Hesketh and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 December 2017 |
| Neutral Citation | [2017] UKFTT 871 (TC) |
| Date | 13 December 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 871 (TC)
Judge Barbara Mosedale
Mr R Maas, of Carter Backer Winter LLP.
Ms D Waldron, HMRC officer, for the respondents
NRCGT returns – Late filing penalties – What HMRC must prove – Whether ignorance of the law is a reasonable excuse – No – Whether special circumstances – No – Appeal dismissed – TMA 1970, s. 12ZB – FA 2009, Sch. 55.
The First-tier Tribunal (FTT) dismissed a taxpayer couple's appeals against penalties for the late filing of NRCGT returns in respect of a jointly owned property. The FTT rejected the taxpayers' submission that HMRC's failure to adequately publicise the NRCGT reporting requirements provided them with a reasonable excuse.
Mr and Mrs Hesketh (the appellants) lived in Singapore. On 9 December 2015 they completed on the sale of a jointly owned property in London. The appellants filed their NRCGT returns on 4 January 2017. The returns showed the date of disposal as the completion date and that the sale resulted in no gain and no loss. In accordance with TMA 1970, s. 12ZB, the filing date for NRCGT returns was 30 days from completion. HMRC assessed each of the appellants to a late filing penalty of £100, a six months' late filing penalty of £300 and £900 of daily penalties. HMRC later removed the daily penalties in accordance with their revised policy.
The FTT noted that it was well established that in an appeal against a penalty, HMRC had the burden of proving that the penalty was properly imposed. In the case of an NRCGT return, the FTT decided that this meant that HMRC had to prove that:
- the taxpayer was liable to make the NRCGT return by a particular date; and
- that the taxpayer failed to make the return by the relevant date.
The FTT accepted that HMRC had proved that the penalty was properly imposed. In particular the FTT found that the only evidence on the date of disposal of the property was in the NRCGT returns themselves and therefore without any challenge to the evidence the tribunal could not reject the evidence. So unlike in McGreevy [2017] TC 06109 (where the FTT did not accept that such evidence proved the date of disposal and that HMRC had not established that there was an NRCGT gain in the tax year), which the FTT in this case thought had made an error of law in its analysis, the FTT found that on the basis of the undisputed evidence the disposal took place in 2015–16.
The FTT rejected the appellants' following grounds of appeal:
- ignorance of the law was a reasonable excuse for failure to file because the obligation to file an NRCGT return was more than merely basic law;
- HMRC did not warn the appellants of the change in the law;
- the appellants had checked their liability on tax when they left the UK years before and it was not reasonable to expect them to know about new obligation to file an NRCGT return;
- it was not the appellants' fault that their advisers did not warn them of the new obligation; their solicitor did not advise them and said it was outside the scope of her instructions; they changed accountants around this time and an email seeking advice was mislaid;
- many other people made the same mistake because they were not aware of the requirement to file an NRCGT return and that indicated that what the appellants did was reasonable;
- two other tribunals (McGreevy [2017] TC 06109 and Saunders [2017] TC 06173) had excused taxpayers liability from these penalties based on ignorance of the law and tribunals should aim for consistency of approach so the appellants here should also have been excused liability;
- the appellants had previously had an exemplary tax compliance record;
- the penalty provisions were unreasonable for NRCGT returns and were not debated in Parliament; HMRC recognised there were potential compliance issues but had not addressed them with this legislation;
- HMRC had recognised that daily penalties were not appropriate and that should be treated as an acknowledgement that none of the penalties were appropriate;
- HMRC had not adopted a light touch on the introduction of these penalties; and
- the penalties were disproportionate as there was no tax liability.
On the issue of whether the appellants' ignorance of the law was a reasonable excuse for failure to file, the FTT:
- disagreed with the judge in the McGreevy case that the principle, that ignorance of law could not be an excuse for failing to comply with it, did not apply in civil penalty cases;
- noted that the High Court decision in Neal v C & E Commrs (1987) 3 BVC 143 suggested that while generally speaking, ignorance of the law would not be a reasonable excuse where a civil tax penalty was concerned, there were cases where complex, or at least uncertain, law was involved, where it could be;
- noted that it was not entirely clear whether the Neal case was binding on the FTT, because of a subsequent Court of Appeal case, but, if such exception existed at all, it had to be a rare exception;
- disagreed with the judge in McGreevy that the law requiring non-residents to make returns within 30 days of sale to be so complex that they could not be expected to understand it; and
- concluded that the normal rule that ignorance of the law was no excuse applied.
The FTT also disagreed with McGreevy that HMRC's failure to more widely publicise a change in law could amount to a reasonable excuse.
As the FTT found HMRC's decision on special circumstances pursuant to FA 2009, Sch. 55, para. 16 to be flawed, the FTT was able to consider a special reduction under para. 22. However the FTT found that there were no special circumstances under which the penalties should have been reduced.
