DECISION
1. There are
three Appeals before the Tribunal namely Applications by Mr Ramesh Hirani
(“Ramesh”), Mr Vinod Hirani (“Vinod”) and Miss Dina Hirani (“Dina”) for the admission
of late Appeals against penalties imposed by HMRC. Those penalties were issued
under Schedule 36 of the Finance Act 2008 and were in respect of failures to
comply with formal information notices relating to personal tax enquiries.
2. On
16.09.2009 HMRC opened enquiries into the 2007-08 Tax Returns for both Ramesh
and Vinod. Messrs LP Patel and Co had been acting for both of them. A similar
enquiry into the Return for Dina was opened on 04.03.2010. Dina had no Agent
acting for her at that time. On those dates Notices were issued to all three taxpayers
with informal requests for information.
3. Evidently
the information was not supplied and accordingly formal notices were issued
under Schedule 36 Paragraph 1(1) of the Finance Act 2008 requiring the
provision of information and the production of documents on the basis that the
information was reasonably required by HMRC for the purpose of checking the taxpayers’
tax position. Those Notices were issued against Ramesh and Vinod on 03.03.10
and against Dina on 26.04.10. The dates by which the information was to be
supplied were 19.04.10 for Ramesh and Vinod and 10.06.10 for Dina.
4. In the
continuing absence of the requested information penalty warning letters were
issued to all three taxpayers on 27.04.10 (Ramesh and Vinod) and 28.06.10
(Dina). These were non-statutory warnings and provided details of proposed
actions and the level of penalty under consideration in the absence of co-operation.
5. In the
continuing absence of the information formal £300 penalty notices were issued
against all three taxpayers, on 18.05.10 against Ramesh, on 14.05.10 (or
18.05.10) against Vinod and on 22.07.10 against Dina.
6. Paragraph
29 of Part 5 of Schedule 36 of the Finance Act 2008 makes provision for a right
of appeal against any notice such as those mentioned above. None of the three
appellants exercised that right of appeal.
7. Following
the issue of the penalty notices the Agents for Ramesh and Vinod evidently
delivered some relevant Bank Statements to HMRC on 25.05.10 and 14.06.10
respectively but these did not answer all of the questions that had been asked.
8. On
17.06.10 additional penalty warning letters were issued to Ramesh and Vinod but
there was no further disclosure by them at that time.
9. On
27.07.10 daily default penalty notices were issued to both Ramesh and Vinod.
Paragraph 40(2) of Schedule 36 of the Finance Act 2008 provides that this
penalty may be up to £60 “for each subsequent day on which the
failure…continues”. In fact HMRC applied a penalty rate of £30 per day and
calculated the number of days as being 69 i.e. starting with the day after the
issue of thee standard penalty notice (19.05.10) and ending on the day before
the date of the notice (26.07.10). £30 x 69 = £2,070.
10. A similar daily default
penalty notice was issued to Dina on 08.09.10 and the level of penalty applied was
the same, namely £30 per day, and the period was from 23.07.10 to 07.09.10
which is 47 days: £30 x 47 = £1,410.
11. There was a continuing
failure to comply with the requests for information and on 08.09.10 HMRC issued
additional daily default penalty notices to both Ramesh and Vinod, the level of
penalty now being increased to £45 per day. HMRC calculated the period for the
penalty from the end of the previous penalty period to the date of the penalty
notice, namely from 27.07.10 to 08.09.10 inclusive, as 44 days: £45 x 44 =
£1,980.
12. It is HMRC’s contention that
the failures were continuing on the date of the penalty notices and therefore
the persons against whom they were issued were liable to a daily penalty for
that day. The Tribunal accepts that if the penalty notices were properly
issued then they will indeed impose a continuing liability up to and including
the date on which they were issued.
13. On 18.10.10 the Agent for
both Ramesh and Vinod telephoned HMRC and advised that he had now received
instructions from them to provide the outstanding information and to appeal
against the penalties.
