Non-resident penalty appeal allowed

In a recent First-Tier Tax Tribunal case, a non-resident’s appeal for reasonable excuse in relation to late filing penalties was denied, however, interestingly the Tribunal still decided to waive the penalties.

The appellant in A Newton v HMRC was resident in France and filed his 2012/13 tax return late.  He appealed against the higher later filing penalties on the basis that as he was living in France, he had not seen any advertising in relation to the new penalties.

We recently wrote about another case involving a non-resident appealing on similar principles, in relation to the introduction of the Non-Resident Capital Gains Tax (NRCGT) returns.  In that case the appeal was allowed because it was felt to be unreasonable to expect the taxpayer to have found the new rules independently.

However, the tribunal in this case did not feel the same principle would apply.  In this case, the taxpayer would have received documents showing the new penalty levels (for example on the notice to file) and the Tribunal therefore felt that, “a person reasonably trying to meet their tax return filing responsibilities would have realised from reading any of these documents that the penalties had changed”.

However the tribunal judge did overturn the penalties on the basis that the individual did not have a UK tax liability at all and stated that, “he would not have met the “SA criteria” that HMRC use, and he would not have had any obligation to notify chargeability under s 7 Taxes Management Act 1970”.  He was therefore, in the judge’s opinion, not legally obliged to complete the UK return.  The penalties were therefore reduced to nil.

Sympathy for the Devil

More cases on the scope of HMRC powers.

The first concerns a current successful barrister.  His penalty for failing to react to HMRC information notices was £1.2m+.  Many would say “Ouch!  That hurt!”  However, in this case, the judge in the Upper Tribunal pointed out that some of the information requested went back over 9 years to the death of the taxpayer’s father and his Inheritance Tax affairs.

The judge found it “difficult, if not impossible to understand why a man of the Taxpayer’s means had not appointed a professional advisor to help him deal with all his tax affairs”.  The judge felt the money spent on penalties could have been far better used! (CRC v Ronnie Tager).

With the background to the case and the incredibly lengthy delays in getting information, it is difficult to avoid thinking HMRC were on the side of the angels in this case.

In the case of J Dyson, the taxpayer appealed against a penalty for late filing of a partnership return.  He said he had done all he could to ensure compliance, but it was held that he had no right of appeal whatsoever, because only the ‘representative partner’ had any rights of appeal.

Whilst it seems reasonable that the ‘representative partner’ should generally be the main point of contact for HMRC, to deny altogether the rights of other partners would seem a trifle un-sporting.  The First Tier Tribunal thought so and felt it was in breach of his civil rights that he had no right to a fair hearing.  However, their conclusion was that they had no powers to overrule the legislation.  As the first case notes, individual taxpayers can be unco-operative, and that must be frustrating for Revenue Officers.  However, does that make it appropriate for them to take action against other taxpayers, where the position is perhaps unfair?

The final ‘powers’ case shows that repayments of excess tax paid in earlier years, under self- assessment may be reclaimed in appropriate circumstances.  Andrew Michael Higgs overpaid tax on account.  The courts held the taxpayer was not limited by the 4 year time limit generally applying on claims.

A fair summary of the line of cases would seem to be that:

a)     Circumstances alter cases.  If unfortunately you find yourself amidst disaster, then look carefully at the facts to try to detect an escape hatch.

b)    Investing in timely reporting and good professional advice to keep matters up to date is likely to be money well spent, both financially and emotionally.

 A TAX IN TIME SAVES NINE.

Out of Time Appeal Allowed – C Davison v HMRC

A recent case concerned an application for an appeal relating to years that would normally be outside of the appeal window.

Background and Facts

The taxpayer’s returns for 1997/98 and 1998/99 were amended by HMRC after she had left the UK to live in Spain.  HMRC were informed of her departure (after the enquiries were raised) but continued attempting to contact the taxpayer at her old address for the next three years.

