Robert Gilmour v Revenue & Customs (INCOME TAX - Schedule 55 Finance Act 2009 ) [2020] UKFTT 105 (TC) (20 February 2020)

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Robert Gilmour v Revenue & Customs (INCOME TAX - Schedule 55 Finance Act 2009 ) [2020] UKFTT 105 (TC) (20 February 2020) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07599.html Cite as: [2020] UKFTT 105 (TC)

DECISION

INTRODUCTION

1. This is an appeal by Mr Robert Gilmour (‘the Appellant’) against fixed and daily penalties totalling £1,300 imposed by the Respondents (‘HMRC’) under Paragraph 3, 4 and 5 of Schedule 55 Finance Act 2009, for his failure to file a self-assessment (‘SA’) tax return on time for the tax year ending 5 April 2018.

BACKGROUND

2. The Appellant’s return for 2017-18, was due if not filed electronically no later than 31 October 2018.

3. The penalties for late filing of a return can be summarised as follows:

(i) A penalty of £100 is imposed under Paragraph 3 of Schedule 55 Finance Act (‘FA’) 2009 for the late filing of the Individual Tax Return.

(ii) If after a period of 3 months beginning with the penalty date the return remains outstanding, daily penalties of £10 per day up to a total of £900 are imposed under Paragraph 4 of Schedule 55 FA 2009.

(iii) If after a period of 6 months beginning with the penalty date the return remains outstanding, a penalty of £300 is imposed under Paragraph 5 of Schedule 55 FA 2009.

(iv) If after a period of 12 months beginning with the penalty date the return remains outstanding, a penalty of £300 is imposed under Paragraph 6 of Schedule 55 FA 2009.

4. The Appellant’s paper return for 2017-18 was filed on 3 June 2019. It was therefore not filed on time and penalties of £100, £900 and £300 were imposed, under (i), (ii) and (iii) above.

Filing date and Penalty date

5. Under s 8(1D) TMA 1970 a non-electronic return must normally be filed by 31 October in the relevant financial year or an electronic return by 31 January in the year following. The ‘penalty date’ is defined at Paragraph 1(4) Schedule 55 FA 2009 and is the date after the filing date.

Reasonable excuse

6. Paragraph 23 of Schedule 55 FA 2009, provides that a penalty does not arise in relation to a failure to make a return if the person satisfies HMRC (or on appeal, a Tribunal) that they had a reasonable excuse for the failure and they put right the failure without unreasonable delay after the excuse ceased.

7. The law specifies two situations that are not reasonable excuse:

(a) An insufficiency of funds, unless attributable to events outside the Appellant’s control, and

(b) Reliance on another person to do anything, unless the person took reasonable care to avoid the failure.

8. There is no statutory definition of “reasonable excuse”. Whether or not a person had a reasonable excuse is an objective test and “is a matter to be considered in the light of all the circumstances of the particular case” (Rowland V HMRC (2006) STC (SCD) 536 at paragraph 18).

9. The actions of the taxpayer should be considered from the perspective of a prudent person, exercising reasonable foresight and due diligence, having proper regard for their responsibilities under the Tax Acts. The decision depends upon the particular circumstances in which the failure occurred and the particular circumstances and abilities of the person who failed to file their return on time. The test is to determine what a reasonable taxpayer, in the position of the taxpayer, would have done in those circumstances and by reference to that test to determine whether the conduct of the taxpayer can be regarded as conforming to that standard.

10. The onus lies with HMRC to show that the penalties were issued correctly and within legislation. If the Tribunal find that HMRC have issued the penalties correctly the onus then reverts to the Appellant to show that he has a reasonable excuse for the late filing of his SA tax return.

The background facts

11. The Appellant’s 2017-18 return was issued to him on or around 6 April 2018 and was due to be returned by 31 October 2018 if not returned electronically. The Notice to file a return was issued to the correspondence address provided by the Appellant.

12. The Appellant’s grounds of appeal are that because he expected to earn less than £100,000 in the relevant tax year he erroneously believed that he did not have to file a return. He only realised that he was obliged to do so upon receiving his penalty notice at the end of March 2019. Accordingly, he had a reasonable excuse for the delay in filing a return.

13. The SA return was received non-electronically by HMRC on 3 June 2019. It was 215 days late.

14. HMRC originally imposed a fixed penalty of £100 together with daily penalties [at £10 for each day, totalling £900]. The return still having not been received six months after the filing date HMRC imposed a fixed penalty of £300.