The FTT also found that the penalties imposed did not lack proportionality, either in relation to the penalty legislation as a whole or in respect of the penalties in this particular case.
The FTT accordingly dismissed both appeals.
This decision is in line with the FTT's decision in Welland [2018] TC 06265 (unsurprising given that the same judge provided both decisions). However these decisions contrast with the two previously published cases concerning penalties for late NRCGT returns (McGreevy [2017] TC 06109 and Saunders [2017] TC 06173), in which the FTT found that HMRC's failure to publicise the NRCGT reporting requirements did amount to a reasonable excuse.
[1] The appellant appeals against penalties imposed on him in respect of his failure to file NRCGT returns.
[2] Mr and Mrs Hesketh have been non-resident in the UK for many years: they reside in Singapore.
[3] As I have said, the facts were largely not in dispute, and my below summary is taken from what both parties have said about what happened.
[4] The appellants sold a jointly owned property situated in London. The date of completion was 9 December 2015. The NRCGT return shows the date of disposal as the same date. The return also shows that the sale was at nil gain or loss and that no tax was owed.
[5] They did not file an NRCGT return until 4 January 2017.
[6] On 28 January 2017 HMRC imposed a late filing penalty of £100, a six months' late filing penalty of £300 and £900 of daily penalties. They later removed the daily penalties so the issue in this appeal is the £400 in penalties imposed on each of the two taxpayers (in other words, a total of £800 is at stake in this appeal).
[7] A guidance note on NRCGT including the obligation to file a return within 30 days of completion, was on HMRC's website from 6 April 2015. There was some dispute between the parties as to how easy/difficult it was to find on the website the dispute was not material as there was no suggestion that Mr and Mrs Hesketh had actually consulted HMRC's website.
[8] It is also HMRC's case that HMRC operated a “light touch” in that they did not impose any late filing penalties on NRCGT returns filed on or before 7 May 2016. The appellants do not appear to take any issue with this; in any event, both parties are effectively agreed that Mr and Mrs Hesketh did not benefit from any light touch (their returns were not filed until 2017.)
[9] In Finance Act 2015, and with effect in relation to disposals made on or after 6 April 2015, Parliament introduced new sections into the Taxes Management Act 1970 (“TMA”) to make non-residents liable to make new returns, referred to as “NRCGT returns”, as follows:
(1) Where a non-resident CGT disposal is made, the appropriate person must make and deliver to an officer of Revenue and Customs, on or before the filing date, a return in respect of the disposal.
(2) In subsection (1) the “appropriate person” means–
- the taxable person in relation to the disposal …
(3) …
(4) An NRCGT return must–
- contain the information prescribed by HMRC, and
- include a declaration by the person making it that the return is to the best of the person's knowledge correct and complete.
(5) …
(6) …
(7) An NRCGT return “relates to” the tax year in which any gains on the non-resident CGT disposal would accrue.
(8) The “filing date” for an NRCGT return is the 30th day following the day of the completion of the disposal to which the return relates. But see also section 12ZJ(5).
[10] The “NRCGT” stands for non-resident capital gains tax. As is apparent from the first subsection of s 12ZB, the new NRCGT return only has to be filed where “a non-resident CGT disposal” is made.
[11] A non-resident CGT disposal is defined in s 14B and s 12Z of TMA (see interpretations in s 12ZA TMA). S 14B provides that a non-resident disposal occurs (amongst other things) when a person who is not resident in the UK for the tax year of disposal, disposes of a residential property interest in the UK.
[12] That phrase in turn is defined in Sch B1 of TCGA and in general refers to land on which a dwelling stands; “dwelling” in turn has a rather long definition which, in brief summary, excludes institutional residential properties (eg boarding schools).
[13] The residence status of a person is dealt with in s...
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Slocock
...v R & C Commrs [2018] BTC 513, which does appear to have put paid to the contrary line as to ignorance of the law taken in Hesketh [2018] TC 06266, Welland [2018] TC 06265 and Hart [2018] TC 06446. The Tribunal judge made no reference to Jackson [2018] TC 06329, which appears to eliminate t......
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Belloul
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Jagger
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Smith
...other hand, there are at least four cases where the opposite conclusion has been reached – the decisions of Judge Mosedale in Hesketh [2018] TC 06266 (“Hesketh”) and Welland [2018] TC 06265, the decision of Judge Brannan in Hart [2018] TC 06446 and the decision of Mr Sheppard in Jackson [20......
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June - Private Client Briefing From Tax Journal 2018
...the disposal as the sold property was eligible for relief. However, as has been established in a line of recent cases (Hesketh v HMRC [2017] UKFTT 871 (TC) and Welland v HMRC [2017] UKFTT 870 (TC)), and in contrast to the conclusion in McGreevy v HMRC [2017] UKFTT 0690 (TC), a nil return is......