McGreevy
| Jurisdiction | UK Non-devolved |
| Judgment Date | 12 September 2017 |
| Neutral Citation | [2017] UKFTT 690 (TC) |
| Date | 12 September 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 0690 (TC)
Judge Richard Thomas
Capital gains tax – Non-resident CGT return – Penalties of £1,600 for failure to file return within 30 days of completion of house sale – Whether disposal in 2015–16 – Not proved, so penalties not due – Alternatively, whether assessment met requirements of FA 2009, Sch. 55, para. 18 – No, but TMA 1970, s. 118 applies – Whether Sch. 55, para. 4 penalties properly imposed – No, Donaldson v R & C Commrs [2016] BTC 28 applies and no para. 4(1)(b) HMRC decision – Whether reasonable excuse – Yes – Whether special circumstances decision by HMRC flawed – Yes – Decision that there were special circumstances substituted – Penalties cancelled.
The First-tier Tribunal (FTT) cancelled penalties for failure to file an NRCGT return because HMRC had not established that there was an NRCGT gain in the tax year, and even if there were, the appellant had a reasonable excuse and special circumstances applied.
Ms McGreevy (the appellant) was resident in Australia. On 7 August 2016, she filed an NRCGT return in respect of a gain on disposal of a property in Kent which was exempted from CGT by private residence relief (PRR). The date of the conveyance was 7 July 2015. On 6 September 2016, HMRC assessed the appellant to penalties of £100 for failure to deliver a return by the filing date (6 August 2015), daily penalties of £900 (return three months late), £300 (return six months late) and £300 (return 12 months late). The daily penalty was subsequently cancelled. The appellant appealed, stating that she had not realised that an NRCGT return was due until she completed her 2015 self-assessment (SA) return in August 2016 and that she then completed the NRCGT return without delay. The appeal was rejected on the grounds that the appellant had no reasonable excuse because it was the appellant's responsibility to ensure that an NRCGT return was submitted on time and all the relevant information had been clearly publicised on the gov.uk website.
The FTT considered the following matters:
Penalties were assessed as required in para. 18(1)(a) and the person liable notified (para. 18(1)(b). However, para. 18(1)(c) (the penalty notice must state the period in respect of which the penalty is assessed) was not satisfied, because the assessment period is the tax year in respect of which the return is to be made, being the tax year in respect of which the NRCGT gain would accrue (TMA 1970, s. 12ZB(7)). HMRC had incorrectly stated that the assessment period was 6 August 2015 to 7 August 2016 and moreover, the FTT was not satisfied that HMRC had established the contract date, which determines for CGT purposes the date the gain accrues and hence the tax year in which it accrues. If before 6 April 2015, there would be no NRCGT gain. (The FTT considered that the appellant's entry on the NRCGT return in relation to “date of disposal”, where she had entered the date of completion, was likely to be an error). As the burden is on HMRC to show that a penalty has been properly imposed, the appeal should succeed. However, in case this was wrong, the FTT proceeded to consider whether the assessment was otherwise valid and concluded that it was, before moving on to consider reasonable excuse.
From the relevant case law relating to reasonable excuse the FTT concluded that the matter should be approached by asking whether the taxpayer had acted in the way that a responsible person with the same experience and attributes placed in the same position would have acted. The appellant had argued that she did not become aware of the NRCGT obligations until reading the notes to the 2015 SA return which was not required to be completed until long after the deadline for the NRCGT return. HMRC argued that she had an obligation to keep up to date with tax legislation that affected her and that the NRCGT rules had been announced at Autumn statement 2014 (in fact the announcement had been at Autumn statement 2013, with a consultation taking place during 2014) and information published on their website in April 2015. The FTT's view was that the appellant could not have been expected to have an understanding of the arcane provisions in TMA 1970 relating to NRCGT returns, nor to have been following the development of the legislation from first announcement to enactment, including finding and reading all the information provided on HMRC's website. The FTT also disagreed with HMRC's contention that the maxim that ignorance of the law is not a reasonable excuse could be applied, on the basis that the principle was confined to criminal statutes, where the prosecution was only required to prove that a defendant had broken the law, not that he had knowingly done so. The Tribunal therefore concluded that the appellant had a reasonable excuse, but again, in case this was wrong, proceeded to consider whether there were “special circumstances”.
