Margott (as representative member of MDL Property Consultants LLP
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 December 2017 |
| Neutral Citation | [2017] UKFTT 0894 (TC) |
| Date | 19 December 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 0894 (TC)
Judge Richard Thomas
Income tax – Penalty for failure to file partnership return – FA 2009, Sch. 55 – Whether partnership return applicable to LLP (limited liability partnership) TMA 1970, s. 12AA as modified by ITTOIA 2005, s. 863 – Whether TMA 1970 part of Tax Acts – Whether notice served correctly – Whether reasonable excuse for failure – Appeal allowed.
The First-tier Tribunal (FTT) allowed an appeal against late filing penalties in respect of the alleged late filing of an LLP return. Because the FTT was obliged to follow a Court of Session decision it found that the legislation allowing HMRC to issue a notice requiring a partnership tax return did not apply to LLPs.
Mr Martin Margott (the appellant) and his son (Daniel Margott) were the members of MDL Property Consultants LLP (MDL), with the appellant being the representative or nominated member. HMRC issued a notice under TMA 1970, s. 12AA requiring the appellant to file a partnership tax return for 2011–12. The return was submitted almost 8 months late and HMRC issued the appellant and Daniel Margott with late filing penalties. Each of the members was assessed to an initial late filing penalty of £100 under FA 2009, Sch. 55, para. 3, daily late filing penalties of £900 under para. 4 and a 6 month late filing penalty of £300 under para. 5.
The appellant appealed against all of the penalties imposed on both LLP members. The grounds of appeal were that the members had a reasonable excuse for the late submission of the return because the delay resulted from a dispute between MDL and its agent. And in any event the appellant submitted that Daniel Margott's appeal should be allowed because he was not responsible for the preparation of the return.
The FTT found that even though it was sitting in England, the LLP was registered in England and the appellant was resident in England, because it was bound by the Upper Tribunal decision of R & C Commrs v National Exhibition Centre Ltd [2015] BVC 506, it in turn had a duty to follow the decision of the Outer House of the Court of Session in R (on the application of Spring Salmon and Seafood Ltd) v IR Commrs [2004] BTC 8,108 (SSS). On this basis the phrase “Income Tax Acts” did not include TMA 1970 and therefore ITTOIA 2005, s. 863(2) did not apply to modify TMA 1970. This meant that, because the LLP was not a partnership and the appellant and Daniel Margott were not partners, the purported notice to file a return given to them was not a valid notice to require the nominated member of the LLP to make and deliver a return under TMA 1970, s. 12AA. It could not then be said that there was a failure to make a return under s. 12AA by the due date as there was no due date. The notice was not given for the purpose set out in s. 12AA(2) as that purpose could not be fulfilled by the appellant. Accordingly the penalties had to be cancelled.
Because the FTT doubted the correctness of the SSS decision and because it was possible that it was mistaken in its view of what SSS decided, Judge Richard Thomas set out his own views on whether “Income Tax Acts” included TMA 1970. He concluded that if it were not for SSS he would have held that notwithstanding the definition of the “Taxes Acts” in TMA 1970, s. 118(1), the “Income Tax Acts” included TMA 1970.
In case the FTT was wrong, and TMA 1970, s. 12AA could have required a return from an LLP, it went on to find that:
- a valid notice to file would have been served on the LLP;
- the appellant and Daniel Margott would have had a reasonable excuse for the failure to file on time because of their reliance on accountants;
- even if the appellant had not had a reasonable excuse, Daniel Margott would have had one because of his reliance on his father, which was reasonable given that he was a sleeping partner and a student with no managerial commitment or voting rights;
- had it not found that there was a reasonable excuse it would have found HMRC's decision that there were no special circumstances flawed as it was not reasoned; and
- it would have cancelled the daily penalties because HMRC had not provided evidence to show that they had notified the appellant of the date from which the penalties were payable (as required by FA 2009, Sch. 55, para. 4(1)(c)).
In conclusion the FTT cancelled all the penalties under FA 2009, Sch. 55, para. 22(1).
On first sight this could be an important decision for other LLPs and their members, but the judge was keen to point out that he did not see this decision as opening any floodgates, noting that:
- It had no effect on the tax law generally as applying to LLPs.
- The lack of a sanction for failure to file the return of an LLP's profits did not mean that HMRC could not obtain the information to check that an LLPs profits had been fully taxed.
- HMRC could obtain, with the sanction of penalties, personal returns from each LLP member under TMA 1970, s. 8 to enable them to check the LLP's profits had been fully taxed.
