Heacham Holidays Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 October 2020 |
| Neutral Citation | [2020] UKFTT 406 (TC) |
| Date | 14 October 2020 |
| Court | First Tier Tribunal (Tax Chamber) |
[2020] UKFTT 406 (TC)
Judge Heidi Poon
Annual tax on enveloped dwellings (ATED) – Penalties – Late filing of ATED returns – Advantage Business Finance Ltd reviewed – Donaldson v R & C Commrs [2016] BTC 28 followed – Whether burden under FA 2009, Sch. 55, para. 4(1)(c) met where notice given retrospectively – Construction of para. 4(3)(a) in relation to the requirement under para. 4(1)(c) – Whether reasonable excuse or special circumstances – Proportionality – Appeal allowed in part – FA 2009, Sch. 55.
The First-tier Tribunal (FTT) partly allowed a taxpayer company's appeal against penalties for the late filing of an ATED return. HMRC's retrospective notice of daily late filing penalties was invalid, but the initial and six-month penalties stood because the company's reliance on their professional adviser was not a reasonable excuse.
Heacham Holidays Ltd (the appellant or “Heacham”) purchased a cottage on 6 July 2017. Heacham should have submitted annual tax on enveloped dwellings (ATED) returns in respect of the cottage on 6 August 2017 (for 2017–18) and 30 April 2018 (for 2018–19), pursuant to FA 2013, s. 159. As the returns were not submitted until 29 January 2019, HMRC issued the appellant with late filing penalties. The penalties issued for 2017–18 were not under appeal. In respect of the 2018–19 return, on 23 September 2019, HMRC issued: an initial penalty of £100 (under FA 2009, Sch. 55, para. 3); daily penalties totalling £900 covering the period from 1 August 2018 to 30 October 2018 (purportedly under para. 4); and a six-month penalty of £300 (under para. 5).
The appellant appealed against the penalties in respect of the 2018–19 return.
The FTT first considered whether in respect of the daily penalties the burden in FA 2009, Sch. 55, para. 4(1)(c), for HMRC to give notice to the taxpayer specifying the date from which the penalty is payable, had been met. The appellant contended that the requisite notice had not been given, relying on the authority of Advantage Business Finance Ltd [2019] TC 06926 (ABF). HMRC submitted that the required notice had been given, disagreeing with the reasoning in ABF as the decision had not considered para. 4(3)(a) which allows the date specified in the notice to be earlier than the date on which the notice is given.
Judge Poon noted that the full decision of ABF had been released in January 2019 after a paper determination by her and had not been appealed. In turn, Heacham had staked its case against the daily penalties to a large extent on ABF. Poon J therefore considered it appropriate to review if there was any error in law in her interpretation of para. 4(1)(c) notice as applied to the facts in ABF. Poon J noted that her reasoning in ABF followed closely the Court of Appeal judgment in Donaldson v R & C Commrs [2016] BTC 28. Poon J concluded that there had been no error of law in the way ABF was determined. The authorities of Donaldson from the tribunals and the Court of Appeal agreed that a purposive construction is to be given to para. 4(1)(c) as observed by the Court of Appeal and the Upper Tribunal, a para. 4(1)(c) notice is intended to function as a pre-emptive notice, and thereby affords some safeguard against a taxpayer incurring a daily penalty without prior warning.
Poon J noted that Heacham was in a slightly different position to ABF, as the penalties related to the late filing of its second ATED return, whereas for ABF the penalties were for the late filing if its first ATED return. Poon J noted that a purposive interpretation of para. 4(1)(c) seemed to give rise to anomalies, such as, if a taxpayer company filed its three ATED returns in one go for the first time, then three sets of daily penalties notionally imposable would not be imposable because HMRC could not have known of the filing obligation to serve a timely para. 4(1)(c) notice for each of the three returns. It would seem that the slower a taxpayer is in filing its ATED returns for the first time, the more sets of daily penalties would have to be vacated due to the logistic impossibility in serving a timely para. 4(1)(c) notice.
On the one hand, these anomalies could have suggested that Poon J was wrong in following a purposive interpretation of para. 4(1)(c), and in relegating the relevance of para. 4(3)(a) to the overriding objective of para. 4(1)(c). However, if para. 4(3)(a) was instead interpreted as giving HMRC an unqualified back-dating power it would mean HMRC could back-date notices by a number of years, where for instance, the taxpayer company filed its first few ATED returns in a row in arrears without the forewarning required by para. 4(1)(c). Weighing between these two ends of anomalies, Poon J thought it right and proper to err on the side of leniency when the matter is concerned with the basis for penalisation.
