Morgan and Another

JurisdictionUK Non-devolved
Judgment Date22 May 2013
Neutral Citation[2013] UKFTT 317 (TC)
Date22 May 2013
CourtFirst Tier Tribunal (Tax Chamber)

[2013] UKFTT 317 (TC)

Judge Barbara Mosedale, Richard Thomas

Morgan & Anor

Mr C McIntyre, of Barcant Beardon LLP ACCA, appeared for Mr Morgan

There was no appearance by or on behalf of Mr Donaldson

Mrs G Orimoloye, HMRC officer, appeared for the Respondents at both hearings on 7 January

Mr R Vallat, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents at the hearing on 19 & 20 March 2013

Income tax - daily penalties for late filing - whether statutory requirements for decision to be made by HMRC met - yes - whether statutory requirements for advance notice met - no - whether reasonable excuse - no in either case - whether special circumstances where taxpayer effectively invited to complete paper return - yes - appeals against daily penalties allowed - Mr Donaldson's appeal against late filing and six month late filing penalties dismissed

The First-tier Tribunal decided that the meaning of "HMRC decide" underFinance Act 2009 ("FA 2009"), Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55, para. 4 would encompass a high-level decision taken by their officers and implemented by computer program. Thus, HMRC's high-level decision to impose daily penalties to the taxpayers, with effect from the first possible date they could be imposed, satisfied that provision. However, HMRC failed the requirement for giving an advance notice for daily penalties under FA 2009, Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55 para. 4(1)(c). The notifications issued by HMRC failed to give clear warning to the taxpayers that they would be liable to daily penalties from a specified date. In the context of the whole documents, the warning was in the small print and the actual wording was ambiguous over whether HMRC were telling the taxpayers that daily penalties would be charged or merely could be charged.

The Tribunal also decided that both taxpayers did not have reasonable excuse for their late filing of their respective returns. In respect of the first taxpayer, he proffered nothing as a good reason for failing to make the return by the due date. In respect of second taxpayer, his reasonable excuse of relying on his agent came to an end no later than when he knew that his agent had not filed his return. He gave no explanation of why it took him so long to remedy the failure.

Finally, the Tribunal decided that with respect to the first taxpayer, HMRC's decision not to reduce the penalties was flawed for not considering the special circumstances before the assessment. He would have put himself in a position where no daily penalties would have been incurred at all, were it not for the less than complete information provided by HMRC. On the second taxpayer, there was nothing in the facts of his case which disclosed special circumstances in respect of the daily penalties or the other penalties. Thus, the Tribunal could not reduce the penalty under FA 2009,Finance Act 2009 schedule 55 subsec-or-para 22Sch. 55 para. 22.

Facts

The taxpayers ("Mr M" and "Mr D") appealed against the penalties imposed under FA 2009,Finance Act 2009 schedule 55Sch. 55 for their late filling of their respective tax returns for the tax year 2010-11.

The due date for filing the taxpayers' returns would have been 31 October 2011, if filed on paper, and 31 January 2012, if filed online. The self-assessment ("SA") return, which the taxpayers were required to make, was one of the returns to which FA 2009,Finance Act 2009 schedule 55Sch. 55 applied. Neither taxpayer delivered a return by the two possible filing dates.

Mr M's penalties included 100 under FA 2009,Finance Act 2009 schedule 55 subsec-or-para 3Sch. 55, para. 3 and 870 in daily penalties for late filing under Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55, para. 4. He paid the 100 late filing penalty and appealed against the 870 daily penalties. Mr D's penalties included a 100 penalty for late filing, 900 daily penalties for late filing, and 300 for filing more than six months late. He appealed against all those penalties on the ground that his reliance on his agent was a reasonable excuse for his late filing.

HMRC contended that they made a high level policy decision that all taxpayers more than three months late filing their SA returns should automatically be charged daily penalties. There was also an individual "decision" by a computer, programmed in accordance with that high level policy decision, to identify taxpayers meeting the parameters and to issue a penalty assessment to the two taxpayers. Those decisions satisfied the requirement under FA 2009,Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55, para. 4(1)(b) for them to "decide" that a penalty was payable. Furthermore, the requirement of notice of daily penalties under FA 2009, Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55 para. 4(1)(c) was also met. The notice was contained within two notifications to the taxpayers. The earliest was the "Self-Assessment - Tax return and payment reminder" ("the SA reminder") and the second was notice of their respective liability to the 100 fixed penalty under FA 2009, Finance Act 2009 schedule 55 subsec-or-para 3Sch. 55, para. 3 ("SA326D").

