Morris
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 October 2017 |
| Neutral Citation | [2017] UKFTT 749 (TC) |
| Date | 11 October 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 0749 (TC)
Judge Richard Chapman, Mrs Shameen Akhtar
The appellant appeared in person.
Mr A O'Grady, Presenting Officer, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents.
Income tax – Penalties for failure to make returns – Taxpayer reasonably understood return had been submitted online – Whether reasonable excuse – Whether special circumstances.
The First-tier Tribunal cancelled penalties for failure to submit self-assessment returns on time, where the taxpayer reasonably believed the returns had been successfully filed online.
In the course of tax years 2012/13, 2013/14 and 2014/15, the taxpayer (“M”) carried on business as a part-time guitar teacher. M filed his 2012/13 tax return online, in connection with which the HMRC website generated a receipt and a long reference number.
On filing his 2013/14 return in January 2015, neither a receipt nor a reference number were generated. Instead, M said, he received an onscreen message saying either “Thank you for your submission” or “Submission complete”. M took this as unqualified confirmation of submission, he did not print the page or receive any email or other confirmation. M recognised that this was a different process to the previous year, but said he did not question this because he assumed HMRC had changed or updated the system.
M's evidence was that his 2014/15 return was filed online on or shortly after 1 January 2016, with the same response as for his 2013/14 return. Again, he did not print this out, nor did he receive any other confirmation or reference from HMRC.
HMRC charged the taxpayer penalties in connection with failure to submit a self-assessment return for each of the tax years 2013/14 and 2014/15. The penalties charged included the £100 late filing penalty, “daily penalties”, a £300 six months late filing penalty and £300 twelve months late filing penalty. These penalties charged under, respectively, paragraphs 3, 4, 5 and 6 of FA 2009, Sch. 55.
M appealed on the grounds, in summary, that the returns in question were both filed online in good time, and that he reasonably thought this had been successful.
The judge said that no expert evidence had been adduced as to whether what M said happened was incapable of happening; at its high point, HMRC's case was that an unqualified confirmation message such as that described by M was highly unusual.
That was not to change the burden of proof, it remained M's task to establish his reasonable excuse on the balance of probabilities.
Penalties and reminders in respect of the tax returns for the two years had been sent to M on a number of dates, but M had not received these because he had moved address. Further, M's evidence was that having filed his returns online (successfully, he believed), he was not surprised to have heard nothing more because he did not expect to pay anything nor receive any repayment. What prompted M to discover the true position was receipt of a letter from collection agents at the start of January 2017 (seeking payment of NICs), following which he immediately checked his online statement and then successfully filed returns for the two years, online.
In the Tribunal's view, M had a reasonable excuse for late filing of the two returns. This was because:
- Treating the unqualified confirmation that was seen by M on his screen as confirmation of successful filing was a reasonable thing to do for a responsible trader conscious of and intending to comply with his obligations regarding tax, having the experience and attributes of M, and placed in the situation in which M was in;
- The fact that M received a receipt and long reference number for 2012/13 but did not do so for 2013/14 or 2014/15 did not stand in the way of there being a reasonable excuse in his case; it was reasonable for M to conclude, and a reasonable taxpayer would have concluded, that the method of providing confirmation had changed;
- Since M was unaware of the possibility he had incurred any penalties, it was reasonable for him not to check his online account with HMRC. M's reasonable excuse continued until the date he received the letter from the collection agents, which was the date on which he filed the returns successfully.
Having found for M on “reasonable excuse”, it was not strictly necessary to consider the question of “special circumstances” (as an alternative ground for reducing the penalties). However, in the Tribunal's view there were such special circumstances which would reduce the penalties to nil. In particular, the provision of unqualified confirmation messages (which the Tribunal found had been given to M) in circumstances in which the returns had not been successfully filed, was something out of the ordinary or uncommon.
M's appeal was to be allowed, and all penalties cancelled.
One of those cases where IT failures arising in connection with the HMRC website did, on the particular facts, excuse the taxpayer.
[1] Mr Morris is appealing against penalties that HMRC have imposed under Schedule 55 of the Finance Act 2009 (“Schedule 55”) for a failure to submit an annual self-assessment return on time for the year 2013/14 and the year 2014/15.
[2] The penalties that have been charged in respect of the year 2013/14 can be summarised as follows:
- A £100 late filing penalty under paragraph 3 of Schedule 55 imposed on 18 February 2015.
- Daily penalties under paragraph 4 of Schedule 55 imposed on 14 August 2015 in the sum of £900.
- A £300 six month late filing penalty under paragraph 5 of Schedule 55 imposed on 14 August 2015.
- A £300 twelve month late filing penalty under paragraph 6 of Schedule 55 imposed on 23 February 2016.
[3] The penalties that have been charged in respect of the year 2014/15 can be summarised as follows:
- A £100 late filing penalty under paragraph 3 of Schedule 55 imposed on 17 February 2016.
- Daily penalties under paragraph 4 of Schedule 55 imposed on 12 August 2016 in the sum of £900.
- A £300 six month late filing penalty under paragraph 5 of Schedule 55 imposed on 12 August 2016.
[4] Mr Morris' grounds for appealing against the penalties are in summary that he filed both returns online in good time and that (on his case) he reasonably thought that this had been successful. He does not label these grounds either as reasonable excuse or as special circumstances. However, given that HMRC have treated them as both, we also do so.
[5] There was no dispute that the amounts of the penalties were properly calculated and no dispute that the pre-requisites for being entitled to charge penalties had been fulfilled (subject to the questions of reasonable excuse and special circumstances). For the avoidance of doubt, it appeared from the grounds of appeal that Mr Morris might be seeking to argue that the penalties were disproportionate. In fact, Mr Morris did not pursue this argument in the hearing. For completeness, we note that even if this argument had been pursued, we would have dismissed it. The Tribunal's powers on an appeal are set out in paragraph 22 of Schedule 55 and do not include any general power to reduce a penalty on the grounds that it is disproportionate. Moreover, Parliament has, in paragraph 22(3) of Schedule 55, specifically limited the Tribunal's powers to reduce penalties because of the presence of “special circumstances”. Therefore, for the reasons set out in Revenue & Customs Commissioners v Bosher [2013] BTC 2,126, we would not have considered that we have a separate power to consider the proportionality or otherwise of the penalties.
[6] Mr Morris' appeal to HMRC under s31A of the Taxes Management Act 1970 (the “TMA 1970”) was out of time. However, HMRC have helpfully consented to the appeal being made late pursuant to section 49(2)(a) of the TMA 1970. The appeal to this Tribunal has been made in time.
[7] We heard oral evidence from Mr Morris. We make the point at this stage that we found Mr Morris to be a credible, honest and straightforward witness. HMRC did not present any witness evidence. We also considered a bundle of documents prepared by HMRC but relied upon by both parties.
[8] We make the following findings of fact. In doing so, we bear in mind that the burden of proof in establishing that the penalties were correctly charged is upon HMRC (although in fact this is academic given that this is not in dispute) and the burden of proof in establishing a reasonable excuse or special circumstances is upon Mr Morris. The standard of proof in both respects is the balance of probabilities.
[9] In the course of the tax years 2012/13, 2013/14 and 2014/15, Mr Morris carried on business as a part time private guitar teacher. His earnings were very modest as he was at the early stages of pursuing a career in music and was being financially supported by his girlfriend.
[10] Mr Morris completed his 2012/13 tax return online on or very soon after 1 January 2013. He said that he did this in early January to allow him a month to resolve any problems if they arose. On completing his online filing of the 2012/13 return, the website...
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