R & C Commissioners v AML Tax (UK) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 March 2022 |
| Neutral Citation | [2022] UKUT 81 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2022] UKUT 81 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Thomas Scott, Judge Jonathan Cannan
Howard Watkinson, instructed by HM Revenue & Customs Solicitor's Office and Legal Services, appeared for the applicants
Conrad McDonnell, instructed by RPC Solicitors, appeared for the respondent
Corporation tax – Continuing failure to comply with information notice – HMRC application for tax-related penalty – Statutory conditions – Application granted – Penalty imposed – FA 2008, Sch. 36, para. 50.
In R & C Commrs v AML Tax (UK) Ltd [2022] BTC 509, the Upper Tribunal (UT) granted HMRC’s application for a company to be issued with a tax-related penalty for a continued failure to comply with an information notice, setting the penalty at £150,000.
As part of enquiries into the tax affairs of AML Tax (UK) Ltd (AML) HMRC had issued an information notice to the company under FA 2008, Sch. 36, requiring certain company records. AML failed to produce the records and accordingly HMRC issued AML with both a fixed penalty under para. 39 and daily penalties under para. 40. HMRC later applied to the UT for an additional penalty to be imposed pursuant to para. 50.
The UT accepted that at the time HMRC made their application the HMRC officer had reason to believe, as a result of AML’s non-compliance with the information notice, the amount of tax that AML had paid, or was likely to pay, was significantly less than it would otherwise have been (as required by para. 50(1)(c)). In doing so the UT rejected AML’s submissions that there was no causal link between AML’s failure to comply with the information notice and tax which might become due from AML either generally or specifically under the transfer pricing rules. The UT also rejected AML’s submission that there could be no tax at risk given that HMRC had issued a jeopardy amendment under FA 1998, Sch. 18, para. 30 during the enquiry (which was issued to prevent a likely loss of tax to the Crown). The UT did not accept HMRC’s estimate of tax at risk of £1.34m to be a reliable estimate, but that was not what para. 50(1)(c) required, it was enough that there was reason to believe that a significant amount of tax was at risk.
The UT decided that it was appropriate for an additional penalty to be imposed (as required by para. 50(1)(e)). There had been a serious and prolonged failure to comply, there were no good reasons for the non-compliance and there were a substantial number of aggravating factors.
The UT decided that a penalty of £150,000 was appropriate. In doing so it took into account: the existence of the jeopardy amendment and the postponement of the associated tax; the penalty was not intended to be a proxy for the recovery of unpaid tax; further daily penalties of £56,040 could have been imposed; and the high level of uncertainty as to the tax at risk.
This decision adds to the growing case law on tax-related information notice penalties. As had already been seen from the decisions of Tager v R & C Commrs [2018] BTC 30 (and related UT decisions) and R & C Commrs v Mattu [2021] BTC 542, the UT has a tricky job of imposing a tax-related penalty where, because of the lack of information, the amount of tax is uncertain.
Comment by Meg Wilson, Senior Tax Writer at Croner-i.
[1] This is an application by HM Revenue & Customs (“HMRC”) pursuant to paragraph 50 Schedule 36 Finance Act 2008 (“Schedule 36”) for an additional penalty to be imposed on AML Tax (UK) Limited (“AML”). HMRC allege that AML has failed to comply with an information notice under Schedule 36 issued to AML and that the conditions for the imposition of an additional penalty are satisfied.
[2] AML is a UK limited company which was incorporated on 9 December 2009. The director is Mr Arthur Lancaster, a chartered accountant and chartered tax adviser specialising in trusts and private client matters. An issue arises as to the activities of AML. At this stage we shall simply say that it has acted in relation to certain tax avoidance schemes utilised by UK contractors and sub-contractors. It is part of an informal group of companies based in the Isle of Man known as the Knox Group.
[3] HMRC have opened enquiries into the company tax returns of AML for accounting periods ending 31 December 2014 and 31 December 2015 pursuant to paragraph 24(1) Schedule 18 Finance Act 1998 (“FA 1998”). Mr James Preston was the HMRC officer with conduct of the enquiries until his retirement in September 2020. The enquiry into the 2015 return commenced on 5 December 2017 and included a request for AML to provide certain company records. AML did not produce those records and on 28 February 2018 HMRC issued an information notice under Schedule 36 requiring production of the records (“the Information Notice”). Again, AML failed to produce the records.
[4] In April 2018, Mr Preston became aware that a notice for the compulsory striking off of AML had been published in the London Gazette. We understand that this was because of the late submission of accounts by AML. In the circumstances, HMRC notified what are known as “jeopardy amendments” to AML. Jeopardy amendments are notified to a taxpayer prior to the conclusion of an enquiry when HMRC consider that otherwise there is likely to be a loss of tax to the Crown.