14. The majority of the
information and documents required by the notices issued to Ramesh and Vinod
was supplied to HMRC in letters dated 19.10.10 and 18.10.10 respectively.
Those letters also contained Appeals against all three penalty notices issued
to both Ramesh and Vinod.
15. HMRC responded by asking for
comprehensive details of the reasons why the appeals were late. On 10.11.10 a
letter was sent to HMRC by M&R Tax Advisers Ltd confirming that Ramesh and
Vinod wished to submit late appeals against the penalty notices “on the ground
that our client has a reasonable excuse”. On 13.11.10 M&R Tax Advisers
sent a similar letter on behalf of Dina.
16. The requested information
was supplied by Dina by letter dated 29.10.10 but this did not evidently come
into the hands of HMRC until a facsimile copy was sent by her Agent on
23.11.10.
17. In a letter to M&R Tax
Advisers Ltd dated 13.12.10 HMRC said that in their view the taxpayers did not
have a reasonable excuse for the delay in appealing and they could not accept
the late appeals.
18. On 30.12.10 all three
appellants submitted appeals to the Tribunals Service and in each case the
grounds of Appeal state specifically that “this is an Appeal against the HMRC
Decision to refuse the late appeal on the grounds that the appellant had a
reasonable excuse”.
19. The original late appeal
letters of 18.10.10 and 19.10.10 and the supplementary late appeal letters
dated 10.11.10 and 13.11.10 contained different grounds depending on the
appellant. HMRC has summarised the various grounds of Appeal in a
comprehensive Schedule of Appeals. There are numerous grounds of appeal
although many of them are similar in nature. Several are duplicated for all
three appellants.
20. The Tribunal is conscious of
the fact that the appeals before it today are appeals against penalty notices
and are not appeals against the information notices.
21. Since the Tribunal has been
asked to address the issue it is appropriate at this point to confirm the
Tribunal’s finding of fact that, upon perusing all correspondence, it is clear
that HMRC has not, at any time, admitted these late appeals. All relevant
correspondence from HMRC says the contrary namely that the late appeals are not
admitted and that is why the matter has come before the Tribunal today.
22. All three appellants must have
been aware of their rights of appeal in relation to both the original
information notices under schedule 36(1) of the Finance Act 2008 and in respect
of the standard and daily default penalty notices because those formal
documents contain details of the appeal procedure and reference to the
statutory time limit of 30 days. It is HMRC’s submission that any reasonable
person, subject to a formal enquiry by HMRC and in receipt of something as
serious as these documents, would be expected to act in a prudent manner and
read those details and act upon them without delay. Furthermore it is
submitted that in these circumstances any reasonable person who may have been
unsure of what action to take would have either sought professional assistance
or contacted HMRC to obtain advice. HMRC contends that the Appellants did not
act in a reasonable manner, they did not contact HMRC to obtain advice and did
not telephone the enquiry officer at any time. The attention of the Tribunal
is drawn to the fact that Ramesh and Vinod did not instruct their Agent to
appeal on their behalf until 18.10.10 when their Agent rang the enquiry officer
to advise that his clients had instructed him to appeal on their behalf and to
provide the outstanding information required by HMRC.
23. HMRC points out to the
Tribunal that Dina did not respond to any of the correspondence send to her by
HMRC until her late appeal letter dated 29.10.10 and this was not received by
HMRC until 22.11.10, after the letter dated 13.11.10 from M&R Tax Advisers
Ltd. Similarly Dina did not contact HMRC to seek advice.
24. HMRC contends that supply of
the information required in the Notices was neither unduly onerous nor
inappropriate.
25. The Tribunal has compared
the letters from LP Patel & Co Ltd dated 19.10.10 (Ramesh) and 18.10.10
(Vinod) with the letters from M&R Tax Advisers dated 10.11.10 in respect of
both those Appellants. The grounds of appeal are not the same: the LP Patel
letters both say that “the ground of the appeal is that he had not any known
taxable information to provide you with as already declared in his tax return 2008”
whereas the M&R Tax Advisers letters say that the ground of appeal is “that
our client has a reasonable excuse”.
