Slocock

JurisdictionUK Non-devolved
Judgment Date01 October 2018
Neutral Citation[2018] UKFTT 569 (TC)
Date01 October 2018
CourtFirst Tier Tribunal (Tax Chamber)

[2018] UKFTT 0569 (TC)

Judge Richard Thomas

Slocock

Capital gains tax – Non-resident CGT return (NRCGT return) – Late-filing penalties – Whether appellant appropriate person under TMA 1970, s. 12ZB, TCGA 1992, 14B – No, as UK national and EU official resident by virtue of art. 13 of Protocol 7 to the Treaty on the Functioning of the European Union (TFEU) – Appeal allowed and penalties cancelled – In the alternative whether appellant had a reasonable excuse – FA 2009, Sch. 55, para. 23 – Yes – Appeal allowed.

The First-Tier Tribunal (FTT) cancelled the late-filing penalties on the grounds that art. 13 Protocol 7 TFEU had direct effect to make the appellant resident in the United Kingdom and therefore not liable to make an NRCGT return. Even if this view were not correct, the appellant had a reasonable excuse both due to ignorance of the law and to reliance on a third party, having taken reasonable care himself to avoid the failure.

Summary

The appellant was a UK national working for the EU institutions and had been physically resident in Belgium for 20 years. He made a disposal of an interest in UK land, the filing due date for which was 4 October 2015. He believed, and had been informed by the Inland Revenue (as it then was) that by virtue of art. 13 Protocol 7 TFEU (“Article 13”), that he was considered resident for income tax purposes in the United Kingdom but as non-resident for CGT purposes. However, he was unaware of the NRCGT provisions and declared the gain in his ordinary 2015–16 tax return. Once alerted to those provisions, he filed an NRCGT return in October 2016. No tax was due as the gain fell within the annual exempt amount. In response, HMRC issued an assessment to the fixed late-filing penalty under FA 2009, Sch. 55, para. 3, to the daily penalties under FA 2009, Sch. 55, para. 4, the six-month penalty under FA 2009, Sch. 55, para. 5 and the 12-month penalty under FA 2009, Sch. 55, para. 6, amounting to £1,600 in total. He appealed against the penalties principally on the grounds of reasonable excuse, being ignorance of the law and reliance on a third-party firm of specialist conveyancers. In the interim, acting upon its decision to suspend issue of daily penalties and withdraw past daily penalties for late NRCGT returns generally (see https://www.tax.org.uk/policy-technical/technical-news/penalties-late-submission-non-resident-capital-gains-tax-nrcgt), HMRC had accordingly withdrawn the daily penalties (£900) originally imposed on the appellant.

The approach taken by the Tribunal was first to decide whether the penalty was correctly and validly imposed and second, if so, whether it could and should be cancelled or reduced in amount. On the first point, if the appellant was indeed non-resident, there was an obligation on him to file an NRCGT return and that return had been filed late. However, the appellant's apparent mixed resident and non-resident status was so “strange and counter-intuitive” that it deserved closer consideration. Under the “statutory residence test” in FA 2013, Sch. 45, it was clear that as a matter of UK law, under FA 2013, Sch. 45, para. 1, an individual had to be either resident or non-resident for both income tax and capital gains tax and could not be resident for one and not the other. Although the appellant had not raised the point, the Tribunal judge nevertheless felt compelled to consider the effect of art. 13. That article stated that for the purposes of, inter alia, “income tax”, officials of the Union were to be considered as resident in their Member State of domicile (i.e. the United Kingdom in this case). By reference to the wording of double tax treaties (where references to capital gains tax do not occur, with the exception of the treaty with Ireland) and case law of the Court of Justice of the European Union (such as Kamberaj v Istituto per l'Edilizia Sociale della Provincia autonoma di Bolzano (IPES) (Case C-571/10) [2012] ECR 0000), HMRC was wrong (it was a “startling proposition”) to construe the words “income tax” to have their narrow UK definition. They required to be given their autonomous EU meaning, as including a tax on capital gains from the disposal of assets. As art. 13 also applied to the interpretation of double tax treaties, it overrode art. 4 (the tie-breaker rule') of the Belgium-UK treaty, under which the appellant would probably be treated as resident in Belgium for treaty purposes.

Accordingly, since by the operation of EU law having direct effect in the United Kingdom, the appellant was resident in the United Kingdom, there had been no NRCGT disposal, hence no obligation to file an NRCGT return, so the entire amount of the penalties fell to be cancelled.