[1] This was an appeal by Mr Martin Margott (“the appellant”) acting as the representative or nominated member of MDL Property Consultants LLP (“MDL”), a limited liability partnership.
[2] The appeal is against penalties assessed under Schedule 55 Finance Act (“FA”) 2009 (“Schedule 55”) on both the appellant and his son, Mr Daniel Margott who was also a member of MDL in the tax year concerned.
[3] My findings of fact are set out in the following paragraphs of this section of the decision. They are taken from the bundle of papers I was given and are not in dispute.
[4] HMRC issued a notice under section 12AA Taxes Management Act 1970 (“TMA”) requiring the appellant to file a partnership tax return for the tax year 2011–12 on 6 April 2012. The “partnership” concerned is MDL Property Consultants LLP (“MDL”), a limited liability partnership. That notice required the appellant to deliver the return by 31 October 2012 if filed in paper form or by 31 January 2013 if filed electronically (“the due date”).
[5] On 12 February 2013 HMRC issued two notices, one to each of the members of LLP (the appellant and Daniel Margott) informing them that a penalty of £100 had been assessed on each of them for the failure by the appellant to file the return by the due date.
[6] On 14 August 2013 HMRC issued two notices, one to each of the members of LLP informing them that a penalty of £900 had been assessed on each of them for the failure by the appellant to file the return by a date three months after the due date and that a penalty of £300 had been assessed on each of them for the failure by the appellant to file the return by a date six months after the due date.
[7] The return was filed in paper form on 27 June 2013.
[8] On 29 August 2013 the appellant appealed to HMRC against all the penalties imposed on both members of the LLP.
[9] On 12 September 2013 HMRC, in a letter headed “appeal against partnership daily penalties”, informed the appellant that once the outcome of the appeal by HMRC to the Upper Tribunal in the case of R & C Commrs v Donaldson [2014] BTC 531 was decided, they would write to give a decision on the appeal.
[10] On 27 April 2017 (more than two years after the Upper Tribunal decision was released) it appears that HMRC gave their decision (it is not in the papers) because on 15 May 2017 the appellant asked for a review on Form SA 634.
[11] On 19 July 2017 HMRC wrote to the appellant with the conclusion of the review. This conclusion was that the penalties were upheld
[12] On 4 August 2017 the appellant notified appeals to the Tribunal.
[13] Section 12AA TMA provides:
(1) Where a trade, profession or business is carried on by two or more persons in partnership, for the purpose of facilitating the establishment of the following amounts, namely–
- the amount in which each partner chargeable to income tax for any year of assessment is so chargeable and the amount payable by way of income tax by each such partner, ……
an officer of [HMRC1] may act under subsection (2) or (3) below …
…
(2) An officer of [HMRC] may by a notice given to the partners require such person as is identified in accordance with rules given with the notice …–
- to make and deliver to the officer in respect of such period as may be specified in the notice, on or before such day as may be so specified, 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) An officer of [HMRC] may by notice given to any partner require the partner …–
- to make and deliver to the officer in respect of such period as may be specified in the notice, on or before such day as may be so specified, a return containing such information as may reasonably be required in pursuance of the notice, and
- to deliver with the return such accounts and statements as may reasonably be so required;
and a notice may be given to any one partner or separate notices may be given to each partner or to such partners as the officer thinks fit.
…
(4) In the case of a partnership which includes one or more individuals, a notice under subsection (2) or (3) above may specify different days depending on whether a return in respect of a year of assessment (Year 1) is electronic or non-electronic.
(4A) The day specified for a non-electronic return must not be earlier than 31st October of Year 2.
(4B) The day specified for an electronic return must not be earlier than 31st January of Year 2.
…
(5D) For the purposes of this section “relevant period” means the period in respect of which the return is required.
…
(6) Every return under this section shall include–
- a declaration of the name, residence and tax reference of each of the persons who have been partners–for the whole of the relevant period, orfor any...
To continue reading
Request your trial
-
Inverclyde Property Renovation LLP and Another
...Acts. The FTT consequently agreed with the judgment of Judge Thomas in Margott (as representative member of MDL Property Consultants LLP [2018] TC 06278 that TMA 1970 was not part of the Income Tax Acts and that an LLP was not a partnership, that the appellants were not partners, and that t......
-
R & C Commissioners v Inverclyde Property Renovation LLP and Another
...R & C Commrs [2012] BTC 1,614, and the other a decision of the FTT in Margott (as representative member of MDL Property Consultants LLP [2018] TC 06278, that the expression “the Tax Acts” did not include TMA, and accordingly held that the words “For all purposes, … in the Income Tax Acts” i......