First-tier Tribunal (Tax)

[2009] UKFTT 163 (TC)

Sokoya v Her Majesty's Revenue & Customs [2009] UKFTT 163 (TC) (01 July 2009)
INCOME TAX/CORPORATION TAX
Penalty

TC00125

Appeal number S.C. 3131/2008

Penalty – failure to produce documents and particulars required by notice under s 19A TMA – validity of penalty notice – reasonable excuse

FIRST-TIER TRIBUNAL

TAX

A. O. SOKOYA Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: ROGER BERNER (Judge)

Sitting in public in London on 23 June 2009

The Appellant in person

Tony Mear, Appeals and Reviews Unit, HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009


 


DECISION

1. This is an appeal by Mr Adesina Olusegum Sokoya against a penalty determination in the sum of £50 under s 100(1) of the Taxes Management Act 1970 ("TMA") notified by letter addressed to Mr Sokoya from HMRC dated 18 September 2007 ("the Penalty Notice").
2. I describe the circumstances in which this penalty determination was made in greater detail below, but essentially it relates to a penalty which HMRC claim has arisen under s 97AA(1)(a) TMA in respect of the failure of Mr Sokoya to comply with a notice under s 19A(2) TMA to produce certain documents and particulars referable to Mr Sokoya's tax return for the tax year 2004-2005.
3. Mr Sokoya appeared in person and produced at the hearing a small bundle of documents. HMRC was represented by Tony Mear of the Appeals and Reviews Unit.

The Facts

4. There was no dispute on the facts, which I find as follows:

(1) In the course of an enquiry into Mr Sokoya's tax return for 2004-2005, on 17 July 2006 HMRC issued a notice ("the s 19A Notice") to Mr Sokoya under s 19(2) TMA requiring Mr Sokoya to produce certain documents and particulars.

(2) On 7 August 2006 Mr Sokoya appealed against the s 19A Notice and elected for that appeal to be heard by the Special Commissioners. He also applied for a closure of the HMRC enquiries into the 2004-2005 tax return.

(3) That appeal and application was heard by a Special Commissioner sitting alone (Dr John F Avery Jones CBE), and in a decision released on 26 July 2007 Mr Sokoya's appeal was dismissed and the application for closure was denied.

(4) Mr Sokoya then made an application to the High Court for a stay of execution of Dr Avery Jones' decision, both in relation to the s 19A Notice appeal and the closure notice application. On 21 September 2009, Mr Justice Briggs dismissed that application for a stay. In connection with the s 19A Notice appeal, the learned judge gave the following reason:

"By s 19A(11) of the Taxes Management Act the determination of the commissioners under s 19A(6) is final and conclusive. The appellant therefore cannot appeal against Mr Avery Jones' decision to dismiss his 19A notice appeal."

(5) Notwithstanding this, Mr Sokoya did appeal to the High Court. That appeal was heard by Mr Justice Floyd, and judgment dismissing the appeal was given on 23 June 2008. Mr Justice Floyd declined to express a concluded view as to whether the effect of s 19A(11) TMA was to make an appeal to the High Court beyond its jurisdiction. Instead he found on the substance of the appeal that Dr Avery Jones had been correct to confirm the s 19A Notice.

(6) Mr Sokoya sought permission to appeal the order of Mr Justice Floyd to the Court of Appeal. On 28 January 2009 that application was refused by Lord Justice Mummery. No appeal lay from that decision to the House of Lords (s 54(4), Access to Justice Act 1999).

(7) The documents and particulars that Mr Sokoya was required to produce to HMRC by the s 19A Notice had not, at the date of the hearing of this appeal, been produced to HMRC.

(8) On 18 September 2007 HMRC issued to Mr Sokoya a Penalty Notice in respect of his failure to produce documents and other information required by the s 19A Notice. It is from that Penalty Notice that Mr Sokoya has appealed.