15. The Appellant appealed to the Tribunal on 22 October 2019.

The Appellant’s case

16. The Appellant’s grounds of appeal are that he only became aware of the requirement to file the return in May 2019.

HMRC’s Case

17. A late filing penalty is raised solely because a SA tax return is filed late in accordance with Schedule 55 FA 2009, even if a customer has no tax to pay, has already paid all the tax due or is due a refund.

18. Where a return is filed after the relevant deadline a penalty is charged. The later a return is received, the more penalties are charged.

Reasonable Excuse

19. Under Paragraph 23 (1) Schedule 55 FA 2009 liability to a penalty does not arise in relation to failure to make a return if the taxpayer has a reasonable excuse for failure.

20. ‘Reasonable excuse’ was considered in the case of The Clean Car Company Ltd v The Commissioners of Customs & Excise by Judge Medd who said:

“It has been said before in cases arising from default surcharges that the test of whether or not there is a reasonable excuse is an objective one. In my judgment it is an objective test in this sense. One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?” [Page 142 3rd line et seq.].

21. HMRC considers a reasonable excuse to be something that stops a person from meeting a tax obligation on time despite them having taken reasonable care to meet that obligation. HMRC’s view is that the test is to consider what a reasonable person, who wanted to comply with their tax obligations, would have done in the same circumstances and decide if the actions of that person met that standard.

22. If there is a reasonable excuse it must exist throughout the failure period.

23. The Appellant has not provided a reasonable excuse for his failure to file his tax return for the year 2017-18 on time and accordingly the penalties have been correctly charged in accordance with the legislation.

24. The amount of the penalties charged is set within the legislation. HMRC has no discretion over the amount charged and must act in accordance with the legislation. By not applying legislation and as such not to have imposed the penalty would mean that HMRC was not adhering to its own legal obligations.

Special Reduction

25. Paragraph 16(1) of Schedule 55 allows HMRC to reduce a penalty if they think it is right because of special circumstances. “Special circumstances” is undefined save that, under paragraph 16(2), it does not include ability to pay, or the fact that a potential loss of revenue from one taxpayer is balanced by a potential overpayment by another.

26. In other contexts “special” has been held to mean ‘exceptional, abnormal or unusual’ (Crabtree v Hinchcliffe [1971] 3 All ER 967), or ‘something out of the ordinary run of events’ (Clarks of Hove Ltd v Bakers’ Union [1979] 1 All ER 152). The special circumstances must also apply to the particular individual and not be general circumstances that apply to many taxpayers by virtue of the penalty legislation (David Collis [2011] UKFTT 588 (TC), paragraph 40).

27. Where a person appeals against the amount of a penalty, paragraph 22(2) and (3) of Schedule 55, FA 2009 provide the Tribunal with the power to substitute HMRC’s decision with another decision that HMRC had the power to make. The Tribunal may rely on paragraph 16 (Special Reduction) but only if they think HMRC’s decision was ‘flawed when considered in the light of the principles applicable in proceedings for judicial review’.

28. HMRC have considered the Appellant’s grounds of appeal but assert that his circumstances do not amount to special circumstances which would merit a reduction of the penalties.

29. Accordingly, HMRC’s decision not to reduce the penalties under paragraph 16 was not flawed. There are no special circumstances which would require the Tribunal to reduce the penalties.

FINDINGS OF FACT

30. The notice to file was sent to Mr Gilmour’s registered address on 6 April 2018. In his reply to the Statement of Case he states that he did not receive the notice. There is no suggestion within the papers before me that there were any postal difficulties around the relevant time and he has received all subsequent correspondence. Given that he appears to have felt sure that he would not be required to file because of a misunderstanding as to the level of his earnings, it may be that he ignored the notice upon receipt. Certainly, no documentation has been returned undelivered to the Respondent. I consider that it is likely in those circumstances that he received the notice to file.

31. Penalty notices were sent to the same address on or around 26 March 2019 and 1 October 2019. He appears to accept that he received those notices. By 15 May 2019 the Appellant would have received only the first. He submitted an appeal on that date. On 29 May 2019 the Respondent responded to his appeal against the penalty and indicated that he must still file a tax return or continue to accrue penalties.

32. It is agreed that the return was in fact submitted non-electronically on 3 June 2019. The Appellant does not suggest that he in fact submitted it earlier. I accept that the return was not properly submitted on or around 31 October 2018, or prior to 3 June 2019.

33. A person is liable to a penalty if (and only if) HMRC give notice to the person specifying the date from which the penalty is payable. I am satisfied that the penalty notices dated on or around 26 March 2019 gave proper notice (Donaldson v The Commissioners for HM Revenue & Customs [2016] EWCA Civ 761) and were sent to the postal address linked to the Appellant’s SA account.

