Jocuguma Properties Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 January 2021 |
| Neutral Citation | [2021] UKFTT 20 (TC) |
| Date | 27 January 2021 |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 20 (TC)
Judge Jane Bailey
Annual Tax on Enveloped Dwellings (ATED) – Late filing of return – Daily late-filing and six-month delay penalties imposed – FA 2009, Sch. 55, para. 4, 5 – Whether conditions for valid imposition of penalties met – Yes, in respect of FA 2009, Sch. 55, para. 5 – No, in respect of FA 2009, Sch. 55, para. 4 – Whether appellant had reasonable excuse – No – Appeal allowed in part.
In relation to an ATED return, the First-Tier Tribunal allowed the appeal against the daily late-filing penalty for more than three months' delay on the grounds that the notice required was given after the penalty period had expired, while dismissing the appeal against the six-months' penalty.
The appellant company was due to file its first ATED return no later than 30 April 2018. However, it was initially unaware of its obligation to do so and eventually filed the return on 28 March 2019, nearly 11 months late. No tax was due in relation to the return. HMRC imposed the fixed late-filing penalty of £100 under FA 2009, Sch. 55, para. 3; the daily penalty for more than three months' delay in respect of the period from 1 August 2018 to 29 October 2018 under FA 2009, Sch. 55, para. 4; and the £300 penalty under FA 2009, Sch. 55, para. 5(2)(b) for more than six months' delay. HMRC's notice imposing the fixed £100 penalty was issued on 9 December 2019 and that imposing the further penalties on 18 February 2020.
The appellant appealed against the daily three-months' penalty on the grounds that it was invalidly imposed and against both the three-months' and six-months' penalties on various grounds of fairness and disproportionateness.
One of the three requirements for the valid imposition of the daily penalty is that HMRC give notice to the person in default specifying the date from which the penalty is payable (FA 2009, Sch. 55, para. 4(1)(c)).
In Heacham Holidays Ltd [2020] TC 07883, and previously in Advantage Business Finance Ltd [2019] TC 06926, the First-Tier Tribunal (“FTT”), in the person of Judge Heidi Poon, allowed appeals against the daily penalty where HMRC's notice imposing it was given after the expiry of the penalty period, because in the FTT's view, based on the reasoning in R & C Commrs v Donaldson [2016] BTC 28, such a notice had to be given in advance of the penalty period. HMRC had argued in Heacham that retrospective notices under para. 4(1)(c) were nevertheless valid since FA 2009, Sch. 55, para. 4(3)(a) provides that “the date specified in the notice under sub-paragraph (1)(c): (a) may be earlier than the date on which the notice is given …”. The FTT found that para. 4(3)(a) is specific to reminder notices sent by HMRC during the currency of the penalty period and does not override the primary purpose of the penalty notice under para. 4(1)(c), which is to give the taxpayer advance notice that the penalty will be imposed if the failure continues.
In this case, the Tribunal judge was satisfied that Heacham was correctly decided and thus upheld the appeal against the daily penalty.
Since the issue of the judge's summary decision, her attention had been drawn to the decision of the FTT (Judge Michael Connell) in D & G Thames Ditton Ltd [2021] TC 07961 which came to the same conclusion in another case of a late ATED return.
The penalty under FA 2009, Sch. 55, para. 5, however, requires no notice such as that required by FA 2009, Sch. 55, para. 4 and could be discharged only if the appellant had a reasonable excuse or HMRC had acted improperly in deciding whether there were special circumstances under FA 2009, Sch. 55, para. 16 justifying a reduction in a late-filing penalty.
The appellant's arguments in this respect were: (a) the penalties were disproportionate; (b) the maximum penalties should be reserved for those acting deliberately, whereas it had acted in good faith throughout; (c) it did not gain from the late filing' (d) the fixed penalty was paid promptly; and (e) HMRC did not need to chase the appellant for the return.
The FTT dismissed these arguments. Edwards v R & C Commrs [2019] BTC 16 had held that late-filing penalties were not disproportionate, irrespective of whether there was tax payable. In R & C Commrs v Hok [2012] BTC 1711, the Upper Tribunal had made it clear that the FTT has neither a common-law jurisdiction nor a judicial-review jurisdiction to discharge penalties considered to be unfair. As for the other arguments, put briefly, whereas there was no doubt as to the appellant's good faith, none of them amounted to a reasonable excuse.
Furthermore, there had been no flaws in the way that HMRC had approached the question of special circumstances.
The appeal was therefore upheld in respect of the daily penalty but dismissed in respect of the six-months' penalty.
Late-filing penalties for ATED returns fall under the harmonised penalty regime of FA 2009, Sch. 55 and this decision is hence of wider application beyond ATED. As this author has remarked in British Tax Reporter, , with due respect to Judge Poon (and now to Judge Connell), I believe their decisions are wrong, and hence this decision is also wrong. It cannot possibly have been the intention of Parliament to make it impossible for HMRC to issue a valid daily-penalty notice if it is unaware that a return is due until it is made and that return is sufficiently late as to make an advance notice under FA 2009, Sch. 55, para. 4 impossible. Hence, in my view, the clear words of FA 2009, Sch. 55, para. 4(3)(a) to the contrary.
A decision on similar facts from the Upper Tribunal or higher instance would be most welcome. In the interim, taxpayers may rely on these FTT decisions but be aware that HMRC, too, believes the decisions were wrong and will therefore take an opposing view (see, with respect to ATED, Stamp Taxes Newsletter, January 2021).
[1] This is an appeal against the imposition of penalties in the total amount of £1,200, for the delay in filing an Annual Tax on Enveloped Dwellings (“ATED”) return for the year ending 31 March 2019. These penalties were imposed under paragraphs 4 and 5 of Schedule 55 to the Finance Act 2009.
[2] The review decision against which the Appellant appeals is dated 10 June 2020. Therefore, the deadline for making an appeal to the Tribunal was 10 July 2020. The Appellant's appeal was received on 28 July 2020, and so was 18 days late. That delay is neither serious nor significant.
[3] The Appellant has explained that its delay in filing an appeal with the Tribunal was due to an office closure occasioned by the Covid-19 pandemic. HMRC do not object to this late appeal being admitted for consideration by the Tribunal out of time. Applying the principles set out by the Upper Tribunal in Martland v R & C Commrs [2018] BTC 525, I conclude that these circumstances are exceptional and that this appeal should be admitted.
[4] The parties appear to be agreed about the underlying facts. On the basis of the documents before me I find:
- The Appellant was liable to file an ATED return for the year ending 31 March 2019. This was the first ATED return due to be filed by the Appellant. The deadline to file this return was 30 April 2018.
- The Appellant was unaware of its obligation to file an ATED return, and did not file a return by the 30 April 2018 deadline. No...
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Priory London Ltd
...07883 (“Heacham Holidays”), D & G Thames Ditton Ltd [2021] TC 07961, Bennedy's Developments Ltd [2021] TC 08008, Jocuguma Properties Ltd [2021] TC 08007 are not binding, and, on HMRC's case, are incorrect. [23] In any event, Miss McLaughlin submitted, these decisions are inconsistent with t......
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