Sheiling Properties Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 May 2018 |
| Neutral Citation | [2018] UKFTT 247 (TC) |
| Date | 01 May 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0247 (TC)
Judge Jonathan Richards
Ben Elliott, instructed by Blackstar Group Limited, appeared for the appellant
Matthew Beattie, instructed by the General Counsel and Solicitor to HM Revenue & Customs, appeared for the respondents
Income tax – Accelerated payment notice – Penalty – Whether genuine belief that judicial review proceedings would succeed afforded a reasonable excuse – No – Whether penalty date had been reached – Yes – Whether tax demanded pursuant to a Income Tax (Pay As You Earn) Regulations 2003 (SI 2003/2682), reg. 80 determination was disputed tax – Yes – Penalties validly issued.
[1] The appellant company (the “Company”) is appealing against penalties that HMRC imposed under Schedule 56 of the Finance Act 2009 for late payment of accelerated payments demanded in an accelerated payment notice (“APN”) issued pursuant to s219 of the Finance Act 2014 (“FA 2014”).
[2] The parties have agreed that I should determine all issues relevant to this appeal as preliminary issues and then formally stay the appeal pending the conclusion of judicial review proceedings to which the Company is party, challenging the lawfulness of the underlying APN. Then, if the Company is successful in judicial review proceedings, HMRC will withdraw the penalty. If the Company is unsuccessful in judicial review proceedings, it will withdraw its appeal. The benefit of this approach from the Company's perspective appears to be that it prevents HMRC from collecting a penalty until the judicial review proceedings are concluded and protects the Company against the theoretical risk of HMRC refusing to withdraw the penalty even if it is determined that the underlying APN was unlawful.
[3] I will not stand in the way of what the parties have agreed in this case. However, this should not be the usual approach. In future, I would expect taxpayers who are party to judicial review proceedings to draw this to the Tribunal's attention when they submit their Notice of Appeal (providing the full court reference for those proceedings so that the Tribunal can identify precisely which proceedings are referred to). Taxpayers should then say expressly whether they are requesting a stay behind the judicial review proceedings and, if they are not requesting a stay, give reasons.
[4] In this appeal, the Company requested at an early stage of proceedings that its appeal should not be stayed. The Tribunal duly listed a hearing and both the parties and the Tribunal have allocated resources in dealing with the appeal. Those resources might have been wasted if, as events turn out, the taxpayer succeeds in its application for judicial review. Since both parties are evidently happy for the final outcome of this appeal to await the determination of judicial review proceedings, the much better course would have been for this appeal to have been stayed shortly after it was made.
[5] Mr Stephen Houchen, a director of the Company, provided a witness statement on behalf of the Company and gave oral evidence. Mr Beattie cross-examined him. I was satisfied that Mr Houchen was an honest and reliable witness. HMRC did not rely on witness evidence.
[6] Both parties also made submissions by reference to a bundle of documents.
[7] Relatively few facts were in dispute (although the parties had different views as to the conclusions I should draw from those facts). The facts set out at [8] to [32] were either determined by me or were agreed.
[8] In the tax year ended 5 April 2012, the Company entered into arrangements that were notified under the “DOTAS” regime in Finance Act 2004, and which HMRC allocated a scheme reference number. Under the arrangements the Company made payments to two directors in return for those directors incurring obligations to subscribe for partly paid shares in the Company.
[9] On 17 February 2016 HMRC issued a determination (a “regulation 80 determination”) under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 (the “PAYE Regulations”) determining that the Company owed tax, under the PAYE Regulations, of £118,000 in relation to the payments referred to at [8]. Also on 17 February 2016, HMRC issued decisions under s8 of the Social Security Contributions (Transfer of Functions etc) Act 1999 (“section 8 decisions”) that the Company was liable to pay primary and secondary Class 1 national insurance contributions (“NIC”) totalling £71,801.12 on those payments.
[10] On 25 February 2016, the Company appealed to HMRC against the determinations and decisions set out at [9] (the “substantive appeal”) and applied for postponement of the tax in dispute.
[11] On 16 March 2016, HMRC acknowledged the substantive appeal and agreed to postpone payment of PAYE due, pursuant to the provisions of s55 of the Taxes Management Act 1970 (“TMA 1970”).
