Goldsmith
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 January 2018 |
| Neutral Citation | [2018] UKFTT 0005 (TC) |
| Date | 03 January 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0005 (TC)
Judge Richard Thomas
The appellant did not appear and was not represented
Aparna Nathan, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondent
Income tax – Penalties for failure to file returns for 2 years – FA 2009, Sch. 55 – Appellant would not or could not pay underpayment shown on P800s and said by HMRC not to be capable of being coded out – Notice to file returns given to establish enforceable debt arising from self-assessment – Whether tribunal has jurisdiction to take into account whether returns issued for purpose in TMA 1970, s. 8(1) – PML Accounting Ltd v R & C Commrs [2017] BTC 10 and R & J Birkett (t/a Orchards Residential Home) v R & C Commrs [2017] BTC 511 considered – Held penalties invalid as not issued for s. 8(1) purpose – In alternative whether reasonable excuse for failure to file on time – Held no – In alternative whether HMRC decision on special circumstances flawed – Held yes – There were unusual or out of the ordinary circumstances that justified reduction in penalties, and that the imposition of the penalties was not in accordance with the clear compliance intention of the legislation – Penalties cancelled.
The First-tier Tribunal (FTT) allowed a taxpayer's appeal against late filing penalties. The FTT found that the returns were issued to collect tax already calculated and “assessed” by P800s and not for the purpose of establishing the taxpayer's taxable income and the amount of tax payable, and therefore did not meet the statutory requirements of TMA 1970, s. 8(1), and accordingly the penalties were invalid.
Mr Goldsmith (the appellant) was not registered for self-assessment, but was instead taxed through PAYE. In 2011–12 and 2012–13 the appellant received (1) employment income and (2) employment and support allowance (ESA) paid by the Department for Work and Pensions (DWP). The employer used the tax code provided by HMRC, which represented the personal allowance for the relevant year, and DWP operated a system of non-PAYE as required by regulation. The income received by the appellant from both sources individually fell below his personal allowance and therefore no tax was deducted under PAYE from either his employment or from the DWP. However, as jointly his income exceeded the allowance, HMRC issued tax calculations (forms P800) showing underpayments for both years. The underpayments were not coded out and although the appellant initially agreed a repayment plan to pay the first of the underpayments after 3 payments he made no more payments. HMRC issued the appellant with a paper tax return to complete for 2011–12 and a notice to file a 2012–13 return. The appellant submitted the returns late. HMRC issued initial penalties for both years under FA 2009, Sch. 55, para. 3 and daily penalties under para. 4. The appellant appealed against the penalties.
The FTT noted that HMRC had to show that the penalties were incurred for a failure to deliver by the due date a return under TMA 1970, s. 8(1)(a), i.e. a return “for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year”. It considered that it was able to question whether the statutory requirements of TMA 1970, s. 8(1) had been met after rejecting HMRC's submission that PML Accounting Ltd v R & C Commrs [2017] BTC 10 and R & J Birkett (t/a Orchards Residential Home) v R & C Commrs [2017] BTC 511 prevented such questioning.
The FTT had no doubt that HMRC had issued the notices to file to the appellant, but found that HMRC did not need a return to establish the appellant's income or the amount of tax payable, as the PAYE system had done that, and the P800 had “assessed” it. HMRC said they needed a return to collect the tax that the appellant had started to pay off but then stopped doing so.
Because the returns did not fall within TMA 1970, s. 8(1) the FTT ruled that the penalties were invalid.
In case the FTT was wrong in its decision on TMA 1970, s. 8(1), it also ruled that:
- the appellant did not have a reasonable excuse for his failure to file his returns on time – while the appellant said he did not receive the notices to file the presumption was that the notices had been served;
- there were special circumstances enabling the penalties to be reduced to nil – HMRC's failure to consider whether the underpayments arose from an HMRC error (i.e. not giving the appellant's employer the correct PAYE code to use to take account of the ESA the appellant received) or to question whether an underpayment should have been coded out or whether ESC A14 applied made HMRC's decision that there were no special circumstances flawed;
- HMRC had failed to properly notify the daily penalties as required by FA 2009, Sch. 55, para. 4(1)(c) and therefore the daily penalties were invalid anyway.
Judge Richard Thomas noted that for similar situations in the future the simple assessment rules introduced by FA 2016, s. 167 and Sch. 23 will be advantageous for both HMRC and the taxpayer. For HMRC they will not have to send increasingly beseeching letters asking for voluntary payment and they will not, if those requests are unsuccessful, have to set up a self-assessment record and police the filing of returns to establish a liability to pay. For the taxpayer they will not have to get involved with self-assessment and making returns, and thus will not face late filing penalties nor retrospective interest and late payment penalties.