Assessments were also raised by HMRC for 2000/01 and 2001/02, and having located Mrs Davison’s details in Spain were able to deduct funds from her Spanish bank account.  In 2008, she telephoned HMRC receiving confirmation that the tax due on the assessments for those two years had been incorrectly raised and that the tax was not due.

Mrs Davison therefore asked for a refund of the tax, however HMRC said this was not possible as tax was still due on the earlier assessments for the years 1997/98 and 1998/99. This was the first she had heard of the earlier year assessments as they had not been sent to her in Spain.

The representative for HMRC indicated that if she wanted a repayment they would seek payment for the tax due and she might lose the case. As a result, she believed that by not pursuing the matter further it would be resolved (as suggested by HMRC).  This was confirmed by HMRC’s internal notes, which stated they “now consider this case closed”.

She applied for a repayment in 2012 having returned to the UK but this was refused by HMRC because of the outstanding 1997/98 and 1998/99 liabilities.

She therefore sought to appeal the assessments which HMRC claimed were now out of time.

Decision

In making its decision the Tribunal noted that HMRC could have confirmed the assessments for 1997/98 and 1998/99 were still due at any point from 2001 until 2011 but had not done so.

Mrs Davison was reasonable in her belief that the assessments had been vacated, and therefore would have had no reason to think she needed to appeal.

The application for the right to appeal out of time was allowed.

The case shows the importance of taxpayers asserting their rights and challenging HMRC’s occasionally draconian application of the rules on appeals.  It is worth remembering that out of time appeals can be sought in suitable circumstances.

New Daily Penalties for Late Payment Quashed

In the recent co-decision tribunal case of Morgan v HMRC and Donaldson v HMRC (TC 9096 & 8431) the procedure behind issuing £10 daily late filing penalties was challenged.

Background & Legislation

Schedule 55 of FA 2009 allows HMRC to levy penalties of £10 per day if a self-assessment tax return has not been filed within 3 months of the filing date.  Such can penalties can be issued for up to 90 days, meaning that the maximum daily penalties issued totals £900.

In order for the daily penalties to be valid the legislation requires that HMRC “decides” whether to impose the penalties and notifies the taxpayer of the decision.

The taxpayers in question argued that the SA returns and subsequent reminders issued did not satisfy the above conditions and therefore the penalties were not valid.

 The questions for the tribunal to address were:

– Did the fact that daily penalties were automatically issued by an HMRC computer constitute a decision?

– Did the SA return and/or reminders constitute a notice of the liability to the daily penalties?

Decision

The tribunal found that it had been decided at a senior level, and as a general policy, to impose daily penalties where there’s a default, and accordingly the HMRC computers were programmed to deal with this. To do otherwise would have meant up to a million individual decisions – a completely impractical exercise. The tribunal, by the chairman’s casting vote, therefore found that there had been a HMRC decision which met the requirements of schedule 55.

With regards to the notice of a penalty HMRC relied on the SA returns and reminders which stated:

 “If we still haven’t received your online tax return by 30 April (31 January if you’re filing a paper one) a £10 daily penalty will be charged every day it remains outstanding. Daily penalties can be charged for a maximum of 90 days, starting from 1 February for paper tax returns or 1 May for online tax returns.”

The tribunal found that the statutory requirement was not met as the documents were ambiguous.  This was because of the use of ‘will’ in the first sentenced followed by ‘can’ in the second.

The tribunal found that the text merely indicated that HMRC could impose daily penalties.  They felt that even applying a purposive construction the terms of either document were not clear enough to impose a penalty from a particular date.

The fact that two dates were mentioned was not the point; the vagueness of the documents was their downfall. Accordingly the appeal on the daily penalties was allowed.

Impact of The Case

Presumably HMRC will update the text of their SA returns and reminder notices accordingly to make sure a ‘notice’ is given.

However, given the decision it will be interesting to see whether other taxpayers challenge daily penalties previously issued and if HMRC will appeal the case.