34. In his appeal notice of 22 October 2019 Mr Gilmour states that he believed that he did not need to submit a tax return because he earned less than £100,000 per annum. He made significant efforts to check what his earnings would be and had increased his pension contributions distorting the figures.

DISCUSSION

35. Relevant statutory provisions are included as an Appendix to this decision.

36. I have concluded that the tax return for the 2017-18 tax year was not submitted on time. It should have been submitted by 31 October 2018. Subject to considerations of “reasonable excuse” and “special circumstances” set out below, the penalties imposed are due and have been calculated correctly.

37. When a person appeals against a penalty they are required to have a reasonable excuse which existed for the whole period of the default. There is no definition in law of reasonable excuse, which is a matter to be considered in the light of all the circumstances of the particular case. A reasonable excuse is normally an unexpected or unusual event, which prevents him or her from complying with an obligation which otherwise they would have complied with.

38. In the previous tax year the Appellant was required to file a tax return. His income was just over £100,000. In the 2017-18 tax year his income was in fact a little higher, but in any event, he must have expected it to be around the same amount. To have failed to consider the possibility that a tax return would again be required would be unreasonable.

39. A tax return was issued to the Appellant on 6 April 2018 and I have concluded that it is likely that he would have received it. Having been issued there is an obligation that it is submitted prior to the filing date, whether any tax is due or not.

40. The Appellant properly received his notice to file and made no efforts to check whether a return was required. Even had he not received that notice, his earnings were so close to £100,000 - the amount that the Appellant believed triggered a return - that it is in my judgment unreasonable to fail to check whether a tax return would be required, either by contacting an accountant or HMRC. He then submitted the tax return in paper form. No penalty would be accrued until after 31 January 2019 because the Respondent would not be aware of whether the Appellant was to choose an electronic or paper return. The Appellant having chosen to return a paper copy, his filing was therefore over six months late by the time he sought to appeal in May 2019. All penalties were accrued by that point. The penalty notice was sent to him on 26 March 2019. Had he responded immediately by filing his return it is possible that he would have avoided the final penalty under paragraph 5 of Schedule 55 FA 2009. However, it then took a further six weeks for him to contact the Respondent and in that event he sought only to appeal the penalties rather than to file the return. That penalty notice does prompt the tax payer that the return still needs to be submitted and yet it wasn’t. By the time the Appellant did submit the return in June 2019 the final penalty had been accrued. Whilst I do accept that there was limited correspondence sent to the Appellant, he does not appear to have acted expeditiously once it was brought to his attention that he had failed to comply with his tax obligations.

41. In his notice of appeal Mr Gilmour seems to indicate that his difficulties stem from the “online arrangements” in relation to filing his tax return, but I have no information before me to suggest that he ever made efforts to file online. It is not therefore clear to what he refers.

42. In Perrin v HMRC [2018] UKUT 156, the Upper Tribunal had explained that the experience and knowledge of the particular taxpayer should be taken into account. The Upper Tribunal had concluded that for an honestly held belief to constitute a reasonable excuse it must also be objectively reasonable for that belief to be held. The Appellant had earned around the same amount the previous year and been required to file. It may be the case that he was under the misunderstanding that he would not be required to file if he earnt less than £100,000, but having received a notice to file, in my judgment it is not objectively reasonable to have failed to check whether the requirement to file remained. In fact, his tax return indicated that he earned over £100,000 in the relevant tax year and so any misunderstanding is wholly irrelevant to his decision not to file. Even on his account of events, he should have been aware by October 2018 that he would be required to file.

43. In his reply to the Statement of Case he talks about having increased his pension contributions and the gross earnings figure on his 2019 P60 being reduced which led him into error. However, that P60 is for the year after the 2017-18 tax year and would not have been available to him at the time of the 2017-18 requirement to file.

44. I have also borne in mind the recent comments of the Tribunal in Hesketh v HMRC [2017] UKFTT 871 about whether ignorance of an obligation to file could excuse late filing. Judge Mosedale held that Parliament intended all of its laws to be complied with, and that ignorance of the law was not an excuse. I agree with those conclusions and consider that if ignorance of the obligation cannot be a reasonable excuse, then awareness of the obligation but ignorance of the consequences also cannot be a reasonable excuse.

45. I conclude that Mr Gilmour does not have a reasonable excuse for the late filing of his return for 2017-18.

46. Even when a taxpayer is unable to establish that he has a reasonable excuse and he remains liable for one or more penalties, HMRC have the discretion to reduce those penalties if they consider that the circumstances are such that reduction would be appropriate. In this case HMRC have declined to exercise that discretion.