26. Paragraph 45 of schedule 36
of the Finance Act 2008 specifies that a penalty does not arise if the person
satisfies HMRC or (on appeal) the First-tier Tribunal that there is a
reasonable excuse for the failure to comply. For the purpose of that paragraph
there are three conditions namely
(i) An
insufficiency of funds is not a reasonable excuse unless attributable to events
outside a person’s control,
(ii) Reliance
on a 3rd party is not a reasonable excuse unless the 1st
person took reasonable care to avoid the failure,
(iii) If
the person had a reasonable excuse which has ceased it is treated as having
continued if the failure is remedied without unreasonable delay after the
excuse ceased
27. Paragraph 47 sets out a right
of appeal to the First-tier Tribunal against the imposition of penalties and
the amount of such penalties. The appeal procedure is set out paragraph 48 in
provisions which are similar to requirements of Section 31 of the Taxes
Management Act 1970.
28. Appeals out of time are
governed by Section 49(1) of the Taxes Management Act 1970 which states that
late notice of appeal may be give after the “relevant time limit” (which in
this instance is the requirement of “before the end of the period of 30 days
beginning with the date on which the notification was issued”), but only if
HMRC agree. Where HMRC do not agree then late notice of appeal may be given
“if the Tribunal gives permission”. Section 49 also sets out a number of
conditions which, if satisfied, require HMRC to agree to the late notice of
appeal.
29. The Tribunal is aware that Rules
2, 5 and 20 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules
2009 are also relevant. In particular the overriding objective of those rules
is to enable the Tribunal to deal with cases fairly and justly. That is the
principal objective of today’s Tribunal.
30. The Tribunal also takes note
of Rule 3.9(1) of the Civil Procedure Rules which are relevant and in
particular sub paragraphs (b), (c), (d) and (f): the Tribunal is concerned to
see whether the Application for Relief has been made properly, whether the
failure to comply was intentional, whether there is good explanation for the
failure and whether the failure to comply was caused by the party or their legal
representative.
31. Notwithstanding that the
Tribunal is principally concerned with the issue of the reasons for the
lateness of the appeals against the penalties imposed by HMRC, nevertheless
most of the oral evidence received by the Tribunal today has dealt with the
unhappy circumstances prevailing for the three appellants and their respective trading
activities and it is the submission by and on behalf of the appellants that it
is important for the Tribunal to take note of those circumstances in order to
place the imposition of the penalties in perspective. The Tribunal has heard a
large volume of evidence and this is summarised below so that the appropriate
law can be applied to that evidence for the purpose of making a decision in
these appeals today.
32. All three appellants have
submitted witness statements and the Tribunal has studied them carefully. All
three Appellants have given oral evidence and this has been consistent with
their written statements.
33. In his witness statement and
in his oral evidence Ramesh explains that he had been the Director of Demand
and Supply Ltd (D&S), a cash and carry wholesale business selling alcoholic
and non-alcoholic beverages. That business has been placed into provisional
liquidation by a Court Order under the instruction of HMRC but the affairs of
that company are subject to ongoing civil litigation. He argues that, in
summary, the extreme trauma of HMRC action has left him bewildered and unable
to handle his own affairs in a proper manner, hence his failure to comply with
HMRC requests for information in the present case.
34. Ramesh explains at great
lengths how he feels he has been badly treated by HMRC who, in September 2009,
“raided” the premises of D&S and took away large quantities of stock and,
in particular, large amounts of documentation and records relating both to his
personal affairs and to the business. He refers to being in a state of shock
following these events. He explains that such was his involvement in the
business that he spent long hours at D&S and kept all his personal and
business documents at the office. He feared that HMRC action would lead to the
destruction of his business and his family’s livelihood.