The Law

5. The power for HMRC to call for documents for the purpose of an enquiry into a taxpayer's personal return is conferred by s 19A TMA. The material parts of that section (as applicable at the relevant times) are as follows:

(2) For the purpose of the enquiry, the officer may at the same or any subsequent time by notice in writing require the taxpayer, within such time (which shall not be less than 30 days) as may be specified in the notice-

(a) to produce to the officer such documents as are in the taxpayer's possession or power and as the officer may reasonably require for the purpose of determining whether and, if so, the extent to which-

(i) the return is incorrect or incomplete, or

(ii) in the case of an enquiry which is limited under section 9A(5) or 12AC(5) of this Act, the amendment to which the enquiry relates is incorrect, and

(b) to furnish the officer with such accounts or particulars as he may reasonably require for that purpose.

(6) An appeal may be brought against any requirement imposed by a notice under subsection (2) above to produce any document or to furnish any accounts or particulars.

(10) Where, on an appeal under subsection (6) above, the Commissioners confirm the notice under subsection (2)…above so far as relating to any requirement, the notice shall have effect in relation to that requirement as if it had specified 30 days beginning with the determination of the appeal.

(11) The determination of the Commissioners of an appeal under subsection (6) above shall be final and conclusive (notwithstanding any provision having effect by virtue of section 56B of this Act).

6. Failure to comply with a notice under s 19A gives rise to a liability to a penalty of £50 (s 97AA(1)(a) TMA).
7. Section 100 TMA provides that an officer of HMRC duly authorised may make a determination imposing a penalty, including one that arises under s 97AA(1)(a). Section 100(3) provides as follows:

(3) Notice of a determination of a penalty under this section shall be served on the person liable to the penalty and shall state the date on which it is issued and the time within which an appeal against the determination may be made.

8. Section 100B TMA provides that appeals may be brought against the determination of a penalty under s 100. The relevant powers of the Tribunal are set out in s 100B(2)(a) which (as amended by para 45, Sch 1, The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009) reads as follows:

(2) … on an appeal against the determination of a penalty under section 100 above section 50(6) to (8) of this Act shall not apply but –

(a) in the case of a penalty which is required to be of a particular amount, the First-tier Tribunal may –

(i) if it appears that no penalty has been incurred, set the determination aside;

(ii) if the amount appears to be correct, confirm the determination; or

(iii) if the amount determined appears to be incorrect, increase or reduce it to the correct amount.

9. Section 114(1) TMA provides:

(1) An assessment or determination, warrant or other proceeding which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding.

10. Section 118(2) TMA, so far as is material to this appeal, provides:

(2)…where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.

Mr Sokoya's submissions

11. Despite being encouraged to do so, Mr Sokoya made no direct submissions regarding the penalty determination. His argument instead focussed on the s 19A Notice. In essence he argued, firstly, that certain of the items of information to which the s 19A Notice related had been unlawfully demanded and that the s 19A Notice did not satisfy the strict legal requirements, and secondly that in the original appeal the Special Commissioner and the judge had not sufficiently considered these limitations. He had not had the opportunity to put forward these arguments either before the Special Commissioners or the High Court and accordingly had been denied a fair trial.
12. In support of his submission that items of information demanded in the s 19A Notice had been demanded unlawfully, Mr Sokoya argued that the demand had to be related to a particular return or claim. With respect to Mr Sokoya, that seems to be to be the very argument that he put forward in the original appeal, and which was rejected.
13. Mr Sokoya clearly had every opportunity to put forward all his arguments both before the Special Commissioners and in the High Court. His letter of 7 August 2006 to HMRC, which he relied on before me and which contains his arguments in relation to the need to establish a connection between items in the tax return and the information sought had, I am satisfied, also been in evidence in the earlier proceedings. As regards Mr Sokoya's assertion that he had not been given a fair trial, this is self-evidently not the case having regard to the history of his appeals, and his arguments on Articles 6 and 8 of the European Convention on Human Rights were fully considered and dismissed by Mr Justice Floyd in the High Court.
14. In any event, this appeal is not against the s 19A Notice, but against the penalty determination. There is no longer any scope for Mr Sokoya to maintain any appeal against the s 19A Notice. All avenues of appeal in that respect have been exhausted, and the s 19A Notice has been confirmed.
15. Mr Sokoya presented his submissions to me clearly, but they lacked both substance and merit, and failed to address anything of relevance to his appeal against the penalty determination. During his argument he made a number of somewhat colourful, though generalised, accusations against HMRC and its officials in respect of their conduct of the s 19A Notice procedure on which I feel bound to comment. Put shortly, Mr Sokoya accused HMRC of a failure of trust and abuse of power, of a blatant disregard for the law and of misleading and taking advantage of the ignorance of taxpayers. He himself, he argued, had been both "misled and bamboozled". From all the evidence before me, and from reading the decision of Dr Avery Jones and the judgment of Mr Justice Floyd in the earlier appeals, I find that Mr Sokoya's assertions in this respect are wholly devoid of foundation.

