Peter Marano v The Commissioners for HM Revenue & Customs

Hearing dates: 16 July 2024

Approved Judgment

This judgment was handed down remotely at 10.30am on 26 July 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

This appeal is concerned with the proper construction of section 103 Finance Act 2020 and whether that section renders it unnecessary for the Respondents, His Majesty's Revenue and Customs (“HMRC”), to prove the involvement of an “officer of the Board” in the giving of a notice requiring the submission of a tax return pursuant to section 8 Taxes Management Act 1970 (“ TMA 1970”) and whether penalty assessments made pursuant to paragraph 18 of Schedule 55 Finance Act 2009, (“Schedule 55”) satisfy the relevant statutory requirements.

The underlying dispute between the Appellant, Mr Marano, and HMRC is about whether Mr Marano is liable under Schedule 55 to the penalty assessments made against him for the late submission of a self-assessment tax return for the tax year 2012/2013. On or after 6 April 2013, a notice to file a self-assessment tax return for the tax year 2012/2013 was sent to Mr Marano at his last known residential address. Mr Marano did not file a return before the filing date of 31 January 2014. As a result, on 18 February 2014, HMRC issued a late filing penalty of £100 under paragraph 3 of Schedule 55. This was followed by a daily penalty and a six month penalty under paragraphs 4 and 5, of Schedule 55, on 18 August 2014. Further, in November 2014, HMRC issued a determination based on the amounts shown in Mr Marano's returns for earlier years and a late filing penalty based on that determination. A second late filing penalty was issued on 3 March 2015. In 2017, Mr Marano sought to file a tax return which was too late to be assessed as such but which enabled HMRC to calculate and issue a discovery assessment on 8 March 2017 in the sum of £5,744,219. On 14 March 2017, HMRC also issued a late filing penalty for £574,422 made up of a six month 5% tax-geared late filing penalty of £287,211 and a twelve month late filing penalty of the same amount.

Mr Marano appealed the penalties as well as the discovery assessment to the First Tier Tribunal, (Tax Chamber) (the “FTT”) and put HMRC to proof that the notice and assessments satisfied the requirements of the relevant statutes.

It has been common ground throughout that there can be no obligation to submit a return unless the taxpayer has previously been given notice requiring submission pursuant to section 8 TMA 1970. It is also common ground that a taxpayer who is not under a duty to submit a return pursuant to such a notice cannot be liable for a penalty for late filing.

In a decision dated 23 April 2020, (TC/2018/05611), the FTT dismissed Mr Marano's appeal. Where relevant for the purposes of this appeal, the FTT held that the notice to file a return was issued by an “officer of the Board” for the purposes of section 8 TMA 1970 [114] – [132] and that the penalties were issued by HMRC for the purposes of paragraph 18 of Schedule 55 [133] – [147]. In particular, in relation to the question of whether the notice had been issued by an officer of the Board for the purposes of section 8 TMA 1970, the FTT held:

“126… . the only reasonable conclusion from the evidence before us is that HMRC officers approved and authorised the issuance of Notices to File in 2012–13, using the parameters and machinery in existence at that time, and that the officers required that the issuance of the Notices be recorded within HMRC's computer systems.

…

129. We have found as facts that a full return, including a Notice to File, was issued to Mr Marano, and that its issuance and posting was recorded by HMRC's systems. The only reasonable conclusions from that evidence are that the return was issued because HMRC's system was programmed to carry out that task, and that the program was authorised by HMRC officers, as defined.

130. As Mr Vallis said, the alternative would be that HMRC's computer system had been either (a) programmed by persons other than HMRC staff, or (b) programmed without any human intervention. There is no evidence that HMRC's computer system had been hacked, and it is not reasonable or credible to find that that in 2013 HMRC's computer system was being controlled by some sort of artificial intelligence, capable of deciding its own parameters without the need for a human being to program it.”