47. Paragraph 22 of Schedule 55 provides that I am only able to interfere with HMRC’s decision on special reduction if I consider that their decision was flawed (in the sense understood in a claim for judicial review). That is a high test and I do not consider that HMRC’s decision in this case (set out in their Statement of Case) is flawed. Therefore, I have no power to interfere with HMRC’s decision not to reduce the penalties imposed upon Mr Gilmour.

48. I should add, that even if I did have the power to make my own decision in respect of special reduction, the only special circumstance which Mr Gilmour relied upon was his belief that he was not required to file a tax return. He further notes that the Respondent did not issue the penalty notices until March 2019 when most of the penalties had already accrued. I have explained above why I do not consider that failure to ensure his tax obligations were complied with can provide Mr Gilmour with a reasonable excuse for his late filing. Whilst I do accept that the late notification of the penalty notice was regrettable, I do not consider that such late notification constitutes something exceptional, abnormal or unusual, specific to this taxpayer, and the circumstances are not such as to make it right for me to reduce the penalty which has been imposed.

CONCLUSION

49. I therefore confirm the fixed penalties of £100, £900 and £300.

RIGHT TO APPLY FOR PERMISSION TO APPEAL

50. 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.

ABIGAIL HUDSON

TRIBUNAL JUDGE

RELEASE DATE: 20 FEBRUARY 2020

APPENDIX

RELEVANT STATUTORY PROVISIONS

Finance Act 2009

51. The penalties at issue in this appeal are imposed by Schedule 55. The starting point is paragraph 3 of Schedule 55 which imposes a fixed £100 penalty if a self-assessment return is submitted late.

52. Paragraph 4 of Schedule 55 provides for daily penalties to accrue where a return is more than three months late as follows:

4—

(1) P is liable to a penalty under this paragraph if (and only if) —

(a) P’s failure continues after the end of the period of 3 months beginning with the penalty date,

(b) HMRC decide that such a penalty should be payable, and

(2) The penalty under this paragraph is £10 for each day that the failure continues during the period of 90 days beginning with the date specified in the notice given under sub-paragraph (1)(c).

(3) The date specified in the notice under sub-paragraph (1)(c)—

(a) may be earlier than the date on which the notice is given, but

(b) may not be earlier than the end of the period mentioned in sub-paragraph (1)(a).

53. Paragraph 5 of Schedule 55 provides for further penalties to accrue when a return is more than 6 months late as follows:

5—

(1) P is liable to a penalty under this paragraph if (and only if) P’s failure continues after the end of the period of 6 months beginning with the penalty date.

(2) The penalty under this paragraph is the greater of —

(a) 5% of any liability to tax which would have been shown in the return in question, and

(b) £300.

54. Paragraph 6 of Schedule 55 provides for further penalties to accrue when a return is more than 12 months late as follows:

6—

(1) P is liable to a penalty under this paragraph if (and only if) P’s failure continues after the end of the period of 12 months beginning with the penalty date.

(2) Where, by failing to make the return, P deliberately withholds information which would enable or assist HMRC to assess P’s liability to tax, the penalty under this paragraph is determined in accordance with sub-paragraphs (3) and (4).

(3) If the withholding of the information is deliberate and concealed, the penalty is the greater of —

(a) the relevant percentage of any liability to tax which would have been shown in the return in question, and

(b) £300.

(3A) For the purposes of sub-paragraph (3)(a), the relevant percentage is—

(a) for the withholding of category 1 information, 100%,

(b) for the withholding of category 2 information, 150%, and

(4) If the withholding of the information is deliberate but not concealed, the penalty is the greater of —

(a) the relevant percentage of any liability to tax which would have been shown in the return in question, and

(b) £300.

(4A) For the purposes of sub-paragraph (4)(a), the relevant percentage is—

(a) for the withholding of category 1 information, 70%,

(b) for the withholding of category 2 information, 105%, and

(5) In any case not falling within sub-paragraph (2), the penalty under this paragraph is the greater of —

(a) 5% of any liability to tax which would have been shown in the return in question, and

(b) £300.

(6) Paragraph 6A explains the 3 categories of information.

55. Paragraph 23 of Schedule 55 contains a defence of “reasonable excuse” as follows:

23—

(1) Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a return if P satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure.

(2) For the purposes of sub-paragraph (1)—

(a) an insufficiency of funds is not a reasonable excuse, unless attributable to events outside P's control,

(b) where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and

(c) where P had a reasonable excuse for the failure but the excuse has ceased, P is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

56. Paragraph 16 of Schedule 55 gives HMRC power to reduce penalties owing to the presence of “special circumstances” as follows:

16—

(1) If HMRC think it right because of special circumstances, they may reduce a penalty under any paragraph of this Schedule.