[1] This is my decision on appeals by Mr David Goldsmith (“the appellant”) against penalties imposed on him by the Respondents (“HMRC”) for his failure to deliver income tax returns for the tax years 2011–12 and 2012–13 by the due date.
[2] Although the appeals were made in 2014, the case was stayed behind the appeal of Mr Keith Donaldson from the decision of this Tribunal in Morgan [2013] TC 02720. Mr Donaldson's appeal was ultimately decided in 2016 by the Court of Appeal on appeal from the Upper Tribunal (Tax and Chancery Chamber). As that decision of the Court of Appeal, under the name of Donaldson v R & C Commrs [2016] BTC 28 (“Donaldson”), is now final, leave to appeal to the Supreme Court having been denied, the stayed appeal now falls to be dealt with.
[3] On 24 May 2017 I considered the appeal without a hearing under the provisions of rule 26 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 30 November 2014 (with enclosures) and HMRC's Statement of Case (with enclosures) acknowledged by the Tribunal on 10 March 2017.
[4] Because this appeal was treated as a default paper case so that there was no opportunity to raise points with the parties, I decided that I should ask for the parties' views on a point of law that had occurred to me. Accordingly I issued directions to which I attached my provisional decision on this point and asked for submissions. HMRC replied, not surprisingly as my provisional view was against them, and said that if I was not minded to change my decision they wished to make oral submissions.
[5] An oral hearing was therefore arranged for 20 October 2017. The appellant had indicated that he would not be attending or making representations. I obviously already had his grounds of appeal from the bundle of papers sent to me for my consideration of the appeal on paper. Accordingly I decided that it was in the interests of justice to proceed with the hearing without the appellant being present.
[6] Following the hearing I made directions that HMRC could make further submissions on a question that would arise if they were successful on the point I had raised of my own motion. I have received those submissions and taken them into account.
[7] As presented in its Statement of Case by HMRC, the issues here were the same as they are in all of the many “post-Donaldson” cases that I, and the other judges in this Chamber, have been dealing with on paper over the last few months. They include whether the appellant had a reasonable excuse for failing to deliver his returns on time, whether HMRC's decision on the question of special circumstances was flawed, whether in the particular case the daily penalties fell within the requirements for notification laid down by the Court of Appeal in Donaldson and, an all too common question, what appeals and permissions to make or notify appeals late were actually before the Tribunal.
[8] As I said in paragraph 4 there is another issue which I raised of my own motion. This issue arises because this appeal is unusual. The appellant is one of the substantial majority of taxpayers in the UK whose contact with HMRC was, until the events described later, minimal.
[9] This is an unusual case in that the appellant was not registered on HMRC's self-assessment computer system in the years to which the penalties relate. Some explanation is required, and this explanation needs to consider the historical development of the current income tax system (the system know to HMRC1 as the SA or self-assessment system) both as regards those within it and, more importantly for this case, those who are not within it2.
[10] In relation to income tax, this Tribunal deals, and can only potentially deal, with the minority3 of the people in the United Kingdom who are within what is now known as the self-assessment regime4. The same was true of its predecessors, in particular the General Commissioners, or to give them their original title, the Commissioners for the general purposes of the income tax.
[11] In the nineteenth century there was a much smaller minority than now of people who might have had dealings with the Inland Revenue. This was because income tax applied only above a threshold...
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Parsons
...a self-assessment to the effect that she was due a repayment. I am inclined to think that this is a stronger case than that in Goldsmith [2018] TC 06284 in which I held that a notice to file a return should not be issued where a P800 had already established a person's liability to pay (or t......
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R & C Commissioners v Goldsmith
...20(1) not 20(2) – Appeal allowed. The Upper Tribunal (UT) allowed HMRC's appeal against a decision on late filing penalties in Goldsmith [2018] TC 06284. The UT agreed with the FTT that the FTT had jurisdiction to consider whether notices to file personal tax returns had been validly issued......
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Monaghan
...being issued to a company which is within the charge to income tax. Subject to the circumstances not being as they were in Goldsmith [2018] TC 06284. ...
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Groves
...11. These are not easy questions to answer, but they have been considered and dealt with head on by Judge Thomas in Goldsmith (Goldsmith [2018] TC 06284), which contains a masterful and scholarly analysis of these issues. 12. I have read Goldsmith a number of times and find myself in comple......