Rowan-Smith
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 August 2018 |
| Neutral Citation | [2018] UKFTT 431 (TC) |
| Date | 02 August 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0431 (TC)
Judge Tony Beare
Non-resident capital gains tax – Penalties for failing to file a return on time – Whether ignorance of the obligation to file the return could amount to a reasonable excuse – Yes – Appeal upheld.
[1] This appeal relates to late filing penalties in an aggregate amount of £700 which have been charged under Schedule 55 Finance Act 2009 (“Schedule 55”) for the late filing of a Non-Resident Capital Gains Tax (“NRCGT”) return in respect of the disposal by the Appellant of a property at Flat 2, 3 Bankwood Drive, Kilsyth, Glasgow, G65 0GZ (the “Property”).
The penalties are as follows:
| Penalty | £ |
| Late filing penalty (paragraph 3 of Schedule 55) | 100 |
| 6 month late filing penalty (paragraph 5 of Schedule 55) | 300 |
| 12 month late filing penalty (paragraph 6 of Schedule 55) | 300 |
| Total | 700 |
[2] There is no dispute between the parties in relation to the relevant facts. The Appellant was the joint owner of the Property along with her husband. At the time of disposing of the Property, she and her husband were resident in Canada and had been so resident for many years. Although she had made no gain in respect of the disposal, the Appellant became obliged to file an NRCGT return in respect of the disposal within 30 days of completing the disposal – ie no later than 27 June 2015. The Appellant did not file an NRCGT return in respect of the disposal of the Property until 29 January 2017.
[3] In the Finance Act 2015, and with effect in relation to disposals made on or after 6 April 2015, Parliament introduced section 12ZB into the Taxes Management Act 1970 (the “TMA 1970”) to make non-residents liable to make new returns, i.e. NRCGT returns, as follows:
(1) Where a non-resident CGT disposal is made, the appropriate person must make and deliver to an officer of Revenue and Customs, on or before the filing date, a return in respect of the disposal.
(2) In subsection (1) the “appropriate person” means–
- the taxable person in relation to the disposal …
(3) …
(4) An NRCGT return must–
- contain the information prescribed by HMRC, and
- include a declaration by the person making it that the return is to the best of the person's knowledge correct and complete.
(5) …
(6) …
(7) An NRCGT return “relates to” the tax year in which any gains on the non-resident CGT disposal would accrue.
(8) The “filing date” for an NRCGT return is the 30th day following the day of the completion of the disposal to which the return relates. But see also section 12ZJ(5).
[4] The penalties for failing to make an NRCGT return are contained in Schedule 55.
[5] Paragraph 1(1) of Schedule 55 makes a person liable to a penalty if he or she fails to deliver a return of a type specified by the due date. With effect from 26 March 2015, an NRCGT return under section 12ZB TMA 1970 was added to Schedule 55 by section 37 and paragraph 59 of Schedule 7 to the Finance Act 2015.
[6] Paragraph 3 of Schedule 55 permits the Respondents to impose a £100 penalty on a taxpayer if the return is late; paragraph 5 of Schedule 55 permits the Respondents to impose a penalty which is the higher of 5% of the liability to tax which would have been shown on the relevant return and £300, if the return is more than 6 months late; and paragraph 6 of Schedule 55 permits the Respondents to impose a penalty which is the higher of a specified percentage of the liability to tax which would have been shown on the relevant return and £300, if the return is more than 12 months late.
[7] The legislation provides that a taxpayer may be relieved from penalties if he or she can show that there was a “reasonable excuse” for the default. Curiously, there are two potentially applicable “reasonable excuse” provisions in this case, which are not identical. This is because the obligation to file the NRCGT return is set out in the TMA 1970, which contains a relief in cases of reasonable excuse at section 118(2) TMA 1970, whilst the penalty legislation is set out in Schedule 55, which contains a relief in cases of reasonable excuse at paragraph 23 of Schedule 55.
[8] As both of the above provisions appear to be applicable, I have concluded that the Appellant can rely on either of them. If she can establish that she has a reasonable excuse for the purposes of section 118(2) TMA 1970, then the NRCGT return will be deemed not to be late (and so liability to the penalties will not arise). If she can establish that she has a reasonable excuse for the purposes of paragraph 23 of Schedule 55, then, although the NRCGT return will remain late, the penalties will be required to be discharged. The end result is the same in either case.
[9] The only differences between the two provisions is that paragraph 23 of Schedule 55 specifically refers to the extent to which an insufficiency of funds or reliance on a third party can amount to a reasonable excuse, whereas section 118(2) TMA 1970 makes no such reference.
[10] Section 118(2) TMA 1970 provides as follows:
For the purposes of this act, the person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the board or the tribunal or officer concerned may have allowed; and where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased …
[11] Paragraph 23(1) of Schedule 55 provides as follows:
(1) Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a return if [the taxpayer] satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure.
(2) for the purposes of sub-paragraph (1)–
- an insufficiency of funds is not a reasonable excuse, unless attributable to events outside P's control,
- where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and
- where P had a reasonable excuse for the failure but the excuse has ceased, P is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.
[12] So, under both provisions, I am required to consider whether the Appellant had a reasonable excuse for her failure to file the NRCGT return throughout the period between the date when she was required to do so and the date when she did so. In that context, it is expressly provided in one of the provisions but not the other that reliance on a third party is not a reasonable excuse unless the taxpayer took reasonable care to avoid the failure.
[13] Paragraph 16 of Schedule 55 provides that, “if HMRC think it right because of special circumstances, they may reduce a penalty under any paragraph of this Schedule” and paragraph 22 of Schedule 55 provides that the exercise of that discretion by the Respondents is open to challenge at the Tribunal if the decision is “flawed” in the light of the principles applicable in proceedings for judicial review. It is clear from the terms of the above provisions that the decision as to whether any particular circumstances constitute “special circumstances” is entirely a matter for the Respondents to determine in their own discretion and that their decision can be impugned only if they have acted unreasonably in the sense described in the leading case of Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 (“Wednesbury”). In other words, the Tribunal is not permitted to consider the relevant facts de novo and determine whether or not it agrees with the conclusion that the Respondents have reached. Instead, it needs to consider whether, in reaching that conclusion, the Respondents have taken into account matters that they ought not to have taken into account or disregarded matters that they ought to have taken into account or otherwise reached a decision that no reasonable person could have reached upon consideration of the relevant matters. The Respondents' decision cannot be...
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