Recent blogs have considered the HMRC interpretation of reasonable excuse as requiring Death, Disease or Disaster. Although this latest case may not concern this interpretation of ‘reasonable excuse,’ it continues the theme of HMRC taking a hard line and refusing to consider circumstances.
In Maxwell v CRC, the taxpayer’s accountant, who had been responsible for preparing and submitting the tax returns, passed away. When the filing dates for Mr Maxwell’s self-assessment returns were missed due to the unfortunate death of his agent, determinations were raised by the HMRC. The determinations that were raised by HMRC were subsequently found to be excessive when compared to the tax due; the determination for the 2007/08 tax year was just under £5,000 whereas the tax liability for was found to be only £400. Unfortunately, the deadline to displace the determinations raised by HMRC was also not met by the taxpayer and HMRC stood by the original determinations refusing a claim for Special Relief.
Maxwell appealed under TMA 1970, Sch 1AB para 3A, which states that a claim for relief can be made where HMRC would believe it to be unconscionable to seek to recover the amount or to withhold the repayment of tax. Maxwell had been unaware of his agent’s illness and believed that he had been handling his taxation matters efficiently so therefore felt it was unconscionable for HMRC to recover the excess tax.
The measures in question were introduced in 2011 with equitable liability replaced by the new statutory Special Relief. In 2011 this ‘special relief’ was introduced as a form of relief which can apply to amounts charged in HMRC determinations for self-assessment where no other statutory remedy is available. Although conditions have to be met to be eligible for special relief, the relevant condition in question in Maxwell v CRC was whether HMRC found it unconscionable to seek to recover the amount charged by the determination.
The taxpayer appealed against HMRC’s refusal and the FTT tribunal ruled that the taxpayer had satisfied all conditions required. His appeal was allowed and relief was granted. Consequently, HMRC was found to have acted in a manner deemed unconscionable in this case.
The recent tribunal case of Seacourt Developments Limited v HMRC involved appeals against a number of determinations by HMRC in respect of PAYE, national insurance contributions (NICs) and Construction Industry Scheme (CIS) deductions.
Seacourt had previously stated that it only had seven employees via its P35 and no subcontractors were detailed in its CIS returns for 2005/06. In August 2008 the company’s new auditors submitted a revised schedule showing “workers” for 2005/06 as being 176, however no additional detail could be provided on their status as Seacourt did not provide it.
HMRC subsequently issued determinations for the 169 additional “workers” from 2005/06 -2007/08 on the advice of the company’s accountants (Seacourt failed to arrange a meeting with their accountants to discuss the issues). HMRC made an estimate as to which “workers” should have been dealt with under PAYE and CIS, with the total amount of PAYE and NIC due being £758,124.
In addition to the tax due HMRC also issued penalty notices. The maximum amount that could be charged was 100% of the tax due; however HMRC mitigated the penalty by reducing it by 10% for disclosure (max 20%), 20% for co-operation (max 40%) and 20% for seriousness (max 40%). The result being that the penalty was reduced to 50% of the tax due.
Seacourt appealed against the penalty but the judge ruled in HMRC’s favour. However, perhaps most surprisingly the tribunal ordered that the penalty be increased to 95% of the tax found to be due, bringing the total penalty to £720,217.80 (previously £379,060).
The penalty was increased on the basis that Seacourt had failed to co-operate and the offence was serious in nature, and therefore the discounts previously afforded by HMRC were removed. The tribunal also felt the disclosure was not of sufficient quality to warrant a 10% reduction and reduced it to 5%. As a result the maximum penalty was only reduced by 5%.
The overall outcome of the case is not surprising given the facts, however the fact that the tribunal ordered the penalty to be increased is. This could have an impact on HMRC’s penalty mitigation criteria in the future and also make taxpayers think twice before appealing an already reduced penalty.