Sheiling Properties Ltd v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 08 June 2020 |
| Neutral Citation | [2020] UKUT 175 (TCC) |
| Date | 08 June 2020 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 175 (TCC)
Mr Justice Trower, Judge Thomas Scott
Income tax – Penalty for non-payment of accelerated payment notice – Is tax demanded under a reg. 80 PAYE determination disputed tax within APN provisions – Yes – Did taxpayer have a reasonable excuse for non-payment of penalty – No – Circumstances in which belief that APN was procedurally invalid could constitute reasonable excuse – Appeal dismissed.
The Upper Tribunal dismissed the taxpayer company's appeal against APN penalties and appeal against findings by the First-tier that (a) a reg. 80 PAYE determination was “disputed tax” as defined by the FA 2014 provisions; and (b) a belief that an APN was invalid was not a reasonable excuse for non-payment. The Upper Tribunal held that a belief as to the procedural invalidity of an APN is capable of amounting to a reasonable excuse in appropriate cases.
Sheiling Properties Limited (“Sheiling”) participated in a scheme which was notified to HMRC under the Disclosure of Tax Avoidance Schemes legislation in the 2011/12 tax year. Following the introduction of Accelerated Payment Notices (“APN”) in FA 2014, HMRC issued two APNs in respect of Pay As You Earn (“PAYE”) tax and National Insurance Contributions unpaid by Sheiling of over £185,000. In November 2016, Sheiling joined a group of taxpayers in lodging a Judicial Review challenge against the validity of the APNs, however, the APNs remained unpaid and HMRC issued penalties on 22 December 2016. The Judicial Review claim was stayed behind another case which was ultimately dismissed by the Court of Appeal. On 30 May 2017, HMRC issued further late payment penalties.
On appeal against the penalties to the First-tier Tribunal, Sheiling argued that PAYE tax pursuant to a determination under reg. 80 of the Income Tax (Pay As You Earn) Regulations, SI 2003/2682 did not fall within the definition of “disputed tax” in section 55(8C) of the Taxes Management Act 1970 (“TMA”) and therefore could not be subject to an APN. In addition, Sheiling argued that as it had been advised that the APNs were likely to be invalid it held a reasonable belief in the invalidity of the APNs which amounted to a reasonable excuse.
It was common ground between the parties that: (a) reg. 80(5) deems PAYE determinations to be tax assessments for the relevant parts of the TMA, (b) reg. 80(5) is not a deeming provision for all purposes, and c) no provision expressly states that in section 221 FA 2014 “disputed tax” includes tax arising from a PAYE determination. The main issue was whether income tax sought by a reg. 80 determination and appealed by the recipient is a charge to tax arising in consequence of … [an] assessment to tax appealed against. The Tribunal noted that PAYE is simply a collection mechanism for income tax and since income tax is a relevant tax for the purposes of the APN code, tax sought pursuant to a reg. 80 determination is therefore “tax” as defined in section 221(3) FA 2014. Further, by virtue of section 203(a), an employer appeal against a reg. 80 determination is a “tax appeal” for APN purposes and the amount therein is “tax appealed against” within section 221(3) FA 2014.
The Tribunal concluded that the clear effect of reg. 80(5) was to treat a determination as an assessment for the purposes of section 221(3) FA 2014 and the tax charged under it as being “in consequence of … [an] assessment to tax appealed against”.
In any event, as a matter of policy, it could be seen that the APN code was intended to apply to PAYE tax as there are many schemes which are designed to avoid tax on employment income and it is unlikely that Parliament would not have intended APNs to be issued to employers.
In the absence of a statutory definition for “reasonable excuse”, the Tribunal has to determine whether or not a genuine belief in the invalidity of an APN could amount to a reasonable excuse defence. The Tribunal recognised (real or perceived) invalidity as arising in two discrete situations:
- Substantive invalidity: where a taxpayer believes that the sums demanded are not due because they are not owed at all or because they have been wrongly calculated; and
- Procedural invalidity: where a taxpayer argues that, regardless of whether the sums demanded are owed, the APN does not comply with the statutory conditions set out in FA 2014.
In the case of substantive invalidity, and following the Court of Appeal's decision in Beadle v R & C Commrs [2020] BTC 11 (“Beadle”), the Tribunal held that this could never amount to a reasonable excuse for non-payment of an APN regardless of the genuineness of the belief or supporting professional advice. Any substantive challenge to an APN had to be made by way of statutory Representations or Judicial Review.