35. Ramesh feels aggrieved that
the enquiries conducted against him and members of his family in respect of
their personal tax affairs were being conducted by HMRC personnel who may have
had contact with those officers who were pursuing other enquiries with regard
to the limited company. Liquidators had visited the offices of LP Patel, accountants
to the Hirani family and to D&S, and had taken documents from them also.
Ramesh says that “the Commissioners further placed a worldwide freezing injunction
on me. At this stage I felt cornered, ambushed and helpless”.
36. Ramesh goes on to say in his
witness statement that “by this stage I was fighting on various fronts on a
variety of angles with the Commissioners in reference to D&S, the
liquidators, my business associates such as suppliers and buyers and not to
mention the demand of information from the Commissioners regarding my family’s
personal income tax affairs. With no documents at hand responding to any of
these enquiries became impossible”.
37. Ramesh explains how he was
unable to supply the requested information and documentation, to which these
Appeals relate, because that information and documentation was held by HMRC
itself or by the liquidators of the limited company. He could not produce what
he did not have and he complains that HMRC were less than helpful in giving him
access to his own documents. In late 2010 there was evidently some access to
the documentation at the premises of the liquidators and this enabled Mr Patel
to make all necessary information available to HMRC by 19.10.10.
38. In summary, in his witness
statement Ramesh says that he and his family members had a reasonable excuse
for “the delay” and he considers that he has sufficient grounds of appeal for
HMRC’s decision on penalties to be reversed.
39. Neither in his witness
statement, nor in his oral evidence to the Tribunal, does Ramesh truly address
the matter of his alleged reasonable excuse and it has to be repeated, at this
stage, that the appeals in this case are against penalty notices, not against
the information notices.
40. Vinod’s witness statement
and his oral evidence to the Tribunal are largely similar to Ramesh’s evidence.
Vinod is a Director of M&JJ Ltd (M&JJ) which is a cash and carry
wholesaler business selling alcoholic and non-alcoholic beverages. M&JJ
traded with the business of his brother Ramesh, D&S. He says that, like
Ramesh, he used the offices of D&S for storage of his personal documents
and these have been seized by HMRC.
41. Dina’s witness statement and
oral evidence pursues a similar theme. She is a self-employed beautician and
operates her business on a part time basis without a substantial turnover. She
also assisted her father Ramesh with his business D&S and indeed is
recorded as an employee in her father’s business and she pays tax and national
insurance as an employee.
42. Dina is the Company
Secretary of S&D Retail Ltd (S&D Retail) which is operated by her
boyfriend although she takes very little active part in this business.
43. Dina confirms that the facts
of her appeal are very similar to those of Ramesh; she used the offices of
D&S to keep her personal documents and HMRC have seized documentation
relating to her personal and business matters together with large quantities of
stock. She repeats the allegation that the information being requested by HMRC
was being sought solely to aid an inquiry into D&S. She describes the
actions of HMRC against her as “draconian”. She says that her livelihood has
been placed in jeopardy and the whole family has been placed under great
pressure. She believes that she and her family members have a reasonable
excuse for the delay in providing requested information and that she therefore
has sufficient grounds of appeal for the penalty decisions to be reversed.
44. It is important, at this
stage, to consider the contents of the information notices originally issued by
HMRC against the three appellants. Referring to Ramesh, the “information that
we need to see” was set out in the section 36(1) notice as follows..-
1. A list of
business/private records examined by yourselves
2. Details
of all properties owned either solely or jointly with any other person/company.
3. Confirm details of all
companies that Mr Hirani is a participator in.
4. Full schedule of all
loans/mortgages applied for.
5. Confirmation that no
benefits/expenses were received.
6. Details of all rental
income received, including payments of housing benefits.
7. Details of all interest
received whether in the United Kingdom or otherwise
45. With regard to “Documents
that we need to see” requests were also made for copies of all private bank
statements, all building society statements or passbooks, all credit card
statements and details in respect of all loans and mortgages applied for in the
period 06.04.07 to 05.04.08.