The Penalty Notice

16. Mr Mear, for HMRC, submitted that Mr Sokoya had failed to comply with the s 19A Notice and was accordingly liable to the penalty of £50 under s 97AA(1)(a) TMA.
17. As I have noted, Mr Sokoya did not himself raise any argument on the application of the penalty itself. However, he was unrepresented, and I therefore put to Mr Mear two possible issues which I considered ought to be addressed in this appeal. The first was the question of the validity of the Penalty Notice dated 18 September 2007 ("the Penalty Notice"), and the second was whether Mr Sokoya had a reasonable excuse for his failure to comply with the s 19A Notice.

Validity of the Penalty Notice

18. My concern in this respect arose because of the way in which Mr Sokoya's alleged default had been described in the Penalty Notice. The material part of that letter read as follows:

"A Penalty Determination has been made against you under section 100(1) of the Taxes Management Act 1970. The penalty arises under Section 97AA(1)(a) of the Taxes Management Act 1970 in respect of your failure to comply with a notice dated 17 July 2006 served upon you under Section 19A(2) of that Act to produce such documents as were specified in that notice, within 30 days from the date you received the notice."

19. The difficulty with this is that it wrongly refers to the time by which Mr Sokoya ought to have complied with the s 19A Notice. The correct time was, by virtue of s 19A(10) TMA, 30 days after the determination of the Special Commissioner in the original appeal. Under the regulations that then applied (the Special Commissioners (Jurisdiction and Procedure) Regulations 1994, reg 18(9)), the final determination is treated as having been made on the date on which a copy of the document recording it is sent to the parties. The date of release of Dr Avery Jones' decision was 26 July 2007. The s 19A Notice therefore had effect as if it had specified a period of 30 days from that date. The decision itself concludes: "The 30 days for answering the Notice runs from the date of release of this decision."
20. By referring to the period of 30 days from the date of the s 19A Notice itself, and not to the period of 30 days from the date of the Special Commissioner's determination, the Penalty Notice was defective. It is well established that an error in a penalty notice with regard to the date for compliance with a s 19A notice can render the penalty notice invalid (see, for example, R (on the application of Murat) v IRC [2005] STC 184; Jacques v HMRC [2006] STC (SCD) 40). I therefore have to consider if the Penalty Notice in this case is saved from invalidity by s 114 TMA. In order to be saved I have to be satisfied that it is "in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts". I am not so satisfied. A penalty can arise only on the failure of a person to comply with a s 19A notice within due time. The due time is therefore one of the substantive bases for the imposition of a penalty. As s 19(10) provided for a specific time for compliance with the s 19A Notice in this case, a Penalty Notice that failed to record that time correctly cannot in substance and effect conform with or accord to the intent and meaning of the Taxes Acts.
21. Mr Mear argued that Mr Sokoya could be in no doubt as to what the Penalty Notice related, and that the notice was not therefore misleading. I accept that, but that is not the test. I accordingly find the Penalty Notice to be invalid.

