Jackson
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 February 2018 |
| Neutral Citation | [2018] UKFTT 0064 (TC) |
| Date | 08 February 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0064 (TC)
Presiding Member Peter R. Sheppard FCIS FCIB CTA AIIT
Capital gains tax – Whether reasonable excuse for late submission of non-resident capital gains tax returns – No – Whether special circumstances – No in respect of the first penalty – Yes, in respect of later penalties – Whether 6 month and 12 month penalties have been levied in accordance with legislation – No – Appeal allowed in respect of 6 month and 12 month penalties – FA 2009, Sch. 55 – FA 2015, s. 37 and Sch. 7 – TMA 1970, s. 8(1) and 12ZB.
The First-tier Tribunal (FTT) partly allowed a taxpayer's appeal against penalties for the late filing of 2 NRCGT returns. The FTT found that: not knowing about the filing requirements was not a reasonable excuse; not being able to learn from mistakes amounted to special circumstances; and HMRC had not applied the 6 month and 12 month penalties correctly.
Mr Jackson (the appellant) left the UK in January 2013 and took up residence in the Isle of Man. In May 2015 and September 2015 he sold 2 properties in Liverpool. He assumed that he would have to declare the sales in his 2015–16 self-assessment tax return, but when he visited his accountant in October 2016 to discuss his tax return he became aware of the change in law regarding non-resident capital gains tax (NRCGT) and immediately completed and submitted a NRCGT return. The return showed that no capital gain had been made on either property and no capital gains tax was due.
HMRC assessed the appellant to late filing penalties in respect of each of the properties of: £100 for failure to deliver a return by the filing date (FA 2009, Sch. 55, para. 3); daily penalties of £900 because the returns were more than 3 months late (para. 4); £300 because the returns were more than 6 month late (para. 5); and a further £300 because the returns were more than 12 months late (para. 6). The daily penalties were subsequently cancelled in accordance with HMRC's policy decision not to charge daily penalties on late NRCGT returns and to cancel any that had already been charged.
The appellant appealed against the other penalties. He accepted that the returns were late, but submitted that: he had missed the changes made in UK law in relation to NRCGT; he had submitted the return immediately he knew about the changes; the penalties were out of proportion; and the penalties took no account of his compliance in previous years.
In respect of the 6 month and 12 month penalties, the FTT found that:
- in accordance with para. 5 and 6 each of the penalties had to be the greater of 5% of any liability to tax which would have been shown in the return and £300;
- therefore each of the 4 penalties was determined by reference to the amount of tax due, in this case nil;
- but because para. 17(3) said:Where P is liable for a penalty under more than one paragraph of this Schedule which is determined by reference to a liability to tax, the aggregate of the amounts of those penalties must not exceed the relevant percentage of the liability to tax.and HMRC accepted that the tax liability for each disposal was nil, 100% of a nil liability to tax is nil and therefore the aggregate of the penalties determined by a liability to tax could not exceed nil.
The FTT therefore concluded that none of the £300 penalties should have been assessed.
The FTT agreed with Judge Barbara Mosedale in Welland [2018] TC 06265, that ignorance of the law could not provide a reasonable excuse for the failures to file.
In respect of special circumstances the FTT decided to follow the judgement of Judge Mosedale in Welland and reduced the second of these penalties to nil because the appellant had been given no opportunity to learn from his non-compliance.
In respect of whether the level of the penalties was disproportionate to the offence, harsh and unfair the FTT pointed out that the level of the fines was laid down in legislation it had no power to amend them unless they were incorrectly imposed or they were inaccurately calculated.
Of the £3,200 late filing penalties initially imposed:
- HMRC cancelled the £1,800 of daily penalties due to their revised policy;
- the FTT cancelled the initial £100 penalty for the second disposal because by the appellant not having the opportunity to correct his behaviour or learn from his mistakes there were special circumstances; and
- the FTT cancelled the 6 month and 12 month penalties because it decided that HMRC had not applied these in accordance with legislation.
This left only £100 payable.
This is the fifth FTT decision regarding NRCGT late filing penalties, and while agreeing with Judge Mosedale's view in Welland, that ignorance of the law could not provide a reasonable excuse, the FTT found that HMRC had misapplied the legislation regarding the 6 month and 12 month penalties.