46. With regard to Vinod the
request was very similar; it included the same questions asked of Ramesh with
the exception of the question about benefits/expenses and specifically
requested a detailed analysis showing the properties let, rental income
received and expenses incurred. In his case “Documents that we need to see”
were identical to those requested in respect of Ramesh.
47. The Section 36(1) notice
addressed to Dina requested all business books and records in respect of the
income received and expenditure incurred for her income as a beautician during the
period 06.04.07 to 05.04.08 to include bank statements, invoices, cash book
etc. A copy of her Contract of Employment was also requested.
48. There were also requests for
other documentation and information with regard to Dina namely:
1. A copy of the accounts
prepared.
2. The P60 regarding the
income received from D&S.
3. Details of the duties
performed for the company.
4. All
private bank statements for accounts held in the United Kingdom or otherwise,
including statements for any account used, or that you had signatory right
over, for the year ending 05.04.08.
5. All
building society statements or passbooks for accounts held in the United Kingdom or otherwise, including statements or passbooks for any accounts used, or
that you had signatory rights over, for the year ending 05.04.08.
6. All
credit card statements for accounts held in the United Kingdom or otherwise,
including statements for any accounts held jointly with any other person, or
any other account used, for the year ending 05.04.08.
7. Let
me have the application form in respect of all loans/mortgages applied for in
the period 06.04.07 to 05.04.08.
8. Let
me have details of all loans made to any individual or company for the period
06.04.07 to 05.04.08.
49. Having scrutinised the
requests for information made by HMRC it is now appropriate to consider details
of the information eventually supplied by or on behalf of the three
appellants. This is disclosed in letters from LP Patel & Co Ltd dated
19.10.10 (Ramesh) and 18.10.10 (Vinod). Disclosure by Dina was made by letter
dated 29.10.10 (which did not evidently come into the hands of HMRC until some
weeks later). Upon comparing details of information requested with details of
the information supplied the Tribunal concludes that most, if not all, of the
information supplied would clearly have been available to the three appellants
without requiring access to documentation which had been removed by HMRC from
the D&S premises.
50. In the letter dated 19.10.10
from LP Patel & Co Ltd they confirm that they prepared company accounts.
Those are documents of record. There will have been other copies apart from
any copies seized by HMRC.
51. Likewise, in answer to the
question about properties owned by Ramesh, LP Patel & Co Ltd give details
of three properties but Ramesh would not have required access to his paper
records seized by HMRC in order to disclose the addresses of properties that he
owned. The Tribunal would find it hard to believe that he could not remember
the addresses of his three properties in London, Lancashire and Bolton.
52. HMRC asked for details of
all companies in which Ramesh participated. The reply by LP Patel & Co Ltd
was that he was a Director of D&S. Access to the company records would not
have been necessary to enable Ramesh to supply this information because he will
have known that, at all material times, he was a Director of that company.
53. Ramesh was asked to supply
details of loans and mortgages. LP Patel & Co Ltd supplied confirmation of
one mortgage alone and, again, it is hardly likely that Ramesh would have
required access to his documentation in order to recall that he had a mortgage
on one property only.
54. Ramesh was asked to confirm
that no benefits/expenses were received and LP Patel & Co Ltd did indeed
confirm that. Stating a negative in this way does not require access to
documentation.
55. Likewise confirmation that
Ramesh did not receive rental income or housing benefits does not require
access to his personal documentation.
56. LP Patel and Co Ltd confirmed
the identity of Ramesh’s bank accounts; again, it would not be necessary for
access to be gained to historical documentation in order simply to supply these
bank account numbers.
57. Moving on to “documents that
we need to see” and requested from Ramesh the Tribunal considers that he would
have been able to obtain duplicate bank statements for the year ended 05.04.08
from his bank without any difficulty and it is not reasonable to plead that he
cannot produce his bank statements because he does not have access to the
original documents sent to him, presumably month by month, by his bank.