Reasonable excuse

22. Although Mr Sokoya did not raise the question of reasonable excuse, on the basis of the facts found in this case I considered it appropriate to put the argument to Mr Mear. The Penalty Notice was issued on 18 September 2007, after the Special Commissioner's decision in the original appeal, but before Mr Sokoya's appeal to the High Court and his application for permission to appeal to the Court of Appeal had been determined.
23. It must be reasonable for a recipient of a s19A Notice not to comply with such a notice whilst that notice is being challenged in the Tribunal or in the Courts. Otherwise any such appeals would be rendered nugatory. For this reason, even if the Penalty Notice were to have been valid, I find that at the date of issue of the Penalty Notice Mr Sokoya would have had a reasonable excuse for failure to comply with the s 19A Notice, and that accordingly he is deemed by s 118(2) TMA not to have failed to comply with it at that time.
24. I have considered whether this conclusion could be affected by the uncertainty over whether s 19A(11) precludes any onward appeal from the decision of the Special Commissioners, and the fact that a stay of execution of the s 19A Notice was not granted. In this case, however, the issue does not in my view arise. Mr Sokoya's appeal to the High Court was permitted to proceed, and his application to the Court of appeal was entertained, and so, notwithstanding that a stay of execution had been denied prior to the appeal in the High court, I find that Mr Sokoya would have a reasonable excuse for failure to comply up to the time his possibilities of appeal were legally exhausted.
25. Mr Sokoya's legal avenues of appeal closed on 28 January 2008 on the refusal of his application to appeal to the Court of Appeal. In the absence of any other evidence of an excuse, in my view Mr Sokoya's excuse for failure to comply ceased on that date. I have considered whether this affects the operation of the reasonable excuse in relation to the penalty. The issue is whether the fact of the cessation of the excuse means that Mr Sokoya can at no time be regarded as not having failed to comply. I do not consider that would be the correct analysis of s 118(2). In my view there are two limbs of s 118(2). The first limb provides that the effect of a reasonable excuse is to deem non-failure up to the time that the excuse ceases, and separately the effect of the second limb is further to deem non-failure after the excuse has ceased if the person in question does what is required to be done without unreasonable delay after the excuse has ceased. Unreasonable delay can prevent something being deemed not to have failed to be done under the second limb, once the excuse has ceased, but cannot prevent the reasonable excuse from having effect up to the time the excuse ceases.
26. Mr Sokoya had not, at the date of the hearing of this appeal, complied with the s 19A Notice. On the basis of my findings therefore I consider that he has been guilty of unreasonable delay after his reasonable excuse ceased. However, I do not consider that this conclusion means that the Penalty Notice, if it were valid, could apply so as to render Mr Sokoya liable to the penalty on account of his continuing default after 28 January 2009. In considering the effect of a reasonable excuse, it is in my view the time of the penalty determination that must be considered, and subsequent events up to the hearing cannot be taken into account. Otherwise the liability to a penalty would depend on the timing of the hearing of the appeal; if that hearing were to take place before the excuse ceased the appeal would be allowed, but it would be otherwise if the hearing were delayed beyond the cessation of the excuse. This cannot be the intended effect of s 118(2), and so I conclude that the cessation of Mr Sokoya's excuse on 28 January, and his unreasonable delay thereafter, cannot prevent his reasonable excuse at the time of the Penalty Notice from deeming him not to have failed at that time to comply with the s 19A Notice.

Decision

27. For these reasons I allow this appeal and set the penalty determination aside.

The Respondents have a right to apply for permission to appeal against this decision pursuant to Rule 39 of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. 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.

ROGER BERNER

TRIBUNAL JUDGE

RELEASE DATE: 1 July 2009