Procedural invalidity was different in that, in principle, it was capable of forming a reasonable excuse defence. In the case of procedural invalidity, the policy considerations (that disputed tax ought to be held by the Exchequer) should not apply undiluted. Where the taxpayer's belief is that what purports to be an APN is not in fact an APN due to procedural defects, the policy behind APNs is less persuasive in considering the objective reasonableness of that belief. In doing so, a Tribunal should:
- consider all surrounding facts and circumstances including the foundation for the belief, advice relied upon and the specificity of that advice;
- Take into account the reason for the alleged procedural invalidity and whether it is an obvious or gross error;
- Avoid conducting a mini-trial of the taxpayer's grounds for challenge in a judicial review;
- Be aware that in some instances a procedural invalidity may be a disguised substantive invalidity.
Sheiling's belief was not that the APNs issued were “without doubt” invalid instead they believed there were good prospects of a judicial review succeeding; the First-tier was correct to hold that Sheiling did not have an objectively reasonable excuse for non-payment.
Finally, the finding that Sheiling's inability to pay the APNs was a predominant reason or excuse for non-payment was a conclusion which the First-tier Tribunal was entitled to make on the basis of the evidence before it. The appeal was dismissed.
The Upper Tribunal took a different approach to Tribunals below and indeed to the Court of Appeal in Beadle. It has held that a genuine belief that an APN does not comply with the statutory requirements as to content, sums demanded, etc. is capable of amounting to a reasonable excuse for non-payment. HMRC clearly disagree with this conclusion but are unable to appeal since they won the case on the facts. If this decision is not appealed by the taxpayer company, it will become binding authority in the First-tier and will offer a lifeline to recipients of penalties for non-payment of Accelerated Payment Notices and Partner Payment Notices.
Ben Elliott, instructed by Blackstar Defence Limited, appeared for the appellant
Aparna Nathan QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
[1] Sheiling Properties Limited (“Sheiling”) appeals against the decision of the First-tier Tribunal (“FTT”) reported at [2018] TC 06479 (the “Decision”). Sheiling appealed to the FTT against penalties imposed by HMRC in respect of non-payment by Sheiling of certain accelerated payment notices (“APNs”) issued pursuant to section 219 of the Finance Act 2014 (“FA 2014”). The APNs required advance payment of tax under the Pay As You Earn (“PAYE”) Regulations and in respect of national insurance contributions. The FTT determined a number of preliminary issues, concluding that (unless the APNs were subsequently determined to be unlawful in related judicial review proceedings) Sheiling was liable for the penalties as charged.
[2] With the permission of the FTT, Sheiling appeals against the Decision on the ground that the FTT erred in law in concluding that an APN could be issued in respect of tax arising from a PAYE determination. With the permission of the Upper Tribunal, Sheiling also appeals on the ground that the FTT erred in its interpretation of the “reasonable excuse” defence against the penalties, and in concluding on the facts that Sheiling did not have such a reasonable excuse.
[3] The relevant facts can be summarised as follows.
[4] In the tax year ending 5 April 2012, Sheiling participated in arrangements which were notified to HMRC under the Disclosure of Tax Avoidance Scheme (“DOTAS”) regime and allocated a scheme reference number. Under the arrangements Sheiling made payments to two directors of the company in return for those directors incurring obligations to subscribe for partly paid shares in the company.
[5] On 17 February 2016 HMRC issued a determination (the “Regulation 80 Determination”) under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 (the “PAYE Regulations”), determining that Sheiling owed tax under those regulations in respect of the payments to the directors. It also issued decisions under section 8 of the Social Security Contributions (Transfer of Functions) Act 1999 requiring payment of national insurance contributions in respect of the payments.
[6] On 25 February 2016 Sheiling appealed to HMRC against the determination and decisions. HMRC agreed to an application to postpone the taxes due.
[7] On 19 July 2016 HMRC sent two APNs to Sheiling. The first (the “PAYE APN”) required advance payment of PAYE income tax of £118,000. The second (the “NIC APN”) required advance payment of primary and secondary national insurance contributions of £67,452.
[8] On 19 September 2016 HMRC received representations from Sheiling objecting to the issue of the APNs, arguing that the conditions for their issue set out in FA 2014 had not been met. The following month, HMRC confirmed that the APNs would not be...
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