58. LP Patel & Co Ltd
confirmed that Ramesh did not hold building society accounts and, again, he did
not need access to documentation to prove a negative.
59. In so far as LP Patel &
Co Ltd supplied copies of Barclaycard credit card statements there were only four
such Statements supplied (June, July, August and September 2007) and Ramesh
could very easily have requested duplicates from Barclaycard, presumably at
minimal expense.
60. Production of the mortgage
offer in respect of Ramesh’s purchase of his Bolton property might have been
more difficult without access to the original document but, again, the mortgage
lender could presumably have supplied a copy from their records if requested.
61. The Tribunal has carried out
a similar exercise in scrutinising the request for information and documents
addressed to Vinod. In his case the letter from LP Patel & Co Ltd dated
18.10.10 refers. It will not be helpful to go through that letter item by item
because that exercise has been carried out above in respect of Ramesh but the
situation is almost identical. Nearly all of the information could have been
supplied without access to Vinod’s records and in some respects he is simply
stating a negative.
62. The same applies to Dina.
She was asked for copies of her trading accounts and it would be hard to
believe that the only copy of those accounts (for the year 06.04.07 to
05.04.08) was among the papers seized by HMRC. Dina has had the services of an
accountant and the accounts would therefore be documents of record and a duplicate
could easily be obtained. Dina stated that she had no contract of employment
so, again, she was simply confirming a negative.
63. Dina was asked for a P60 and
she could have obtained a duplicate rather than waiting to retrieve the
original from HMRC’s seized records. Duplicate bank statements could have been
obtained. In so far as she was requested to produce building society
statements or passbooks or credit card statements, again these could all have
been obtained from the appropriate organisation in duplicate.
64. The conclusion drawn by the
Tribunal, therefore, is that the alleged turmoil, following seizure of personal
documentation by HMRC, did not impact upon the three appellants to the extent
that they were unable to comply with the requests for information made by
HMRC.
65. The Tribunal now focuses
upon the question of whether there is a reasonable excuse for failure to appeal
against the penalty notices within the prescribed time. Reference has already
been made to section 49(1) of the Taxes Management Act 1970.
66. The matter of “reasonable
excuse” has been considered in a number of cases. The case of R (Browalia
Cal Ltd) v General Commissioners of Income Tax [2004] STC 296
referred to a wide discretion on the part of the General Commissioners (now the
Tribunal) and Evans-Lombe J said, at paragraphs 12 to 14:-
“12. It is submitted
before me by the taxpayer that section 49, when properly construed, confers
upon the General Commissioners, on reference to them of an application to an
inspector for permission to lodge an appeal out of time, a wider discretion
than that which the Inspector himself had. That discretion is not confined, as
the Inspector’s discretion is confined, to determining whether there was a
reasonable excuse for the failure to lodge the appeal within that time, but
would also embrace such considerations as the lack of any prejudice to the
Commissioners as a result of failing to lodge an appeal in time, and
demonstrable injustice to the taxpayer if such an appeal is not permitted to be
lodged out of time.
13. I accept that
submission. It seems to me that this is a proper construction of the Act. It is
apparent from subsection 1 of section 49 that it contemplates two stages, the
first stage being an application to the Inspector who can, if he can discern a
reasonable excuse, properly allow an appeal to be lodged out of time, thus
saving the necessity of reference to the General Commissioners for that
permission to be granted; but that if he does not find that there was
reasonable excuse, the second stage then arises, which is a reference of the
application by the Inspector to the General Commissioners for them to
determine.
14. The section does
not purport to guide the General Commissioners in any way as to how that
discretion to permit appeals to be lodged out of time should be exercised. It
seems to me, therefore, to follow that the General Commissioner’s discretion is
at large and they can consider the sort of matters which I have referred to
which an Inspector of Taxes had no power to take into account.”
