Welland
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 December 2017 |
| Neutral Citation | [2017] UKFTT 870 (TC) |
| Date | 13 December 2017 |
| Court | First Tier Tribunal (Tax Chamber) |
[2017] UKFTT 870 (TC)
Judge Barbara Mosedale
The appellant appeared in person.
Ms L Lawrence, HMRC officer, appeared for the respondents
NRCGT returns – Late filing penalties – What HMRC must prove – Whether ignorance of the law is a reasonable excuse – No – Whether special circumstances – Yes – Appeal allowed in part – TMA 1970, s. 12ZB – FA 2009, Sch. 55.
The First-tier Tribunal (FTT) partly allowed a taxpayer's appeal against penalties for the late filing of 3 NRCGT returns. The FTT rejected the taxpayer's submission that HMRC's failure to adequately publicise the NRCGT reporting requirements provided him with a reasonable excuse, but held that because the penalties related to 3 disposals in one year there were special circumstances and therefore the penalties relating to the second and third disposals were reduced to nil.
The appellant (Mr Welland) lived in Thailand. He owned 3 properties in the UK which he let. Mr Welland sold the properties. The completion dates were 14 May 2015, 5 June 2015 and 26 November 2015. He assumed that he would have to declare the sales in his self-assessment (SA) return for 2015–16, but when he started to prepare his SA return in August 2016 he realised that he should have submitted non-resident capital gains tax (NRCGT) returns within 30 days of completion of each sale (pursuant to TMA 1970, s. 12ZB). At that point Mr Welland completed and submitted the required NRCGT returns, each showing the disposal date was the same as the completion date. Each of the returns showed that Mr Welland owed no capital gains tax (CGT) because the small profits he made from the sales was within his annual CGT allowance.
HMRC assessed Mr Welland to penalties in respect of the returns on all 3 properties of £100 for failure to deliver a return by the filing date, daily penalties of £900 because the returns were more than three months late and £300 because the returns were more than 6 month late. For the returns due on the first 2 properties HMRC also assessed Mr Welland to £300 12 month late filing penalties. The daily penalties were subsequently cancelled in accordance with HMRC's policy decision not to charge daily penalties on late NRCGT returns.
Mr Welland appealed against all of the penalties.
The FTT noted that for CGT purposes the normal date of disposal was the date of the contract. This was important because if the disposal dates were in 2014–15 Mr Welland would not have been required to make NRCGT returns. The FTT found that the only evidence on the date of disposals of the properties was in the NRCGT returns themselves and therefore without any challenge to the evidence the tribunal could not reject the evidence. So unlike in McGreevy [2017] TC 06109 (where the FTT did not accept that such evidence proved the date of disposal and that HMRC had not established that there was an NRCGT gain in the tax year), which the FTT in this case thought had made an error of law in its analysis, the FTT found that on the basis of the undisputed evidence the three disposals took place in 2015–16.
Mr Welland appealed on the grounds that:
- he was not aware of the requirement to file NRCGT returns;
- HMRC failed to make him aware of the requirement to file NRCGT returns;
- the penalties were disproportionate because he owed no tax on the sales;
- HMRC had discharged penalties for other taxpayers in similar situations; and
- up until these penalties were imposed, he had a good tax compliance record.
The FTT noted that grounds (3), (4) and (5) could not amount to a reasonable excuse under FA 2009, Sch. 55, para. 23.
On the issue of whether Mr Welland not being aware of the requirement to file NRCGT returns amounted to a reasonable excuse, the FTT:
- disagreed with the judge in the McGreevy case that the principle, that ignorance of law could not be an excuse for failing to comply with it, did not apply in civil penalty cases;
- noted that the High Court decision in Neal v C & E Commrs (1987) 3 BVC 143 suggested that while generally speaking, ignorance of the law would not be a reasonable excuse where a civil tax penalty was concerned, there were cases where complex, or at least uncertain, law was involved, where it could be;
- noted that it was not entirely clear whether the Neal case was binding on the FTT, because of a subsequent Court of Appeal case, but, if such exception existed at all, it had to be a rare exception;
- disagreed with the judge in McGreevy that the law requiring non-residents to make returns within 30 days of sale to be so complex that they could not be expected to understand it; and
- concluded that the normal rule that ignorance of the law was no excuse applied.
The FTT also disagreed with McGreevy that HMRC's failure to more widely publicise a change in law could amount to a reasonable excuse. Finding instead that HMRC's failure to write to Mr Welland did not cause his ignorance and so it could not in law be an excuse for it. While the FTT accepted it was possible that if HMRC had acted unlawfully in failing to write to Mr Welland then his ignorance of the law might be a reasonable excuse, it did not accept that HMRC had acted unlawfully in failing to write to him about the changes. And therefore his ignorance of the law was not a reasonable excuse (again the FTT did not consider that McGreevy was correctly decided on this point and decided that it could not follow it).