(2) In sub-paragraph (1) “special circumstances” does not include—

(a) ability to pay, or

(b) the fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another.

(3) In sub-paragraph (1) the reference to reducing a penalty includes a reference to—

(a) staying a penalty, and

(b) agreeing a compromise in relation to proceedings for a penalty.

57. Paragraph 20 of Schedule 55 gives a taxpayer a right of appeal to the Tribunal and paragraph 22 of Schedule 55 sets out the scope of the Tribunal’s jurisdiction on such an appeal. In particular, the Tribunal has only a limited jurisdiction on the question of “special circumstances” as set out below:

22—

(1) On an appeal under paragraph 20(1) that is notified to the tribunal, the tribunal may affirm or cancel HMRC's decision.

(2) On an appeal under paragraph 20(2) that is notified to the tribunal, the tribunal may —

(a) affirm HMRC’s decision, or

(b) substitute for HMRC’s decision another decision that HMRC had power to make.

(3) If the tribunal substitutes its decision for HMRC’s, the tribunal may rely on paragraph 16—

(a) to the same extent as HMRC (which may mean applying the same percentage reduction as HMRC to a different starting point), or

(b) to a different extent, but only if the tribunal thinks that HMRC’s decision in respect of the application of paragraph 16 was flawed.

(4) In sub-paragraph (3)(b) “flawed” means flawed when considered in the light of the principles applicable in proceedings for judicial review.

58. Section 8 - Personal return- provides as follows:

(1) For the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, [and the amount payable by him by way of income tax for that year,] he may be required by a notice given to him by an officer of the Board-

a) to make and deliver to the officer, on or before the day mentioned in subsection (1A) below, a return containing such information as may, reasonably be required in pursuance of the notice, and

b) to deliver with the return such accounts, statements and documents, relating to information contained in the return, as may reasonably be so required.

(1A) The day referred to in subsection (1) above is-

(a) the 31st January next following the year of assessment, or

(b) where the notice under the section is given after the 31st October next following the year, the last [day of the period of three months beginning with the day on which the notice is given]

(1AA) For the purposes of subsection (1) above-

(a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return; and

(b) the amount payable by a person by way of income tax is the difference between the amount in which he is chargeable to income tax and the aggregate amount of any income tax deducted at source and any tax credits to which [section 397(1) [or [397A(1)] of ITTOIA 2005] applies.]

(1B) In the case of a person who carries on a trade, profession, or business in partnership with one or more other persons, a return under the section shall include each amount which, in any relevant statement, is stated to be equal to his share of any income, [loss, tax, credit] or charge for the period in respect of which the statement is made.

(1C) In subsection (1B) above "relevant statement" means a statement which, as respects the partnership, falls to be made under section 12AB of the Act for a period which includes, or includes any part of, the year of assessment or its basis period.]

(1D) A return under the section for a year of assessment (Year 1) must be delivered-

(a) in the case of a non-electronic return, on or before 31st October in Year 2, and

(b) in the case of an electronic return, on or before 31st January in Year 2.

(1E) But subsection (1D) is subject to the following two exceptions.

(1F) Exception 1 is that if a notice in respect of Year 1 is given after 31st July in Year 2 (but on or before 31st October), a return must be delivered-

(a) during the period of 3 months beginning with the date of the notice (for a non-electronic return), or

(b) on or before 31st January (for an electronic return).

(1G) Exception 2 is that if a notice in respect of Year 1 is given after 31st October in Year 2, a return (whether electronic or not) must be delivered during the period of 3 months beginning with the date of the notice.

(1H) The Commissioners-

(a) shall prescribe what constitutes an electronic return, and

(b) may make different provision for different cases or circumstances.

(2) Every return under the section shall include a declaration by the person making the return to the effect that the return is to the best of his knowledge correct and complete.

(3) A notice under the section may require different information, accounts and statements for different periods or in relation to different descriptions of source of income.

(4) Notices under the section may require different information, accounts and statements in relation to different descriptions of person.

(4A)Subsection (4B) applies if a notice under the section is given to a person within section 8ZA of the Act (certain persons employed etc. by person not resident in United Kingdom who perform their duties for UK clients).

(4B)The notice may require a return of the person's income to include particulars of any general earnings (see section 7(3) of ITEPA 2003) paid to the person.

(5) In the section and sections 8A, 9 and 12AA of the Act, any reference to income tax deducted at source is a reference to income tax deducted or treated as deducted from any income or treated as paid on any income.

First-tier Tribunal (Tax)