67. In R on the application of Philip Cooke v General
Commissioners of Income Tax and another [2007] STC 499 Burton J
said, at paragraph 27, that :-
“27. On the other hand, of course, there must be balanced against that the
lack of explanation for the delay and the prejudice, such as it may be
established to be, on the part of the Revenue. This balancing act is not one
that was carried out by the Commissioners, because they were told that it was
not appropriate for them to do so. Browallia refers of course to the
existence of prejudice. But the depriving of a party of the opportunity of
putting forward an arguably meritious appeal is itself an obvious prejudice,
and so the reference to lack of prejudice in paragraph 12 of the judgment of
Evans-Lombe J must carry with it the question of whether basic appeal was
arguable. In any event, Evans-Lombe J clearly did not mean the examples that he
gave of the matters which would fall within the discretion of the Commissioners
but not within the original discretion of the inspector was exclusive, and the
merits are obviously an important part of that consideration. Although the
Commissioners’ letter in the protocol correspondence asserted consideration of
the merits, it is quite plain that they did not in the end consider them”.
68. Accordingly the Tribunal in
this case has considered the merits of the basic Appeals themselves against the
penalty notices.
69. In The Commissioners of
Inland Revenue for Judicial Review of a Decision of the General Commissioners of
Income Tax (Hugh Love) [2005] CSOH 135, at paragraphs 21-24, Lord
Drummond-Young said:
“21. In a sense a
tension exists between these two sections. On its face, section 49 might be thought
to confer an unrestricted power to reopen assessments by means of a late
appeal. Section 33, by contrast, is limited in its application, both by the six
year limit stipulated in subsection (1) and by the exclusion for generally
prevailing practice contained in to the proviso to subsection (2). If section
49 is unlimited in its application, however, it provides an obvious route to
circumvent the restrictions in section 33. That might be thought contrary to
the statutory scheme. A similar point can be made in relation to section 29,
dealing with discovery assessments, which is subject to a broadly similar
limitation for generally prevailing practice. This difficulty arises, I
suspect, because the assessment and appeal provisions that are not contained in
the Taxes Management Act 1970 have their origins in a number of different
Finance Acts, passed over a long period, and no attempt has been made to
develop them into a coherent code using systematic concepts and terminology. It
must be said that on the whole the assessment mechanism seems to work well in
practice, but this is no doubt due to the good sense of Inspectors of Taxes and
tax advisers rather than the coherence of the statutory provisions. In the
present case, however, I have come to the opinion that the tensions are more
apparent than real. They can readily be resolved by a proper analysis of
section 49(1), and I now turn to that analysis.
22. Section 49 is a
provision that is designed to permit appeals out of time. As such, it should in
my opinion be viewed in the same context as other provisions designed to allow
legal proceedings to be brought even though a time limit has expired. The
central feature of such provisions is that they are exceptional in nature; the
normal case is covered by the time limit, and particular reasons must be shown
for disregarding that limit. The limit must be regarded as the judgment of the
legislature as to the appropriate time within which proceedings must be brought
in the normal case, and particular reasons must be shown if a claimant or
appellant is to raise proceedings, or institute an appeal, beyond the period
chosen by Parliament.