[12] On 19 July 2016, HMRC sent two APNs to the Company requiring advance payment of PAYE totalling £118,000 (the “PAYE APN”) and NIC totalling £67,452.06 (the “NIC APN”). HMRC stated that the amounts demanded had to be paid by 20 October 2016.
[13] On 19 September 2016, HMRC received representations from the Company objecting to the issue of the APNs arguing, in summary, that Conditions A and C set out in s219 of Finance Act 2014 (“FA 2014”) had not been met.
[14] On 4 October 2016, HMRC confirmed that the APNs would not be altered and informed the Company that the amount demanded pursuant to those APNs was due no later than 9 November 2016.
[15] The Company did not pay the amounts demanded by 9 November 2016. Nor did it pay those amounts by 9 December 2016 or by 9 May 20171. It had still not paid the amounts demanded by 19 March 2018, the date of the hearing.
[16] In November 2016, the Company and a number of other taxpayers who had received similar APNs issued a claim for judicial review challenging the validity of their APNs in R (on the application of Adviser Business Solutions Ltd) v R & C Commrs. Those judicial review proceedings alleged a number of failings by HMRC in discharging their public law duties in connection with the APNs including:
- a breach of the taxpayers' legitimate expectation that no tax or NIC would be payable until the conclusion of their substantive appeals (a similar issue to that arising in R (on the application of Dickinson) v R & C Commrs [2017] BTC 23.
- that the APNs were issued ultra vires (relying on the decision of the High Court in R (on the application of Vital Nut Co Ltd) v R & C Commrs [2016] EWHC 1797 (Admin)).
The judicial review proceedings were stayed pending the determination of similar claims concerning the lawfulness and validity of APNs including Rowe v R & C Commrs [2015] BTC 27.
[17] On 22 December 2016, HMRC issued the Company with two penalty notices (one for each APN that had been issued). The penalty notice in respect of the PAYE APN imposed a penalty of £5,900 (5% of the PAYE demanded of £118,000). The penalty notice relating to the NIC APN imposed a penalty of £3,372.60 (5% of the NIC demanded of £67,452.06).
[18] On 12 January 2017, the Company appealed, within applicable time limits, to HMRC against the penalties (the “penalty appeal”). The Company's grounds of appeal were stated shortly as:
Sheiling Properties Limited [is] a participant in a Judicial Review claim which has been filed (R (on the application of Adviser Business Solutions Ltd) v R & C Commrs).
[19] On 6 March 2017, HMRC provided their “view of the matter” explaining that they did not consider that the fact that the Company was party to judicial review proceedings prevented the penalties being due. HMRC offered the Company a review of that decision.
[20] On 31 March 2017, the Company wrote to HMRC to accept the offer of a review. In its letter, the Company gave a much fuller explanation of why it considered the penalties were not due than it had in its letter of 12 January 2017.
[21] On 9 May 2017, HMRC wrote to the Company to set out the conclusions of their review. Their conclusion, on review, remained that the Company had no reasonable excuse for its failure to pay the amount demanded on time and that no “special reduction” of the penalty was appropriate. HMRC's review letter invited the Company to tell HMRC if there were any other circumstances, not referred to in that letter, that the Company thought should be taken into account.
[22] On 25 May 2017, in response to HMRC's invitation to inform them of other relevant circumstances, the Company sent further arguments to HMRC. On 12 June 2017, HMRC responded stating that they had already considered those arguments when conducting their review and that they would not perform a further review. The Company notified its appeal to the Tribunal against the first APN late payment penalty on 13 July 20172.
[23] Meanwhile, on 30 May 2017, HMRC issued the Company with second late payment penalties of £5,900 (in relation to the PAYE APN) and £3,372.60 (in relation to the NIC APN). The Company appealed to HMRC against those second penalties on 6 June 2017. HMRC provided their view of the matter on the second penalties on 21 July 2017. HMRC offered a review of their decision which the Company accepted on 1 August 2017. HMRC set out the conclusions of their review of their decision on the second set of penalties in a letter dated 17 October 2017. I was not shown a document that notified the Company's appeal against the second penalties to the Tribunal. However, both parties proceeded on the basis that there was an appeal against both the first and second late payment penalties that was validly before the Tribunal and I will do the same.
[24] By direction dated 18 December 2017, the Tribunal stayed the substantive appeals (as distinct from the appeals against the penalties) pending determination of a claim in the High Court for rectification. Those proceedings (the “Rectification Proceedings”) involve a claim for a declaration that...
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