Nevertheless, the Tribunal judge went on to consider the position if he were wrong on the application of art. 13. He held that the purported withdrawal by HMRC of the daily penalties was ineffective, due to the absence of an agreement under TMA 1970, s. 54 following a review. However, the daily penalties under FA 2009, Sch. 55, para. 4 were in any case incorrectly charged, since they were stated to begin from 3 January 2016, whereas under FA 2009, Sch. 55, para. 4(3), the penalty period could not run from a date earlier than three months after the penalty date, which was the day after the filing date. The filing date was 4 October 2015, so the penalty date was 5 October and the correct start date for the daily penalty was therefore 5 January 2016. Furthermore, by reference to Donaldson v R & C Commrs [2016] BTC 28, the high-level decision by HMRC to charge daily penalties in all late-filing penalty cases, which was necessary to satisfy the HMRC decision requirement in FA 2009, Sch. 55, para. 4(1)(b), was not valid in this case as it predated the imposition of the NRCGT provisions.

That left the six-month and 12-month penalties (in the sum of £300 each). Citing Perrin v R & C Commrs [2018] BTC 513, in which the Upper Tribunal (UT) held there was no basis for the “much-cited aphorism that “ignorance of the law is no excuse””, there were some requirements of the law that were well-known, simple and straightforward, but others that were much less so. Whereas the obligation to file a tax return under TMA 1970, s. 8 was an example of the former, the NRCGT provisions were more arcane, less well-known, less simple and less straightforward. In the circumstances, the appellant's ignorance of them was objectively reasonable and he had a reasonable excuse in that respect. As for reliance on a third party, the appellant had had a genuine and honest belief that the conveyancers he appointed would have dealt with the necessary obligations. As the decision in Barrett [2015] TC 04514 had made clear, their failure to do so did not thereby render him negligent, and there were no reasonable steps he could have taken to avoid the failure. On these grounds also, he had a reasonable excuse, and had remedied the failure without delay once the excuse had ceased.

Comment

This is a strikingly unusual case, involving as it does the status of UK civil servants working for EU institutions. If the judge is right in his interpretation of art. 13 of Protocol 7, the entire treatment of those officials as UK resident for income tax purposes but not CGT purposes has been unlawful going back as least as far as 1996, when the ruling was made. With effect from 6 April 2015, any NRCGT returns that they have made need not have been made, and any penalties imposed on them in this respect invalid. Furthermore, before the introduction of the NRCGT provisions, capital gains they may have made on UK assets that may have been treated as exempt were not so exempt, although the doctrine of legitimate expectation and acting in accordance with accepted practice may save them from CGT liability. For this reason alone, HMRC must be likely to appeal.

As to reasonable excuse, the decision with respect to ignorance of the law is in line with the Tribunal judge's own decision in McGreevy [2017] TC 06109 and the decision in Saunders [2017] TC 06173, but more importantly, has the imprimatur of the UT in Perrin v R & C Commrs [2018] BTC 513, which does appear to have put paid to the contrary line as to ignorance of the law taken in Hesketh [2018] TC 06266, Welland [2018] TC 06265 and Hart [2018] TC 06446.

The Tribunal judge made no reference to Jackson [2018] TC 06329, which appears to eliminate the validity of the £300 six-month and 12-month penalty under FA 2009, Sch. 55, para. 5(2)(b), 6(3)(b), 6(4)(b), 6(5)(b), where the tax due is nil.

DECISION

[1] The penalty under appeal is for the tax year 2015–16 and is £1,600 for the failure to make and deliver a non-resident capital gains tax (“NRCGT”) return until over one year after the due date. The failure is that of Mr Ben Slocock (“the appellant”).

The facts

[2] I take the basic undisputed facts from the amended statement of case (“SoC”) filed by the respondent (“HMRC”) and from the documents attached to that SoC as well as from letters sent by the appellant to HMRC and the tribunal.

[3] On 18 October 2016 the appellant delivered by electronic communication a return under s 12ZB Taxation of Chargeable Gains Act 1992 (“TCGA”) to HMRC in electronic form. A printout of the return entries shows:

  • the appellant's address as Rue des Mélèzes 8, Brussels, Belgium
  • the disposal of an interest in land at 7 Halls Farm Close, Knaphill, Woking, Surrey, United Kingdom
  • the date of conveyance was 4 September 2015
  • no election was made for an alternative method of computation
  • the computation showed a gain of £6,325
  • the amount of CGT due was nil.

[4] On 1 December 2016 October 2017 HMRC (NRCGT) wrote to the appellant. The letter was headed “Non-resident Capital Gains Tax (NRCGT)” in large bold type. The next line also in bold type was “Late filing penalties” and in the next line, also in bold “These penalties total £1600.00”.

[5] After salutations and listing the address of the property in the UK, the...

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