[5] The jeopardy amendments notified by HMRC to AML were in the sums of £1,661,772.39 for 2014 and £1,620,425.55 for 2015. AML has appealed the jeopardy amendments. It also applied for the tax due to be postponed and eventually HMRC agreed that the tax should be postponed in full.
[6] On 30 April 2018 HMRC notified a £300 penalty to AML pursuant to paragraph 39 Schedule 36 for failing to comply with the Information Notice. Paragraph 39 Schedule 36 provides as follows:
39(1) This paragraph applies to a person who –
- fails to comply with an information notice, or
- deliberately obstructs an officer of Revenue and Customs in the course of an inspection under Part 2 of this Schedule that has been approved by the tribunal.
(2) The person is liable to a penalty of £300.
(3) The reference in this paragraph to a person who fails to comply with an information notice includes a person who conceals, destroys or otherwise disposes of, or arranges for the concealment, destruction or disposal of, a document in breach of paragraph 42 or 43.
[7] Paragraph 40 Schedule 36 makes provisions for daily penalties of up to £60 per day for continuing non-compliance with an information notice. Daily penalties for non-compliance were subsequently notified to AML.
[8] The fixed penalty of £300 was appealed by AML to HMRC but that appeal was refused. None of the daily penalties were appealed.
[9] Paragraph 50 Schedule 36 makes provision for HMRC to apply to the Upper Tribunal for an additional penalty to be imposed on persons who fail to comply with an information notice. It provides as follows:
50(1) This paragraph applies where–
- a person becomes liable to a penalty under paragraph 39,
- the failure or obstruction continues after a penalty is imposed under that paragraph,
- an officer of Revenue and Customs has reason to believe that, as a result of the failure or obstruction, the amount of tax that the person has paid, or is likely to pay, is significantly less than it would otherwise have been,
- before the end of the period of 12 months beginning with the relevant date, an officer of Revenue and Customs makes an application to the Upper Tribunal for an additional penalty to be imposed on the person, and
- the Upper Tribunal decides that it is appropriate for an additional penalty to be imposed.
(2) The person is liable to a penalty of an amount decided by the Upper Tribunal.
(3) In deciding the amount of the penalty, the Upper Tribunal must have regard to the amount of tax which has not been, or is not likely to be, paid by the person.
[10] Mr Preston provided a witness statement in support of the application, stating his belief that the potential “tax at risk” as a result of AML's non-compliance with the Information Notice was £1.34m. HMRC invite us to impose an additional penalty by reference to that amount of tax, with some discount to reflect uncertainty in the amount of tax said to be at risk, and taking into account various other factors which we consider in detail below.
[11] The application has a long procedural history during which AML failed to engage with the proceedings. The result is that AML is barred from making any case to the effect that the requirements of paragraph 50(1)(a), (b) and (d) have not been met. The issues before us are therefore confined to paragraph 50(1)(c) and (e) and paragraph 50(2) and (3). In broad terms, AML contends as follows:
- Mr Preston did not have reason to believe that, as a result of the failure of AML to comply with the Information Notice, the amount of tax that AML has paid, or is likely to pay, is significantly less than it would otherwise have been. As a result, no penalty can be imposed under paragraph 50 because paragraph 50(1)(c) is not satisfied.
- Alternatively, no penalty is appropriate under paragraph 50(1)(e).
- There is no tax at risk.
- In any event, the amount of penalty being sought by HMRC is excessive and disproportionate to any tax properly considered to be at risk.
[12] It is common ground that the burden of proof is on HMRC to establish that paragraph 50(1)(c) is satisfied, that it is appropriate for an additional penalty to be imposed and (in relation to paragraph 50(3)) the amount of tax that has not been paid or is not likely to be paid by AML.
[13] We heard evidence from Mr Preston and another officer, Mr Luke Curtis on behalf of HMRC. On behalf of AML we heard evidence from Mr Arthur Lancaster. All witnesses had provided witness statements and they were cross-examined in the course of their oral evidence.
[14] We set out below certain legislative provisions relevant to the issues...
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The Commissioners for HM Revenue and Customs v AML Tax (UK) Limited [2022] UKUT 00081 (TCC)
...[2022] UKUT 00081 (TCC) Appeal number: UT/2019/0045 CORPORATION TAX – continuing failure to comply with information notice – HMRC application for tax-related penalty under paragraph 50 Schedule 36 Finance Act 2008 – statutory conditions – application granted – penalty imposed UPPER TRIBUNAL......