Priory London Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 August 2021 |
| Neutral Citation | [2021] UKFTT 282 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 282 (TC)
Judge Richard Chapman QC, Mrs Catherine Farquharson
Annual tax on enveloped dwellings – Penalties – Late filing of returns – FA 2009, Sch. 55, para. 4(1)(c) and 4(3)(a) – Whether or not sufficient notice given in respect of the daily penalties – Yes – Whether or not the penalties should be reduced for special circumstances no – Whether or not the penalties were disproportionate – No – Appeal dismissed.
[1] This appeal relates to penalties imposed upon the Appellant, Priory London Limited (“Priory”) pursuant to schedule 55 of the Finance Act 2009 (“Schedule 55”). The penalties are in the sum of £12,800 and are in respect of the late filing of Annual Tax on Enveloped Dwellings (“ATED”) returns for the 2013/14 and 2014/15 tax years. The appeal raises issues as to the efficacy of the notice of daily penalties, special circumstances, and proportionality.
[2] There was no dispute as to Priory's obligation to file ATED returns. However, the circumstances of this obligation are an important part of the background to this appeal and so deserve mention at the outset.
[3] The ATED legislation was introduced by the Finance Act 2013. In essence, a dwelling is “enveloped” when it is owned by a non-natural person (namely, a company, partnership with a corporate member, or a collective investment vehicle). A tax is charged annually and is payable unless an exemption can be claimed.
[4] The onus is upon the taxpayer to file an ATED return in respect of properties meeting the threshold for doing so. Prior to 1 April 2015 (and so for the whole of the periods in question within this appeal), this required a return for each property pursuant to section 159 of the Finance Act 2013. A return was due even where an exemption applied. With effect from 1 April 2015, legislation allowed for a single return to be filed as a relief declaration return as an alternative to individual returns.
[5] For the tax years 2013/2014 and 2014/2015, the threshold property value for the charge to tax was £2,000,000 as at 1 April 2012 or later acquisition. For the tax year 2015/16, the value was reduced to £1,000,000 as at 1 April 2012 or later acquisition. For the tax year 2016/2017, the value was reduced to £500,000 as at 1 April 2012 or later acquisition. The legislation also provides for fixed revaluation dates every five years regardless of when the property was acquired.
[6] By virtue of paragraphs 1(5) and 2 of Schedule 55 the penalties at paragraphs 3 to 6 of Schedule 55 apply to the failure to file an ATED return. For the periods in question in the present appeal, these penalties were imposed in respect of each return due for each property. However, with effect from the chargeable period beginning 1 April 2015, where the failure to file is in respect of multiple properties for which the taxpayer would have been entitled to file a single relief declaration return, only one set of penalties is imposed.
[7] There was no dispute between the parties as to the facts of the case. Neither party adduced any written or oral witness evidence. In the circumstances, we make the following findings of fact in the light of the agreed facts and the documents placed before us.
[8] Priory is the owner of four residential properties in London, being 2a Grove End Road, 8 Grove End Road, 10 Grove End Road, and 706 Pavilion Apartments (“No 2A”, “No 8”, “No 10” and “No 706” respectively and together “the Properties”). Priory leased each of the Properties to third parties.
[9] Priory was required to file returns for each of the Properties for the tax years 2013/14 and 2014/15. The returns for 2013/14 were due on 1 October 2013 and received on 7 April 2017, and so 3 years, 6 months and 6 days late. The returns for 2014/15 were due on 30 April 2014 and received on 7 April 2017, and so 2 years, 11 months and 8 days late. No tax was payable in respect of any of the returns. This is because the Properties were all eligible for exemption.
[10] Priory had been aware of the need to submit the returns. However, there was a breakdown in communications between Priory's accountants and Priory's director as to who was going to do this; each assumed that the other would file the returns with the effect that neither did so. The oversight was discovered when the matter was queried by another director's personal accountants and remedied soon after.
