A recent case at the Upper Tribunal considered this question with regard to late payment penalties charged on self-assessment tax returns (B Edwards v CRC, Upper Tribunal (Tax and Chancery Chamber).

The taxpayer incurred  penalties in relation to his 2010-11, 2012-13 and 2013-14 self-assessment tax returns of £3,880 despite there being no tax due.

The taxpayer had already been unsuccessful at the First-Tier Tribunal and so appealed to the Upper Tribunal on the grounds that the notices to file returns had not been issued correctly and with the argument that the penalties were disproportionate to the tax due.

The taxpayer’s appeal was dismissed again.  The Upper Tribunal found that there had been no error in law in the First-Tier Tribunal’s decision regarding the notices to file returns.

On the issue of proportionality, they found that in terms of the European Convention on Human Rights, the penalties were ‘harsh’ but not ‘plainly unfair’ and was therefore not a relevant ‘special circumstance’ which HMRC should have taken into account.

The moral of the story is therefore to file tax returns on time – even where there is no tax to pay!  It is a requirement to file a return where a notice to file has been issued.  Eaves and Co would be very happy to assist if you have a tax return that needs filing.

Two recent tax cases heard by the First-Tier Tribunal show that the courts continue to interpret the phrase “reasonable excuse” more generously that HMRC internal guidance allows for.

In S Taylor, a taxpayer was somewhat surprisingly found to have a reasonable excuse as he had appointed an agent and relied upon them to deal with the self-assessment form.  HMRC guidance is explicit that relying on a third-party is not a reasonable excuse, however, the Tribunal felt this to be incorrect in these specific circumstances.

The taxpayer delivered his papers to the agent in sufficient time but the agent had been busier than usual and had missed the taxpayer’s return.  The agent had not told the taxpayer this, and the Tribunal therefore felt that he had taken reasonable steps to file on time.

Another case showed a partial success for the taxpayer in Perfect Permit Ltd t/a Lofthouse Hill Gold Club.  HMRC had levied penalties in relation to late employer annual returns for 2008/09 and 2009/10.  The 2008/09 return was submitted more than a year late, whilst the 2009/10 return was filed 47 days late by the taxpayer’s new agent.

The Tribunal found that the failure of the previous agent to submit their returns did not constitute a reasonable excuse and it was up to the company to seek redress from the previous agent.  However, the new agents had encountered difficulty registered with HMRC.  The tribunal agreed that, had HMRC registered the new agents promptly, the return for 2009/10 would have been submitted on time.  As such, the delays caused by HMRC did constitute a reasonable excuse.

We would suggest that taxpayers seek advice where they feel that HMRC are being unreasonable with regard to reasonable excuse claims.  Eaves and Co would be delighted to help and would love to hear from you.

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.

The taxpayers appealed a fixed penalty of £200 for the late filing of their 2009/10 partnership income tax return.
They appealed on the grounds that the HM Revenue & Customs online submission software was unavailable, and that the return had been submitted before 31 January 2011. They also argued that they had been successful in an appeal under similar circumstances for 2007/08.
HM Revenue & Customs explained that they had accepted their 2007/08 appeal for a late return, as it was the first year that paper returns had required to be submitted by 31 October.  However, their 2010/11 paper return was received on 24 January 2011, nearly three months after the deadline.
The key in this case was that the tribunal stated that as there is no obligation to file online, the lack of software to do so is not a reasonable excuse to why the return was late, as it is clearly stated on the return that external software is required, therefore the penalties were upheld.

The tax return season for 2010/11 returns is due upon us.

This year though the rules for penalties have changed
significantly:-

Late Filing

  • Initial £100 late filing penalty still exists
  • From three months late, additional daily penalty
    of £10, up to a maximum of £900
  • From six months late, additional penalty of 5%
    of the tax due (de-minimis £300)
  • From twelve months late, additional 5% or £300
    penalty

Late Payment

5% surcharges will apply at:-

  • 30 days
  • 6 months
  • 12 months

If you’re an accountant, when will you start telling your
clients?

Eaves & Co, Tax Specialists, Leeds, West Yorkshire