Griffiths
| Jurisdiction | UK Non-devolved |
| Judgment Date | 30 August 2018 |
| Neutral Citation | [2018] UKFTT 527 (TC) |
| Date | 30 August 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0527 (TC)
Judge Marilyn McKeever
Income tax – Penalty for failure to make returns – Whether notice to file valid – Tribunal jurisdiction – Whether penalties due – Reasonable excuse.
The First-tier Tribunal (“FTT”) allowed an appeal by the taxpayer against penalties issued by HMRC under Sch. 55 FA 2009 for late filing of his 2013/14 tax return on the basis that the notice to file given by HMRC was ultra vires.
The Appellant (Mr Griffiths) submitted an electronic tax return in respect of 2013/14 on 8 June 2017. As the return was not received by the filing date, HMRC issued a late filing penalty on 8 November 2016, daily penalties totalling £900 on 9 May 2017 and a six-month penalty. The total penalties amounted to £1,300. HMRC stated in their statement of case that they would not be pursuing the daily penalties.
Mr Griffiths is a 45-year old lorry driver earning £18,000 to £20,000 per year. Any income tax due had been paid by Mr Griffiths through Pay As You Earn (PAYE) and he had little to no knowledge of the tax system. The notice to file issued by HMRC had been the result of trying to recover a repayment that was erroneously paid by HMRC and which was not collected through PAYE. The FTT found that after receiving a “voluntary payment” letter in 2015, the Appellant had telephoned HMRC on two occasions and had been told the overpayment would be collected through an adjustment to his tax code. A notice to file was eventually issued by HMRC on 28 July 2016 and a return should have been submitted by 4 November 2016.
In looking at the merits of the penalties, the FTT considered the relevant statutory provisions and in particular the power to issue a penalty under Sch. 55 for failure to deliver a return as required by s. 8(1)(a) of TMA 1970.
The FTT analysed previous FTT decisions and in particular Crawford ([2018] TC 06594) and concluded that it had jurisdiction to look at the validity of a s. 8 notice in considering whether or not the penalties could stand.
The FTT held that the term “establishing” in s. 8 meant “determining the amount of” and that in cases where HMRC already know the amount of income tax due, a valid notice cannot be given under the section. The FTT disagreed with the decision in Crawford and concluded that the meaning of the word should be taken in its context and it clearly meant to determine or calculate and not calculate and assess. HMRC's purpose to place the Appellant in the self-assessment system was to create an enforceable debt as they did not need a tax return to establish the tax due. This purpose was ultra vires and rendered the s. 8 notice invalid. The FTT found support for its conclusions in the new regime for simple assessments (s. 28H TMA 1970) where HMRC may issue a simple assessment where s. 8 does not apply and this has the effect of creating an enforceable debt under s. 59BA TMA. This new regime was likely to have been introduced by Parliament to deal with cases like the one in hand where HMRC could not collect tax using the self-assessment system.
In any event, the FTT found that the Appellant had a reasonable excuse for not filing his tax return being an unsophisticated taxpayer with no knowledge or need for self-assessment and whom had been told at least once that the overpayment would be collected through his notice of coding.
The appeal was therefore allowed.
This decision expressly the decisions in Goldsmith [2018] TC 06284, Lennon [2018] TC 06453 and Mansoor [2018] TC 06518. The main issue addressed by those decisions is whether or not the FTT has the jurisdiction to consider the validity of a notice to file when determining penalty proceedings for failure to file or late filing. In all of these decisions different panels have decided that the FTT can consider the validity of such notices and that the absence of a valid notice invalidates any penalties issued. HMRC have been granted permission to appeal in Goldsmith with a hearing scheduled for the summer of 2019. Higher authority on the point will thus be available in 12 to 18 months.
[1] The appellant is appealing against penalties that HMRC have imposed under Schedule 55 of the Finance Act 2009 (“Schedule 55”) for a failure to submit a self-assessment return for the tax year 2013–14 on time.
[2] The penalties that have been charged can be summarised as follows:
- a £100 late filing penalty under paragraph 3 of Schedule 55 imposed on 8 November 2016
- a £300 six month penalty under paragraph 5 of Schedule 55 imposed on 9 May 2017
- Daily penalties totalling £900 under paragraph 4 of Schedule 55 imposed on 9 May 2017.
[3] In their Statement of Case, HMRC stated that they would not be putting forward a case for the daily penalties and the tribunal should therefore allow that aspect of the appeal.
[4] The appellant's grounds for appealing against the penalties can be summarised as follows:
- He argues that the penalties are not due because the notice to file a tax return was invalid.