[11] HMRC issued the penalties pursuant to Schedule 55 of the Finance Act 2009 (“Schedule 55”), paragraph 3 (“Initial Late Filing Penalties”), paragraph 4 (“Daily Penalties”), paragraph 5 (“6 Month Late Filing Penalty”) and paragraph 6 (“12 Month Late Filing Penalty”) as follows:
| Property: | Tax year: | Date of issue: | Penalty: | Amount: |
| No 2a | 2013/14 | 13 October 2017 | Initial Late Filing Penalty | £100.00 |
| 19 January 2018 | Daily Penalties | £900.00 | ||
| 19 January 2018 | 6 Month Late Filing Penalty | £300.00 | ||
| 19 January 2018 | 12 Month Late Filing Penalty | £300.00 | ||
| 2014/15 | 13 October 2017 | Initial Late Filing Penalty | £100.00 | |
| 23 January 2018 | Daily Penalties | £900.00 | ||
| 23 January 2018 | 6 Month Late Filing Penalty | £300.00 | ||
| 23 January 2018 | 12 Month Late Filing Penalty | £300.00 | ||
| No 8 | 2013/14 | 13 October 2017 | Initial Late Filing Penalty | £100.00 |
| 19 January 2018 | Daily Penalties | £900.00 | ||
| 19 January 2018 | 6 Month Late Filing Penalty | £300.00 | ||
| 19 January 2018 | 12 Month Late Filing Penalty | £300.00 | ||
| 2014/15 | 13 October 2017 | Initial Late Filing Penalty | £100.00 | |
| 23 January 2018 | Daily Penalties | £900.00 | ||
| 23 January 2018 | 6 Month Late Filing Penalty | £300.00 | ||
| 23 January 2018 | 12 Month Late Filing Penalty | £300.00 | ||
| No 10 | 2013/14 | 13 October 2017 | Initial Late Filing Penalty | £100.00 |
| 19 January 2018 | Daily Penalties | £900.00 | ||
| 19 January 2018 | 6 Month Late Filing Penalty | £300.00 | ||
| 19 January 2018 | 12 Month Late Filing Penalty | £300.00 | ||
| 2014/15 | 11 October 2017 | Initial Late Filing Penalty | £100.00 | |
| 23 January 2018 | Daily Penalties | £900.00 | ||
| 23 January 2018 | 6 Month Late Filing Penalty | £300.00 | ||
| 23 January 2018 | 12 Month Late Filing Penalty | £300.00 | ||
| No 706 | 2013/14 | 13 October 2017 | Initial Late Filing Penalty | £100.00 |
| 23 January 2018 | Daily Penalties | £900.00 | ||
| 23 January 2018 | 6 Month Late Filing Penalty | £300.00 | ||
| 23 January 2018 | 12 Month Late Filing Penalty | £300.00 | ||
| 2014/15 | 11 October 2017 | Initial Late Filing Penalty | £100.00 | |
| 23 January 2018 | Daily Penalties | £900.00 | ||
| 23 January 2018 | 6 Month Late Filing Penalty | £300.00 | ||
| 23 January 2018 | 12 Month Late Filing Penalty | £300.00 |
[12] The total sum of the penalties is £12,800, being £1,600 per Property per tax year.
[13] By letters dated 16 and 22 February 2018, Priory appealed to HMRC against the penalties. HMRC rejected the appeal by a letter dated 9 March 2018. Priory requested a review by a letter dated 6 April 2018. HMRC upheld the penalties in separate review conclusion letters dated 29 November 2018.
[14] An appeal was received by the Tribunal on 19 January 2019. HMRC do not object to the appeal being made late and so we grant any necessary extension of time.
[15] The grounds of appeal refer to previous correspondence between Priory's accountants and HMRC. However, the grounds helpfully summarise that correspondence as follows:
… Our arguments have been rejected by HMRC in their 8 identical letters of 29 November 2018. This is ironic given that the first of our arguments is that HMRC should consider the special circumstances of raising 8 sets of penalties for the same offence.
The second argument is that HMRC have wrongly applied the penalty provisions in Schedule 55 FA 2009. As there is no tax liability, para 17(3) makes it clear that no penalties should apply under paras 5 and 6. Despite HMRC not accepting our analysis, the Tribunal in the recent Jagger [2018] TC 06774 case (copy attached) has confirmed that this is the correct position.
In summary, we consider that penalties of £12,800 are clearly disproportionate for a failure to file the ATED returns for two years where no tax was payable. £4,800 of these penalties are incorrectly raised and we consider that HMRC should consider the “special circumstances” in respect of the remaining £8,000 which involve 8 identical failures to file an ATED return. …
[16] Mr Dawson helpfully made it clear at the outset of the hearing that Priory does not pursue the grounds relating to paragraph 17(3) of Schedule 55. Similarly, whilst HMRC's statement of case anticipated the possibility of submissions as to reasonable excuse, Mr Dawson again confirmed that Priory did not argue that there was a reasonable excuse.
[17] In the course of the hearing, the parties also made submissions as to whether or not a sufficient notice had been given for the purposes of the Daily Penalties. We also subsequently drew to the parties' attention decisions which had been released after the hearing and so invited (and received) further written submissions.
[18] The parties agreed that the following matters remain in issue:
- Whether or not a valid notice of the Daily Penalties had been given.
- Whether or not the penalties should be reduced for special circumstances.
- Whether or not the penalties were proportionate.
[19] Paragraph 4 of Schedule 55 provides as follows:
4(1) P is liable to a penalty under this paragraph if (and only if) –
- P's failure continues after the end of the period of 3 months beginning with the penalty date.
- HMRC decide that such a penalty should be payable, and
- HMRC give notice to P specifying the date from which the penalty is payable.
(2) The...
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