The FTT also commented that, while in this case there was no mention of the taxpayer obtaining legal advice regarding the property, and while legislation provided that reliance on another could not be regarded as a reasonable excuse: “nevertheless if a legal adviser was involved it is to be expected that his responsibility to his client would include advice on the need to complete a NRCGT return”.
[1] The appellant's Notice of Appeal states that it is an appeal against penalties totalling £1,400 for the late submission of two Non-resident capital gains tax returns. The penalties originally totalled £3,200 and included daily penalties totalling £1,800. HMRC used their discretion to reduce these daily penalties to nil leaving £1,400 outstanding.
[2]
- Finance Act 2009 Schedules 55 and 56.
- Finance Act 2015 section 37 and Schedule 7
- Taxes Management Act 1970, in particular sections 8(1) and 12ZB
Section 8(1) of the Taxes Management Act 1970 provides:
For the purposes 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 during that year,] he may be required by a notice given to him by an officer of the Board–
- To make and deliver to the officer, a return containing such information as may reasonably be required in pursuance of the notice, and
- To deliver with the return such accounts, statements and documents, relating to information contained in the return as may reasonably be so required.
[3] The filing date for an individual tax return is determined by section 8(1D) of the Taxes Management Act 1970.
The Finance Act 2015, s 37Schedule 7 amended the Taxes Management Act 1970 with effect from 6 April 2015 with the insertion of section 12ZB of the Taxes Management Act 1970 which provides:
(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, or
- If the disposal is made by a member of an NRCGT group, the relevant members of the group.
(3) A return under this section is called an “NRCGT return”
(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) Subsection (1) does not apply to a non-resident CGT disposal to which section 188C of the 1992 Act applies (transfers within NRCGT group).
(6) For the purposes of subsection (2)(b) the “relevant members” of the NRCGT group are–
- the companies which are members of that group when the disposal is made, and
- any other companies which are, at any time before the time of the disposal in the tax year to which the return relates, members of that group.
(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.
Schedule 55 of the Finance Act 2009 (“the Schedule”) makes provision for the imposition by HMRC of penalties on taxpayers for the late filing of tax returns.
Paragraph 1(1) to (3) of the Schedule state
1(1) A penalty is payable by a person (“P”) where P fails to make or deliver a return, or to deliver any other document, specified in the table below on or before the filing date.
(2) Paragraphs (2) to (13) set out–
- The circumstances in which a penalty is payable, and
- Subject to paragraphs 14 to 17, the amount of the penalty.
(3) If P's failure falls within more than one paragraph of this Schedule P is liable to a penalty under each of those paragraphs (but this is subject to paragraph 17(3))
The Table referred to in paragraph 1(1) above gives details of the tax and returns to which the penalties relate. The Finance Act 2015, s 37Schedule 7 inserted item 2A to the Table. Item 2A refers to Capital gains tax and NRCGT returns under section 12ZB of the Taxes Management Act 1970
If P fails to file a return included in the table by the “penalty date” (the day after the “filing date” i.e. the date by which a return is required to be made or delivered to HMRC), paragraph 3 of the Schedule provides that the person is liable to a penalty of £100.
Paragraph 4 of the...
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Slocock
...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 the validity of the £300 six-month and 12-month penalty under FA 2009, Sch. 55, para. 5(2)(b), 6(3)(b), 6(4)(b)......
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Jagger
...to look at the issue. The same decision regarding the correct interpretation of the penalties' legislation had been reached in Jackson [2018] TC 06329. DECISION Introduction [1] This considers an appeal against penalties totalling £3,200 imposed by the respondents (HMRC) under Schedule 55 F......
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Smith
...and Welland [2018] TC 06265, the decision of Judge Brannan in Hart [2018] TC 06446 and the decision of Mr Sheppard in Jackson [2018] TC 06329 (“Jackson”). [25] Of course, all of these decisions are decisions of the First-tier Tribunal and are not binding upon me. It is open to me to depart ......
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Rowan-Smith
...and Welland [2018] TC 06265, the decision of Judge Brannan in Hart [2018] TC 06446 and the decision of Mr Sheppard in Jackson [2018] TC 06329 (“Jackson”). [25] Of course, all of these decisions are decisions of the First-tier Tribunal and are not binding upon me. It is open to me to depart ......