The FTT accordingly cancelled the daily penalties of £900, noting that it was impossible for HMRC to issue daily penalties where a company files its first ATED return(s) late.
In relation to the initial and six-month penalties, the FTT found that:
- the failure of Heacham's professional adviser to take appropriate action which resulted in the returns being submitted late was not a reasonable excuse;
- HMRC's decision that there were no special circumstances to merit special reduction in the penalties was not flawed in the judicial review sense and therefore the Tribunal could not interfere and re-make the decision; and
- it had no jurisdiction to consider proportionality.
In summary, the daily penalties were cancelled and the fixed initial and six-month penalties confirmed and accordingly the appeal allowed in part.
Interpreting the legislation on daily late filing penalties so that a notice has to be given in advance of such penalties being charged gives rise to anomalies, but so too would interpreting the legislation to give HMRC the power to retrospectively raise such penalties. Given the problems with both interpretations, Judge Poon decided that when it comes to penalties it was right to err on the side of leniency.
[1] Heacham Holidays Ltd (“Heacham”) appealed against the decision of the respondents (“HMRC”) to impose penalties under Schedule 55 to the Finance Act 2009 (“Sch 55”) for the late filing of the Annual Tax on Enveloped Dwellings (“ATED”) return for the year ended 31 March 2019. The sum of penalties under appeal is £1,300.
[2] The appeal raises the legal issue as to whether a notice under para 4(1)(c) of Sch 55 could have been validly issued to discharge the burden for a daily penalty to be imposable, if HMRC could only have issued the notice retrospectively.
[3] The ATED regime was introduced with effect from 1 April 2013 by the enactment of the Finance Act 2013 (“FA 2013”), whereby s 94 provides for the annual ATED tax charge, and s 159, for the filing of an ATED return, with sub-s 159(2) stating that:
A return under subsection (1) must be delivered by the end of the period of 30 days beginning with the first day in the period on which the person is within the charge with respect to the interest.
[4] Schedules 33, 34 and 35 to FA 2013 came into force from 17 July 2013, and extended the penalty provisions under Schedules 55 and 56 to FA 2009 to the ATED regime, as respects the late filing of a return, and the late payment of the ATED tax charge.
[5] The relevant provisions under Sch 55 FA 2009 include the following.
- Paragraph 3 provides for the imposition of a fixed penalty of £100 where a person fails to make or deliver a return as specified under paragraph 1.
- Paragraph 4 sets out the conditions to be met for the imposition of a daily penalty.
- Paragraph 5 provides for the imposition of the 6-month late filing penalty.
- Paragraph 16 provides for a discretionary power whereby HMRC may reduce a penalty, if they think it is right to do so due to special circumstances.
- Paragraph 18 provides for the assessment of a penalty by HMRC, with the time limit for raising such an assessment being provided under para 19.
- Under para 22, the Tribunal may reduce or cancel the penalty in question due to special circumstances, but only if the decision taken by HMRC is flawed when considered in the light of the principles applicable in proceedings for judicial review.
- Paragraph 23 provides for the defence of reasonable excuse, whereby liability to a penalty under any paragraph of Sch 55 does not arise in relation to a failure to make a return if the taxpayer satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure.
[6] The facts in relation to the business of the appellant company are the following.
- Heacham owns four caravan parks, situated in and around the village of Heacham in Norfolk, and is a family-run business.
- The two main business activities engaged by Heacham are: (a) the provision of holiday facilities for caravans pitched in theses parks, and (b) the provision of a suite of services related to the supply of caravans, from sale, to pitching up on site, to cleaning and maintenance services as required.
- The business is run by Mr and Mrs Stephen Plumb, and a small staff for office and maintenance support.
- The shareholder-directors are Mr Plumb and his wife (the fourth generation of the family), and Mr Plumb's parents (the third generation who used to run the business).
- Wheelers Chartered Accountants (Wheelers) have acted for Heacham for over 20 years, and provide a range of professional services to Heacham, from bookkeeping and accountancy services, to advice concerning the company's and the directors' tax affairs.
- In February 2017, Heacham acquired a cottage in the vicinity of the caravan parks with a view of letting out the cottage as a furnished holiday let.
- Wheelers were consulted in relation to the purchase of Old Hall cottage.
[7] As a non-natural person with the ownership of a residential...
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