As HMRC had not considered reducing the penalties because of special circumstances pursuant to FA 2009, Sch. 55, para. 16, the FTT was able to consider a special reduction under para. 22. With reference to Rodney Warren & Co [2012] TC 01754, it seemed to the FTT that the alleged special circumstances had to be an unusual event or situation which did not amount to a reasonable excuse but which rendered the penalty in whole or part significantly unfair and contrary to what Parliament must have intended when enacting the provisions. The FTT found that because Mr Welland sold 3 properties in quick succession in one tax year he was unable to learn from his mistakes, as he was late filing all 3 returns before he learned of his filing obligation. The FTT found these circumstances to be unusual but not unique and did amount to special circumstances, especially because Mr Welland had previously had a good compliance record. The FTT accordingly reduced the penalties so that only the penalties on the first sale were payable.
The FTT accordingly allowed the appeal to the extent of £1,100 of penalties on the last two sales because of special circumstances, but confirmed the penalties amounting to £700 on the first sale because they had been correctly charged and Mr Welland had no reasonable excuse for the failures.
This decision contrasts with the two previously published cases concerning penalties for late NRCGT returns (McGreevy [2017] TC 06109 and Saunders [2017] TC 06173), in which the FTT found that HMRC's failure to publicise the NRCGT reporting requirements did amount to a reasonable excuse. The decision depended in part on when ignorance of the law can be a reasonable excuse. As the judge in this decision said, it would be advantageous if the Upper Tribunal were to make a binding ruling on the matter so that future inconsistent first tier decisions on this matter could be avoided.
[1] The appellant appeals against penalties imposed on him in respect of his failure to file NRCGT returns.
[2] The appellant lodged his notice of appeal with the Tribunal on 14 April 2017 against a review decision dated 13 February 2017. The last date for making the appeal against that review decision was 16 March 2017. Mr Welland's case was that he did not receive HMRC's decision letter until 22 March 2017 and appealed within 30 days of receipt of the letter.
[3] HMRC do not suggest that he received the letter more quickly than he said and do not object to the appeal being lodged out of time. Indeed, there is nothing improbable in what Mr Welland says as he lives in Thailand and it is to be expected that post from the UK to Thailand takes weeks rather than days.
[4] In all the circumstances, the Tribunal admits the appeal out of time.
[5] At the time Mr Welland lodged the appeal, some £4,500 in penalties were in issue. For this reason, the case was categorised as “standard” with a view to it being determined at an oral hearing.
[6] I proposed that the appeal be determined on the papers: shortly after the appeal was lodged, HMRC had withdrawn three sets of daily penalties, bringing the amount in dispute down to £1,800 (within the Tribunal's normal limit for paper determinations); further, as I have said, Mr Welland lived in Thailand and was therefore unlikely to want to attend a hearing in the UK. Lastly, no issue of fact appeared to be in dispute, and so it would not be necessary to hear oral evidence in order to make a fair determination.
[7] The parties agreed to a paper determination, and after exchanges of written representations (the last being the appellant's of 13/10/17), I have proceeded to determine the appeal on the papers. This is my decision.
[8] As I have said, the facts were not in dispute, and my below summary is taken from what both parties have agreed about what happened.
[9] Mr Welland owned three properties in the UK which he let. He decided to sell them. This was for a number of reasons, such as he no longer wanted the responsibilities of being a landlord, but also because he was aware that the law had changed and non-residents would be liable to account for capital gains on the disposal of properties in the UK.
[10] Mr Welland sold all three properties. The completion dates were 14 May 2015 for the first property, 5 June 2015 for the second and for the last 26 November 2015. He did not put in an NRCGT return on the due dates being 30 days after completion.
[11] He assumed that he would have to declare the sales in his self-assessment (“SA”) return for tax...
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Slocock
...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 £30......
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Smith
...where the opposite conclusion has been reached – the decisions of Judge Mosedale in Hesketh [2018] TC 06266 (“Hesketh”) and Welland [2018] TC 06265, the decision of Judge Brannan in Hart [2018] TC 06446 and the decision of Mr Sheppard in Jackson [2018] TC 06329 (“Jackson”). [25] Of course, ......
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Rowan-Smith
...where the opposite conclusion has been reached – the decisions of Judge Mosedale in Hesketh [2018] TC 06266 (“Hesketh”) and Welland [2018] TC 06265, the decision of Judge Brannan in Hart [2018] TC 06446 and the decision of Mr Sheppard in Jackson [2018] TC 06329 (“Jackson”). [25] Of course, ......
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Hesketh and Another
...in this particular case. The FTT accordingly dismissed both appeals. CommentThis decision is in line with the FTT's decision in Welland [2018] TC 06265 (unsurprising given that the same judge provided both decisions). However these decisions contrast with the two previously published cases ......
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June - Private Client Briefing From Tax Journal 2018
...for relief. However, as has been established in a line of recent cases (Hesketh v HMRC [2017] UKFTT 871 (TC) and Welland v HMRC [2017] UKFTT 870 (TC)), and in contrast to the conclusion in McGreevy v HMRC [2017] UKFTT 0690 (TC), a nil return is still required. Not knowing about the requirem......