulbrook acting as agent for AEI Group Limited (referred to in this decision as “AEI Group”) and of AEI Group itself against penalty determinations for failure to deliver company tax returns. The penalties are both flat-rate penalties under paragraph 17 Schedule 18 Finance Act 1998 and tax-related penalties under paragraph 18 Schedule 18 Finance Act 1998. The penalties relate to periods ended 31 March 2007 to 31 March 2013, in the case of Mr Fulbrook acting as agent, and for periods ended 31 January 2007 to 31 January 2013, in the case of AEI Group itself.
[2] The issues before the tribunal were:
a) whether the notices to file company tax returns for periods ended on or before 4 January 2010 were invalid and the penalty determinations for those periods should be set aside on the grounds that the company, AEI Group, was only incorporated on 4 January 2010 and so did not exist before that date;
b) whether the notices to file company tax returns for periods ended 31 January 2007 to 31 January 2012 issued to AEI Group had been properly served on the company;
c) whether the appellants had a reasonable excuse for failure to file returns; and
d) whether HMRC's actions have denied the appellants the right to a fair trial and so are in breach of the appellants' rights under article 6 of the European Convention on Human Rights.
[3] The applicable legislation is set out in Appendix 1 to this decision.
[4] HMRC produced a bundle of documents for the hearing. The appellants produced a bundle of additional documents. The parties provided certain other documents to the tribunal in the course of the hearing. These were admitted to evidence. Those other documents were: copies of pages from the note book of Mr Jason Every, an officer of HMRC, relating to his meeting with Mr Fulbrook on 22 February 2012; and a letter dated 15 May 2014 from Mrs Samantha Baker of Gilbert Tax, the appellants' tax agents, to HMRC.
[5] The only witness statement was that of Mr Jason Every. We also heard oral testimony on oath from Mr Every, who was cross-examined by Mrs Baker and Mr Craig Tully of Gilbert Tax on behalf of the appellants. The appellants provided no witness statements and no oral testimony was given on their behalf.
[6] On the basis of the documents and of the oral testimony of Mr Every, we find the facts as set out below.
[7] A company, known as Associated Engineering Industries Limited (and referred to in this decision as “AEI”) was registered for VAT in the UK in February 2000.
[8] When it was first registered for VAT purposes, AEI was described as a company incorporated in the Bahamas. Its registered office was given in various documents as an address in the Bahamas. Its UK address for VAT purposes was Mr Fulbrook's home address in Truro.
[9] In a letter dated 5 July 2010, Mr Fulbrook wrote to HMRC to advise HMRC of a change of the name of the company from “Associated Engineering Industries Limited” to “AEI Group”. Mr Fulbrook expressed this change as a change of name only. The reason given by Mr Fulbrook for the change of name was simply that the original name was proving too long for his customers.
[10] There was no indication at this stage that AEI Group was anything other than the same company as had been originally registered for VAT purposes, but operating under a new name. It...
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