First-tier Tribunal (Tax)

[2009] UKFTT 329 (TC)

TC00272

 Appeal number TC/2009/11058

Penalty – Failure to provide information and documents – reliance on accountant – Whether reasonable excuse – No – Appeal dismissed – Paragraph 29 schedule 18 Finance Act 1998

FIRST-TIER TRIBUNAL

TAX

                                 HUNTLEY SOLUTIONS LIMITED                Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                    REVENUE AND CUSTOMS (corporation tax) Respondents

                                                TRIBUNAL: John Brooks (Judge)

                                                                        George Miles (Member)

Sitting in public in Cardiff on 24 September 2009, further written submissions received 10 November 2009

John Dyer of Marriotts Business Consultants for the Appellant

Caryl Thompson Office of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.     These are appeals against fixed and daily penalties of £50 and £300 respectively imposed in respect of each of the accounting periods to 31 December 2004, 31 December 2005 and 31 December 2006 (totalling £1,050) under paragraph 29, schedule 18 of the Finance Act 1998 in respect of the failure by the Appellant to comply with Notices, issued under paragraph 27 of that schedule, requiring the production of documents and information to HM Revenue and Customs (“HMRC”) for the purposes of enquiries into tax returns for those accounting periods.

2.     The facts which led to the imposition of these penalties are not disputed.

3.     On 30 May 2008 HMRC wrote to the Appellant giving notice of an enquiry into its tax returns for the accounting periods ended 31 December 2004, 2005 and 2006 under paragraph 24(1), schedule 18 Finance Act 1998. Copies of the notices were sent to the Appellants accountants, Marriotts Business Consultants (“Marriotts”) by HMRC on 30 May 2008 together with a request for information asking for a reply by 4 July 2008.

4.     The information requested for the period ended 31 December 2004 was details of rent received; what property was rented and to whom; a breakdown of trade debtors; and an explanation of a claim for group relief.

5.     For the period ended 31 December 2005 in addition to the type of information required for the previous year HMRC requested details of the source of “other income”; the production of the purchase ledger and all purchase invoices; an explanation of an a difference of £50,000 between the tax computation and profit and loss account.

6.     An explanation of an inconsistency between “Net Op Expenses” shown in the profit and loss the notes in the accounts; breakdowns of turnover and trade debtors; and an explanation of the “inter-company debtor” were requested for the period ended 31 December 2006.

7.     As no response was received, on 17 July 2008 HMRC issued Notices (which were copied to Marriotts) under paragraph 27 schedule 18 Finance Act requiring the Appellant to produce this information by 21 August 2008. Penalty warning letters were sent to the Appellant (and copied to Marriotts) on 20 August 2008.

8.     However, following a telephone conversation between Mr Dyer and the Inspector on 20 August 2008, in which Mr Dyer explained that he had a heavy workload dealing with some 50 enquiry cases, the deadline for providing the requested information was extended by a week. The deadline was further extended to 10 October 2008 by the letter, dated 19 September 2008, from HMRC to Marriotts and then extended by a further 30 days by the letter of 17 October 2008 from HMRC to Marriotts.

9.     In the absence of the information requested, on 3 December 2008 penalty notices were issued imposing a £50 penalty in respect of each of the three accounting periods.

10.  Appeals against the penalty notices were made on 15 December 2008.

11.  On 9 January 2009 further penalty notices were issued imposing daily penalties determined at a rate of £10 for the 30 days between 3 December 2008 and 2 January 2009, i.e. £300 in respect of the each of the three accounting periods.

12.  Appeals against these penalty notices were made by Marriotts on behalf of the Appellant on 21 January 2009.

Legislation

13.  The legislation requiring the production of information from a company is contained in schedule 18 of the Finance Act 1998. Unless otherwise stated any following references to paragraphs are to those of that schedule.

14.  Paragraph 24 provides that an officer of HMRC may “enquire into a company tax return if they give notice to do so (“notice of enquiry”) within the time allowed”. If a notice of enquiry is given an officer of HMRC may under paragraph 27 “by notice require the company—

(1)  to produce to them such documents in the company’s possession or power, and

(2)  to provide them with such information and in such form

as [the officer] may reasonably require for the purposes of the enquiry.”

15.  Paragraph 29(1) provides that a company which fails to comply with a notice under paragraph 27 is liable to “(a) a penalty of £50 and (b) if the failure continues after a penalty is imposed under paragraph (a) above, to a further penalty not exceeding the amount specified in sub-paragraph (2) for each day on which the failure continues.”

16.  The amount specified by paragraph 29(2) is £30 if it is determined by an officer of HMRC.

17.  However “no penalty shall be imposed under this paragraph in respect of a failure at any time after the failure has been remedied” (paragraph 29(4)).

18.  Section 100 of the Taxes Management Act 1970 (“TMA”) provides that an officer of HMRC may make a determination imposing a penalty under paragraph 27 schedule 18 Finance Act 1998. An appeal against such a penalty may be brought in accordance with s 100B TMA.