Issues
  1. (2) Whether the statutory requirements under FA 2009,Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55, para. 4 for daily penalties to be imposed by HMRC were met.

  2. (3) Whether SA326D and the SA reminder satisfied the requirement for advance notice under FA 2009,Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55 para. 4(1)(c).

  3. (4) Whether the taxpayers had reasonable excuse for their failure to submit their returns on time.

  4. (5) Whether the there were special circumstances, which HMRC did not consider so that the penalties should be reduced pursuant to FA 2009,Finance Act 2009 schedule 55 subsec-or-para 22Sch. 55 para. 22.

Held, allowing the taxpayers' appeal in part:

On the first issue, the Tribunal held that a high-level decision taken by HMRC that all taxpayers meeting certain parameters should be assessed under FA 2009,Finance Act 2009 schedule 55 subsec-or-para 18Sch. 55, para. 18 or have daily penalties imposed under Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55, para. 4, was a decision by HMRC sufficient for both those paragraphs if it was put into effect, whether by programming a computer to issue the notices or assessments or otherwise. There was no doubtful penalisation here. Parliament clearly intended to levy penalties on persons filing late. Because Parliament did not specifically require the decision to be taken by an individual HMRC officer and should be taken to be aware that they would rely on a computer for making large volumes of assessments, the meaning of "HMRC decide" would encompass a high level decision taken by their officers and implemented by computer programme. Here, such a high-level decision had been taken by HMRC in respect of FA 2009, Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55, para. 4 some time around June 2010. That decision was to impose daily penalties with effect from the first possible date they could be imposed.

On the second issue, the Tribunal held that the sentence in SA326D - "[i]f your tax return is more than three months late we will charge you a penalty of 10 for each day it remains outstanding" - by itself, was not notice within FA 2009,Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55 para. 4(1)(c) as no date was specified. The next sentence - "[d]aily penalties can be charged for a maximum of 90 days, starting from 1 February for paper returns or 1 May for online returns" - by itself, was also not a notice because it used the word "can", rather than "will". It could simply be read as a warning. The two sentences, alone or combined, in the context of SA326D did not amount to "notice" within FA 2009, Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55 para. 4(1)(c) as intended by Parliament. Parliament intended taxpayers to be given clear warning that they would be liable to daily penalties from a specified date. The SA326D failed to do that. In the context of the whole document, the warning was in the small print and the actual wording was ambiguous over whether HMRC were telling the taxpayer that daily penalties would be charged or merely could be charged. For much the same reasons, the SA reminder was not a notice sufficient for FA 2009, Finance Act 2009 schedule 55 subsec-or-para 4Sch. 55 para. 4(1)(c).

On the third issue, the Tribunal held that in the case of Mr M, his default occurred on 31 October 2011, when he failed to make the paper return which he ultimately made on 27 April 2012. He proffered nothing as a good reason for failing to make the return by 31 October 2011. He had a relaxed attitude to filing in view of his demanding job, the knowledge that he would have no tax to pay, and having only had to pay penalties of 100 in previous years. That did not amount to a reasonable excuse. In the case of Mr D, his reliance on his agent could have been a reasonable excuse. However, such a reasonable excuse came to an end no later than when Mr D knew that his agent had not filed his return, which was around mid-February 2012. He did not file his return until 1 May 2012. He gave no explanation of why it took him so long to remedy the failure. Thus, he had no reasonable excuse.

On the fourth issue, a penalty may be reduced by HMRC on the grounds of "special circumstances". Under FA 2009,Finance Act 2009 schedule 55 subsec-or-para 22Sch. 55, para. 22, the penalty may also be reduced, on the appeal to the Tribunal, on the grounds of "special circumstances", but only if HMRC's decision not to do so was flawed in the public law sense.

In Mr M's case, HMRC's decision was flawed because special circumstances were not considered before the assessment. He attempted to resolve his default, but that in direct contact with HMRC, he was given misleading or at least less than complete information on the...

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