- He argues that there was a reasonable excuse for any failure to submit the return on time.
[5] The appellant's appeal was notified to the Tribunal late. However, since HMRC have stated that they are not objecting to the late notification, I give permission under s49G(3) or s49H(3) of the Taxes Management Act 1970 for the appeal to be notified late.
[6] According to HMRC's computer system, they sent a notice to file to Mr Griffiths on 28 July 2016. As this was outside the normal self-assessment cycle, the filing date for both an online and a paper return was 4 November 2016.
[7] The return was submitted online, by Mr Griffiths' agent on 8 June 2017.
[8] Mr Griffiths left school in his teens with no formal qualifications and at the time of the appeal was 45 years old. He is a lorry driver earning £18,000 to £20,000 a year. He has been in the haulage industry since leaving school and throughout that time has been within the PAYE system. Mr Griffiths' agent states that whilst Mr Griffiths is aware of coding notices, he has little or no knowledge of other matters connected with the tax system and its administration and had had little interaction with HMRC. He had never previously been required to complete a tax return and the notice to file was the culmination of a series of unfortunate events originating in an error by HMRC.
[9] On 31 May 2014 Mr Griffiths was sent a PAYE tax calculation for the tax year 2013–14. The calculation was issued automatically by computer and showed an overpayment of £579.80. This was wrong as it only took into account one of Mr Griffiths' two employments. On 1 June 2014, HMRC issued a payable order in respect of the “overpayment” which was actually paid to Mr Griffiths on 3 June 2014. Mr Griffiths banked the order.
[10] On 2 June 2014, that is before the repayment was paid, a revised PAYE calculation was sent to Mr Griffiths showing an underpayment of tax of £581.60. Mr Griffiths had in fact underpaid tax of 80 pence. The balance of the underpayment was a result of HMRC's erroneous repayment.
[11] Mr Griffiths states that he telephoned HMRC a short time after receiving these documents and was assured that the underpayment would be collected through a change in his coding. HMRC does not have a record of this call and Mr Griffiths did not keep a record of the precise date or what was said. However, HMRC's “customer service” at the time, to say the least, left a lot to be desired. The Tribunal in Capuano [2018] TC 06371 commented on the criticisms by the National Audit Commission and the House of Commons Public Accounts Committee in that period. The fact that HMRC did not have a record of the phone call does not mean it was not made. Mr Griffiths' subsequent actions are consistent with there having been such a phone call and I find, on the balance of probabilities, that it did take place.
[12] HMRC concede that, normally, the underpayment would have been “coded out”, but Mr Griffiths' income at the time was so low that HMRC were unable to do this.
[13] Mr Griffiths heard nothing from HMRC for over eight months and assumed the matter had been dealt with. On 25 January 2015, HMRC sent Mr Griffiths an unpaid income tax letter or “voluntary payment letter-VPL1”. HMRC do not keep copies of VPLs sent to individual taxpayers, but provided a blank copy of the form. It asks the taxpayer to check the underpayment shown in the tax calculation and sets out ways in which the tax might be repaid. It states that they would normally collect the tax by a coding adjustment but cannot in “your” case for one of three reasons. There is nothing to show that the letter was made specific to a particular taxpayer and this could be confusing. The letter sets out that if the taxpayer does not pay, they will consider collecting the amount through the self assessment system and the taxpayer will have to fill in a tax return.
[14] On 2 February 2015 Mr Griffiths telephoned HMRC, presumably in response to this letter. This time, the call was recorded. In fact there are two records. It is unclear whether this represented one or two calls, but as they are timed a minute apart and have the same operator ID, I infer it was a single call. As is usual, the record of the “actions” is quite cryptic. The first states “ADV UPAID 13/04 [presumably 13/14] AS REPYT ISSD THAT WAS INCORRECT AS DIDN'T SHOW TOTAL INC.”...
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Hurst
...[2018] TC 06541 and Lennon [2018] TC 06453. The FTT noted that similar conclusions to those in Goldsmith were reached in Griffiths [2018] TC 06697 and Mansoor [2018] TC 06518. But on the other hand, in Crawford [2018] TC 06594, the FTT disagreed with Goldsmith. The FTT instead held that the......
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Hurst
...cases. [10] The Decision noted that Goldsmith, Lennon and Groves, as well as additional cases, Mansoor [2018] TC 06518 and Griffiths [2018] TC 06697, all reached similar conclusions. The Decision took into account that there was one case that reached a contrary conclusion: Crawford [2018] T......