Smith
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 August 2018 |
| Neutral Citation | [2018] UKFTT 430 (TC) |
| Date | 02 August 2018 |
| Court | First Tier Tribunal (Tax Chamber) |
[2018] UKFTT 0430 (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.
The First-Tier Tribunal (FTT) decided in favour of the taxpayer in respect of penalties for a late filed NRCGT return.
This appeal related to late filing penalties in an aggregate amount of £700 which have been charged under FA 2009, Sch. 55 (“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 Appellant was the joint owner of the Property along with his wife. At the time of disposing of the Property, he and his wife were resident in Canada and had been so resident for many years. Although he 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 – i.e. 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.
The FTT summarised the law relating to NRCGT returns and the relevant penalty regimes. Both parties made detailed submissions.
It was necessary for the FTT to consider whether the Appellant had established that he should be relieved from the penalties in question because he had a reasonable excuse for his failure or because the penalties are unfair and disproportionate or because the Respondents' decision that the relevant circumstances were not special circumstances is “flawed” in the Wednesbury sense.
In relation to the first of these issues – i.e. whether or not the Appellant had a reasonable excuse – The FTT preferred not to focus on the question of whether or not there is a principle which precluded ignorance of the law from being a reasonable excuse and, if there was, the extent of any exceptions to that principle but rather on the question of whether, in this particular case, the fact that the Appellant was unaware of the obligation to file the NRCGT return until shortly before he actually did so met the objective standard required in order to amount to a reasonable excuse.
In approaching the question in that way, the FTT was relying on the well-established definition of what amounted to a reasonable excuse, as laid down by Judge Medd in Clean Car Co Ltd [1991] BVC 568 (“Clean Car”) and a passage in the recent decision of the Upper Tribunal in Perrin v R & C Commrs [2018] BTC 513 (“Perrin”). The Upper Tribunal considered that, in determining whether a taxpayer has a reasonable excuse, there was no separate and distinct principle to be applied in cases where the taxpayer sought to rely on his or her ignorance of the law. Instead, it was simply necessary to determine in such cases, whether it was objectively reasonable for the taxpayer to have failed to discharge the obligation that has given rise to the default.
The FTT needed to ask whether, in the particular circumstances of this case, the failure by the Appellant to file an NRCGT return in relation to his disposal of the Property until the time he did so was reasonable.
Turning to the application of the test in the context of the facts in this appeal, the FTT's view was that the Appellant's failure to file the NRCGT return before he did so was reasonable, given the circumstances of this case. This was, first, because there was no reason for the Appellant to have suspected that, in addition to reporting the disposal in his normal self-assessment return in respect of the relevant tax year of assessment, he would also need to make another, separate and self-standing, tax return in relation to the disposal. And, therefore, there was no reason why the Appellant should have gone onto the Respondents' website to look for the existence of any such additional filing obligation. Moreover, there was no reason why the Appellant should have sought the advice of a tax expert in relation to the disposal, given that it was obvious to him from the numbers involved that the disposal had not given rise to a chargeable gain and so he would be able to deal with the disposal perfectly adequately in his self-assessment return without recourse to expert advice. For those reasons, the FTT believed that a hypothetical responsible person, who was cognizant of his obligations in relation to tax and intended to comply with those obligations, might very well have acted in the same way as the Appellant. The FTT concluded that the taxpayer's appeal should be allowed.
TC 06623 dealt with the same facts and issues in respect of Ann Rowan-Smith, the wife of Ian Smith above. The same decision was arrived at.
The case is yet another case regarding the imposition of penalties in respect of failure to file a NRCGT return. The judge referred to other cases where the appellants were able to use ignorance of the law as a reasonable excuse. It can be seen from the logic used by the FTT how they perceive that it is not reasonable from HMRC to assume the requisite knowledge with yet another decision where reasonable excuse prevailed.
[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 his wife. At the time of disposing of the Property, he and his wife were resident in Canada and had been so resident for many years. Although he 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 he can establish that he has a reasonable excuse for the purposes of section 118(2) TMA 1970, then the NRCGT return will be deemed not to be...
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