The FTT also considered the possible application of para. 16 (reduction of penalty because of special circumstances). HMRC's guidance at () interprets “special circumstances” as “uncommon or exceptional circumstances” and also states that reductions will not be made that are contrary to the clear compliance intention of the law. The tribunal concluded that a situation where a person makes an exempt gain and intends to report it in an on time tax return but is nevertheless charged a penalty of £1,600 was sufficiently uncommon and that this did not produce a result contrary to the compliance intention of the law as it could not have been the policymakers' intention that an individual within SA with a nil gain who would be liable to penalties if he failed to file a SA return would also be liable to further penalties for not telling HMRC earlier about the same nil gain. The tribunal concluded that special circumstances existed and the penalties should be reduced to nil.
The tribunal judge was unusually frank in his criticisms of the handling of this case both in relation to imposition of the penalties (“there is a serious deficiency exhibited here in common sense, proportion and an ability to consider the position of what HMRC calls its customers”) and for inaccuracies in the Statement of Case (the appeal was determined under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 26 – default paper cases). However, he also highlighted more general inconsistencies in the law, for example in relation to daily penalties (withdrawn by HMRC in this case) where the requirement for HMRC to give notice of the date from which penalties are payable cannot be given before the penalty is imposed in NRCGT cases (see also HMRC's recent announcement that daily penalties will no longer be imposed, available at https://www.tax.org.uk/policy-technical/technical-news/penalties-late-submission-non-resident-capital-gains-tax-nrcgt). He also questioned the need for a person already within the SA regime to be required to make an earlier return of NRCGT gains (and the anomaly that gains wholly covered by PRR must be returned even though not required in the normal SA return) querying whether the lack of a Committee stage debate in FB 2015 because of the election, and the fact no draft clauses were published in advance of the Bill had contributed to the inconsistencies.
[1] The penalties under appeal are for the tax year 2015–16 (though the HMRC Statement of Case (“SoC”) describes that tax year as the “period ending 2015–16”) and are said to consist of:
- £100 for failure to file by the due date
- £300 for failure to file by 6 months after the due date
- £300 for failure to file by 12 months after the due date
[2] Astute readers will note that no daily penalties are included. The reason for this will become apparent.
[3] I take the facts from the SoC filed by HMRC and from the documents attached to that Statement.
[4] On 7 August 2016 the appellant submitted an NRCGT return in electronic form1. The printout of the return entries shows:
- the appellant's address as 203/47–51 Lilyfield Rd, Rozelle, NSW, Australia 2039,
- the gain related to the disposal of a property at 91 Lullingstone Crescent, Orpington, Kent, BR5 3DY,
- the date of conveyance was 7 July 2015,
- no election was made for an alternative method of computation,
- any gain was exempt because of private residence relief (PRR), and the property was said to have been the private residence of the appellant up to 1 February 2011, and
- the amount of CGT due was nil.
[5] On 6 September 2016 HMRC (NRCGT) wrote to the appellant. The letter was headed “Non-resident Capital Gains Tax (NRCGT)” in large bold type. The next two lines also in bold type were “Late filing penalties” and “These Penalties total £1600”, the second being in larger type than the first.
[6] After salutations and the address of the property, the letter continued:
I have received a NRCGT return from you relating to the disposal of the above property on 7/7/15.
This property was subject to NRCGT and, you were required to file an NRCGT return within 30 days of the sale being finalised which was 6/8/15.
We did not receive this return until 7/8/16
This is a notice of assessment for a late filing penalty under Schedule 55 of the Finance Act 2009.
[7] The second page contained the actual notice of the assessment which charged £1,600, broken down as set out at paragraph 1, but also including a daily penalty of £900.
[8] Appeal rights were then described, that an appeal must be made in writing within 30 days. The letter contained no name of an officer.
[9] On 21 October 2016 the appellant wrote to HMRC's Leics. and Northants Area office appealing against the penalty assessment.
[10] She said:
With reference to the late filing, I understood that the CGT would be payable as part of the Self-Assessment, which I submit annually as a non-resident...
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Slocock
...As to reasonable excuse, the decision with respect to ignorance of the law is in line with the Tribunal judge's own decision in McGreevy [2017] TC 06109 and the decision in Saunders [2017] TC 06173, but more importantly, has the imprimatur of the UT in Perrin v R & C Commrs [2018] BTC 513, ......
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