19.  Where a person “had a reasonable excuse for not doing anything required to be done” s 118(2) TMA provides that “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.”  

20.  Therefore in the present appeal, if the Appellant had a reasonable excuse for failing to comply with the Notice to provide documents and information under paragraph 27 it would be deemed not to have failed to comply with the Notice and consequently not be liable to a penalty under paragraph 27.

21.  In such circumstances the penalty determinations would be set aside in accordance with s 100B(2)(a)(i) & (b)(i) TMA.

Contentions of the Parties

22.  For the Appellant Mr Dyer contended that Marriotts, which had been instructed by the Appellant, was unable to provide the information and documents to HMRC because of an overwhelming tax enquiry workload and that this provided the Appellant with a reasonable excuse for the failure to provide the documents and information to HMRC as required by the paragraph 27 Notices.

23.  Ms Thompson for HMRC, while accepting the difficulties faced by Marriotts and Mr Dyer, submitted that the circumstances did not give rise to a reasonable excuse for the Appellant.

Direction

24.  As the appeal concerned the reliance by the Appellant on a third party, its accountant, the Tribunal directed the parties to provide written submissions addressing the issue of whether reliance on a third party can be a reasonable excuse in the light of the decision of the Special Commissioner (Adrian Shipwright) in Rowland v HMRC [2006] STC (SCD) 536.

Written Submissions

25.   The parties in their written submissions accepted that reliance on third party can amount to a reasonable excuse for direct tax purposes.

26.  For the Appellant, Mr Dyer expanded on the difficulties face by Marriotts which during the period April to July 2008 had faced an “extreme and (generally) contentious” case load without “a person suitably qualified to administer tax enquiries” and that there was “a significant personnel transition” following an appointment which “meant that any reasonable expectation of a fair response to an enquiry could not begin for some months.” He contended that it was reasonable for the Appellant to rely on Marriotts to provide the information and documents to HMRC as this was something that was not within the scope of its own expertise.

27.  Ms Thompson distinguished Rowland on the facts contending that it dealt with “extremely technically complex” legislation whereas the information and documents required in the present appeals “was a straightforward matter that required no knowledge or considerations of legislative technicalities.”

28.  She submitted that “in deciding whether a person has a reasonable excuse for failing to perform a task, it is proper to have regard to the nature of the task.” In the present case as the nature of the task, the provision of information and documents, was straightforward or easily understood.

29.  Ms Thompson contended that the reliance placed on Marriotts by the Appellant was not a reasonable excuse saying that the only excuse advanced was pressure of work on the agent which is not to a reasonable excuse on which the Appellant can rely.

Discussion and conclusion

30.  The issue for us to determine is whether the Appellant has a reasonable excuse for the failure to provide HMRC with the information and documents as required under the paragraph 27 Notices. We are not concerned whether Marriotts have a reasonable excuse but whether by relying on Marriotts to produce the documents and information to HMRC the Appellant has a reasonable excuse.

31.  In Rowland v HMRC the Special Commissioner said, at paragraphs 22 to 25:

“The issue arises as to whether reliance on a third-party is prevented from being a reasonable excuse. For VAT purposes there is specific provision that where "reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied on is a reasonable excuse." There is also specific provision that insufficiency of funds is not a reasonable excuse (see section 71 VATA). … There is no equivalent provision that reliance on a third party is not a reasonable excuse for direct tax purposes.

Whilst in the VAT context it was thought necessary to exclude reliance on a third party as presumably otherwise it could be a reasonable excuse in the direct tax context it is, at most only a indication that reliance on a third party can be a reasonable excuse. However, I consider it a very telling indication especially as it is a limited exclusion for VAT (see Enterprise Safety Coaches notwithstanding GB Capital Ltd).

The Thorne case and Enterprise Safety Coaches are clear authority that reliance on a third party can be a reasonable excuse.

I conclude that in the direct tax context reliance on a third party can be a reasonable excuse.”

32.  We agree with the conclusion of the Special Commissioner and find that reliance on a third party is capable of being a reasonable excuse for direct tax purposes. The question, therefore, is whether the reliance by the Appellant on the third party, Marriotts, provides it with a reasonable excuse in the present appeals.

33.  In reaching our conclusion we accept the submission of Ms Thompson that regard should be had to the nature of the task which in the present appeals is the provision of documents and information to HMRC.

34.  We find the information and documents required from the Appellant by the paragraph 27 Notices (as described in paragraphs 4 to 6 above) to be straightforward and easily understood and therefore find that it was not reasonable for the Appellant to rely on Marriotts to provide this when it should have been able to comply with the Notices itself.

35.  In the circumstances we find that the Appellant does not have a reasonable excuse for the failure to provide the information and documents to HMRC.

36.  We therefore dismiss the appeals and confirm the penalties.   

37.  The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   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.

John Brooks

TRIBUNAL JUDGE

RELEASE DATE: 30 November 2009