In relation to whether Schedule 55 was satisfied, the FTT held as follows:

“141. It is clear from Rogers and Shaw that the references to penalties being issued by HMRC do not mean that they have to be issued by an individual officer. The terms “HMRC” and “officers” are simply references to those at HMRC who are responsible for collecting tax… .

145. We add that … the penalties are fixed by statute, and follow from the taxpayer's failure to file. Parliament decided on the quantum and methodology of those penalties, and how they interact with particular periods of delay. There is no dispute that the penalties actually issued by HMRC's computer system accurately reflect those statutory provisions. The only reasonable conclusion is that HMRC staff designed the computer programs which implement the legislation. As Mr Vallis said, the alternative would require us to find that HMRC's computer had been hacked, or the computer was writing its own programs, but nevertheless still managed to ensure that the penalties actually issued reflect the statutory requirements.

146. We therefore find that the penalties issued by the computer in accordance with the program were authorised by the HMRC staff who had designed and implemented the computer programs.”

Mr Marano appealed to the UT on four grounds. Only the ground relating to whether a valid notice to file a tax return had been issued pursuant to section 8 TMA 1970 and penalty assessments had been validly issued pursuant to Schedule 55 paragraph 18 is relevant on this appeal. The UT dealt, first, with the basis upon which the FTT had made its decision (the “ Rogers and Shawbasis”) and then turned to the proper interpretation and application of section 103 FA 2020 which was enacted after the FTT's decision but with retrospective effect (subject to transitional provisions) (“ the section 103 basis”).

The Rogers and Shaw basis

In HMRC v Rogers & Shaw[2019] UKUT 406 (TCC), [2020] 4 WLR 23 (“ Rogers and Shaw”), the Upper Tribunal Tax and Chancery Chamber (the “UT”) had held at [32] that section 8 TMA 1970 does not impose a requirement that an officer of the Board is identified in the notice as the giver of the notice. Rather, “it imposes a substantive requirement that the giving of a notice must have been under the authority of an officer of HMRC” and that “the requirement is that whoever requires the notice to be given, whether identified or not, has the status of an HMRC officer”. The burden of proving that the requirement was met fell upon HMRC and the extent of the evidence necessary to discharge the burden depended upon the circumstances, including whether the taxpayer was disputing receipt [51] and [52]. As the UT put it in this appeal, at [6], “[P]revious decisions of the FTT and this Tribunal, culminating in Rogers and Shaw v HMRC… establish that there must be sufficient evidence of authorisation by an officer of HMRC. What is sufficient depends on whether the issue is disputed by the taxpayer.”

In this case, the UT noted that the evidence before the FTT in relation to the section 8 notice was limited to a microfiche record of sending of a full return and a record of Mr Marano's tax affairs in HMRC's self-assessment system [10]. The UT went on, also at [10], as follows:

“… The microfiche was described in the supplementary witness statement of Louise McGovern dated 7 January 2019 as a printed record of a computer output, and as being “maintained in all cases where a Notice to Complete a Tax return is issued automatically by the computer in line with default HMRC Retention of CY6+1”. The microfiche shows a date of 6 April 2013, Mr Marano's name and residential address, and his unique taxpayer reference number. The computer record of Mr Marano's self-assessment return for 2012/13 records a full return as having been issued on 6 April 2013. It was agreed that the full return was received by Mr Marano. Despite HMRC having been put to proof of officer involvement, nothing was said in the evidence on behalf of HMRC to explain in what way or ways any officer was involved in or authorised sending out the full return on 6 April 2013.”

The evidence in relation to the issue of the penalty assessments was said by the UT to be “essentially the same”. It was described at [11] as:

“… a microfiche record showing the addressee, the address and the amount of the assessment, and a screen shot of a computer record of Mr Marano's 2012–13 self-assessment showing the assessed penalties. The evidence in Ms McGovern's first witness statement was that the two 2017 “tax-geared” late filing penalties were “raised automatically in self-assessment” and “issued by the self-assessment system” based upon the discovery assessment issued by HMRC in March 2017. There was therefore no evidence of the involvement of any officer of...