R & C Commissioners v Goldsmith
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 November 2019 |
| Neutral Citation | [2019] UKUT 325 (TCC) |
| Date | 04 November 2019 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2019] UKUT 325 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Fancourt, Judge Guy Brannan
Aparna Nathan QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
David Ewart QC and Rebecca Murray, Advocates to the Tribunal
Income tax – Penalty charged under FA 2009, Sch. 55, para. 1 and 3 – Whether taxpayer liable to a penalty for failure to submit a tax return under TMA 1970, s. 8(1) – Appeal allowed by First-tier Tribunal on basis that penalties were invalid because the decision to require a return did not fall within the power in TMA 1970, s. 8(1) – Whether Tribunal had jurisdiction to consider that argument – Yes – HMRC can issue a notice to file a return to assess tax – Whether Tribunal entitled to reduce penalty because of special circumstances pursuant to FA 2009, Sch. 55, para. 16 – No, appeal was under FA 2009, Sch. 55, para. 20(1) not 20(2) – Appeal allowed.
The Upper Tribunal (UT) allowed HMRC's appeal against a decision on late filing penalties in Goldsmith [2018] TC 06284. The UT agreed with the FTT that the FTT had jurisdiction to consider whether notices to file personal tax returns had been validly issued, but overturned the FTT's decision that valid notices to file had not been issued and in the alternative that the penalties could be reduced because of special circumstances.
The respondent (Mr Goldsmith) was not registered for self-assessment, but was instead taxed through PAYE. In 2011–12 and 2012–13 he underpaid tax on his employment income and HMRC issued tax calculations (forms P800) showing the underpayments for both years. The underpayments were not coded out and although Mr Goldsmith initially agreed to pay the underpayments in instalments after three payments he didn't make any more payments. HMRC issued Mr Goldsmith with notices to file returns for both years. Mr Goldsmith submitted the returns late. HMRC issued initial penalties for both years under FA 2009, Sch. 55, para. 1 and 3. Mr Goldsmith appealed against the penalties.
The FTT allowed the appeal. Deciding that the penalties in respect of the late returns, imposed under FA 2009, Sch. 55, para. 1 and 3 were invalid because the notices to file given to Mr Goldsmith were not given for the purpose set out in TMA 1970, s. 8(1). This was because they were given to create an enforceable debt for a tax liability HMRC were already aware of rather than to obtain information about a tax liability which HMRC did not already know about. The FTT also decided, in the alternative, that the penalties should be reduced to nil because HMRC's penalty decision was flawed and there were “special circumstances” within the meaning of FA 2009, Sch. 55, para. 16.
HMRC appealed to the UT against the FTT's decision regarding the penalties on the grounds that the FTT had erred in deciding that the notice to file did not fall within TMA 1970, s. 8(1) because it had no jurisdiction to consider that question and that, in any event, the notices were given for the purpose set out in the subsection. In addition, HMRC contended that the FTT also erred in holding that there were “special circumstances” warranting a reduction of the penalties.
HMRC had also imposed daily late filing penalties under FA 2009, Sch. 55, para. 4, which the FTT had cancelled. HMRC did not pursue an appeal against these penalties before the UT.
The UT considered the “exclusivity principle” as set out in O'Reilly v Mackman [1983] 2 AC 237, which essentially requires a person seeking to impugn the decision of a public authority on public law grounds to do so by way of judicial review. HMRC's case was that Mr Goldsmith was challenging them exercising their discretion to require a tax return to be filed and therefore it could only be done by way of judicial review. The UT also considered the limitations to the exclusivity principal as explored in Wandsworth LBC v Winder [1985] AC 461 77 and various other subsequent cases. In particular the UT considered that none of the considerations which dictated the result in the cases of R & J Birkett (t/a Orchards Residential Home) v R & C Commrs [2017] BTC 511, PML Accounting Ltd v R & C Commrs [2017] BTC 10 and Beadle v R & C Commrs [2019] BTC 512 applied to this appeal. The UT concluded that the FTT did have jurisdiction to consider the purposes for which a notice to file was given and it therefore dismissed HMRC's appeal on the ground that it had no such jurisdiction.