23. Certain
considerations are typically relevant to the question of whether proceedings
should be allowed beyond a time limit. In relation to a late appeal of the sort
contemplated by section 49, these include the following; it need hardly be
added that the list is not intended to be comprehensive. First is there a
reasonable excuse for not observing the time limit, for example because the
appellant was not aware and could not with reasonable diligence have become
aware that there were grounds for an appeal? If the delay is in part caused by
the actings of the Revenue, that could be a very significant factor in deciding
that there is a reasonable excuse. Secondly, once the excuse has ceased to
operate, for example because the appellant became aware of the possibility of
an appeal, have matters proceeded with reasonable expedition? Thirdly, is there
prejudice to one or other party if a late appeal is allowed to proceed, or if
it is refused? Fourthly, are there considerations affecting the public interest
if the appeal is allowed to proceed, or if permission is refused? The public
interest may give rise to a number of issues. One is the policy of finality in
litigation and other proceedings; matters have to be brought to a conclusion
within a reasonable time, without the possibility of being reopened. That may
be a reason for refusing leave to appeal where there has been a very long
delay. A second issue is the effect that the instant proceedings might have on
other legal proceedings that have been concluded in the past; if an appeal is
allowed to proceed in one case, it may have implications for other cases that
have long since been concluded. This is essentially the policy that underlies
the proviso to section 33(2) of the Taxes Management Act. A third issue is the
policy that it is to be discerned in other provisions of the Taxes Acts; that
policy has been enacted by Parliament, and it should be respected in any
decision as to whether an appeal should be allowed to proceed late. Fifthly,
has the delay affected the quality of the evidence that is available? In this
connection, documents may have been lost, or witnesses may have forgotten
details of what happened many years before. If there is a serious deterioration
in the availability of evidence, that has a significant impact on the quality
of justice that is possible and may of itself provide a reason for refusing
leave to appeal late.
24.
Because the granting of leave to bring an appeal or other proceedings late is
an exception to the norm, the decision as to whether they should be granted is
typically discretionary in nature. Indeed, in view of the range of
considerations that are typically relevant to the question, it is difficult to
see how an element of discretion can be avoided. Those considerations will
often conflict with one another, for example in a case where there is
reasonable excuse for failure to bring proceedings and clear prejudice to the
applicant for leave but substantial quantities of documents have been lost with
the passage of time. In such a case the person or body charged with the
decision as to whether leave should be granted must weigh the conflicting
considerations and decide where the balance lies.”
70. In R (on the application
of Cook) v General Commissioners of Income Tax and another (No 2)
[2009] STC 1212 (“Cook No 2”) Dyson LJ (as he then was) agreed, at [18],
that the analysis in the judgement of Lord Drummond Young provided valuable
guidance as to the correct approach to section 49 TMA.
71. The Tribunal today now
applies the fact of this case to the consideration set out by Lord Drummond
Young in the Hugh Love case. The Tribunal finds that there was no reasonable
excuse for these three appellants not observing the time limits for appeals in
this case. All three appellants had letters requesting information, they
ignored the first penalty notices and took no timely action on the final
penalty notices. The notices themselves, on the face of them, made quite clear
the consequences of failure to comply with the information notices.
72. Delays in this case have not
been caused by the actions of HMRC. The appellants have had no reasonable excuse
from the outset and so it is not necessary to consider whether they have
proceeded with reasonable expedition once any excuse had ceased to operate.
With regard to prejudice HMRC is entitled to receive the penalty monies from
the three appellants and it is not right that there should be procrastination
so that their receipt of the penalty monies is delayed. With regard to public
interest it is right that HMRC are seen to be pursuing matters with diligence;
other taxpayers have to comply with proper requests for information and it is
right that HMRC should be permitted to carry out their public duties without
delays imposed by others.
73. The Taxes Management Act
1970 clearly displays a policy of insistence that appeals proceed in a timely
manner. These appeals have not been pursued by these appellants in a timely
manner.
74. The Tribunal concludes that
even if leave to appeal out of time were to be given there is no merit in any
appeal against these penalty notices. They were properly imposed. The issues
in this case have been blurred by the unfortunate commercial situation faced by
the appellants in connection with matters which are not strictly relevant to
the appeals. The penalties were properly imposed, they shall remain in place
and these three appeals are dismissed.
75. This document contains full
findings of fact and reasons for the decision. Any party dissatisfied with this
decision has a right to apply for permission to appeal against it pursuant to
Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules
2009. The application must be received by this Tribunal not later than 56
days after this decision is sent to that party. The parties are referred to
“Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)”
which accompanies and forms part of this decision notice.
WDF COVERDALE
TRIBUNAL JUDGE
RELEASE DATE: 30 November 2011