On the issue of whether the notices to file had been validly issued, TMA 1970, s. 8(1)(a) stated that a return could be required “for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year”. The UT agreed with Judge Mosedale's analysis of the meaning of “establishing” in the FTT decision of Crawford [2018] TC 06594. Judge Mosedale found that a notice to file issued simply to assess a known liability to tax was within the meaning of “establish”. The UT therefore concluded that even though HMRC knew the amount of tax due from Mr Goldsmith and they served the notices to file in order to create a debt due from Mr Goldsmith pursuant to TMA 1970, s. 59B TMA, HMRC served valid notices to file for the requisite statutory purpose of establishing the amounts in which Mr Goldsmith was chargeable to income tax for the relevant years of assessment.
The UT also allowed HMRC's appeal on the ground that the FTT had erred in deciding, in the alternative, that the penalties could be reduced because of special circumstances pursuant to FA 2009, Sch. 55, para. 16. This was because Mr Goldsmith's appeal was against the imposition of late filing penalties under para. 20(1) (on the grounds that he had never received the notices to file) and not against the amount of the penalties under para. 20(2) and the potential reduction for special circumstances only applied where there was an appeal against the amount of a penalty.
The UT accordingly allowed HMRC's appeal. Ruling that the notices to file were valid and the fixed penalties where therefore incurred by Mr Goldsmith.
In the last couple of years there have been several FTT decisions which considered whether HMRC could validly issue a notice to file a personal tax return when they already knew the person's tax liability. In most of the published decisions the FTT found that as a notice to file had to be given for “the purpose of establishing the amounts in which a person is chargeable to income tax” and “establishing” meant “determining the amount of”, therefore if HMRC already knew the amount of income tax due, a valid notice to file could not be given. However, in Crawford [2018] TC 06594 Judge Mosedale analysed the meaning of “establishing” in more depth and found that a notice to file could validly be issued simply to assess a known tax liability. The UT agreed with Judge Mosedale's analysis.
[1] This is an appeal against a decision of the First-tier Tribunal (“FTT”) (Judge Richard Thomas) released on 3 January 2018. Mr Goldsmith, the Respondent in the appeal to this Tribunal, appealed to the FTT against penalties imposed on him by the Appellants (“HMRC”) in respect of his failure to deliver income tax returns for the tax years 2011–12 and 2012–13 by the due date.
[2] The FTT's decision (“the Decision”) was to allow the appeals against the penalties imposed on Mr Goldsmith. HMRC now appeal against the Decision with the permission of Judge Thomas.
[3] In summary, the FTT decided that the penalties in respect of the late returns, imposed under paragraphs 1 and 3 of Schedule 55 to the Finance Act 2009 (“Schedule 55”), were invalid because the notices to file a tax return given to Mr Goldsmith were not given for the purpose set out in section 8(1) Taxes Management Act 1970 (“TMA”). The FTT further decided, in the alternative, that the penalties should be reduced to nil because HMRC's penalty decision was flawed and there were “special circumstances” within the meaning of paragraph 16 of Schedule 55.
[4] In short, HMRC argue that the FTT erred in deciding that the notice to file did not fall within section 8(1) TMA because the FTT had no jurisdiction to consider that question and that, in any event, the notices were given for the purpose set out in the subsection. In addition, HMRC contend that the FTT also erred in holding that there were “special circumstances” warranting a reduction of the penalties to nil.
[5] As well as penalties under paragraphs 1 and 3 of Schedule 55, HMRC also imposed daily penalties under paragraph 4 of Schedule 55. At the hearing before us, HMRC indicated that they were no longer pursuing their appeal in respect of the paragraph 4 penalties.
[6] Ms Aparna Nathan QC appeared for HMRC. Mr Goldsmith took no part in the proceedings before us. However, Mr David Ewart QC and Ms Rebecca Murray appeared as Advocates to the Upper Tribunal to provide assistance. We wish to express our thanks to them and to Ms Nathan QC for their helpful submissions.
[7] The full facts are set out at paras [29]–[60] of the Decision. We summarise briefly those that are material to this appeal.
[8] Mr Goldsmith was an employee whose income tax payments in respect of his employment income were collected through the PAYE system. However, for each of the tax years 2011–2012 and 2012–2013 the PAYE deductions did not collect the full amount of income tax due. In each year, he received a PAYE calculation (a P800) advising him that he had underpaid tax for that year.
[9] For the 2011–12 tax year, Mr Goldsmith was issued with a PAYE calculation on 16 September 2012 advising him that he had underpaid income tax by £624.60. Following some correspondence between the parties, on 12 July 2013 Mr Goldsmith and HMRC reached an agreement...
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