First-tier Tribunal (Tax)

[2010] UKFTT 609 (TC)

TC00850

Appeal number: TC/2010/05733

Penalty for late filing of Company Tax return – whether there was reasonable excuse

FIRST-TIER TRIBUNAL

TAX

AFSHIN SAFA LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: Miss J. Blewitt (TRIBUNAL JUDGE) Mrs A. Christian (MEMBER)

The Tribunal determined the appeal on 14^th October 2010 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 7^th July 2010,  HMRC’s Statement of Case submitted on 11^th August 2010 and the Appellant’s Reply dated 8^th September 2010.

© CROWN COPYRIGHT 2010

DECISION

1.       This is an appeal by the Appellant against the penalties imposed for the late filing of the Company Tax Returns (“CT returns”) for the accounting periods ended 18 April 2008 and 30 April 2008. As a result of the late filing of the returns the Appellant incurred penalties totalling £400 comprised of £200 for each period.

2.       By way of background the CT returns were due by 18^th April 2009 and 30^th April 2009 respectively. Both CT returns were received by HMRC on 17^th December 2009 and as a result of the defaults, flat rate penalties were imposed by virtue of Paragraphs 14 and 17 Schedule 18 of Finance Act 1998.

3.       The Appellant appealed by Notice dated 7^th July 2010. The grounds of appeal state that the CT return was sent to HMRC on 19^th January 2009, within the filing time limit, by the Appellant’s accountant, Paystream Accounting Service Ltd (“Paystream”). The Appellant contends that HMRC failed to respond to his appeal or offer a review until approximately 9 months after the Appellant’s initial letter of appeal. In his Notice of Appeal, the Appellant explains that HMRC tricked him into paying £214.37 towards the penalties, despite the fact the return being filed on time. The Appellant states that his previous accountants, Paystream have confirmed that the CT return was filed on time. The Appellant accepts that one CT return was filed late and states that HMRC are using this fact against him. The Appellant explains that the reason for the default in that instance was due to the original return being lost or misplaced by HMRC.

4.       In addition to correspondence between the parties, the Tribunal also had the benefit of the Appellant’s response to HMRC’s statement of case in which he asserts that HMRC did not comply with their own policy and procedure on the basis that the Appellant was not informed of the decision in respect of his first appeal but subsequently increased the penalty whilst the appeal was under review. Furthermore the Appellant states that his return was submitted in December 2009 when he realised what information HMRC required and that this was the first time he had submitted a return. Prior to that, the Appellant states that his financial affairs were managed by Paystream who filed one of the CT returns on 19 January 2009. The Appellant states that HMRC are mistaken in asserting that Paystream were not the Appellant’s authorised agents and in failing to keep up to date with filing the Appellant’s company documents, it is unsurprising that HMRC have misplaced the original CT return. The Appellant asserts that HMRC have acted dishonestly and unlawfully in collecting part of the penalty in the name of Corporation Tax whilst the appeal was in progress. In summary, the Appellant contends that the return was filed on time and that having dispensed with Paystream as his agent, the Appellant wrote to HMRC asking for confirmation that his paperwork was up to date. The Appellant asserts that

 the behaviour of HMRC has been misleading and contradictory in failing to follow their policies.

5.       HMRC contend that a notice to file was issued to the Appellant on 21 July 2008 which obliged him to deliver the CT returns by the due filing date as stipulated by legislation. In respect of the accounting period ended 30^th April 2008, the return filed was rejected as incomplete and returned to the Appellant twice, on 22^nd October 2009 and 1^st December 2009. Late filing penalties in respect of both returns were imposed in accordance with Paragraph 17 of Schedule 18 of Finance Act 1998 on the basis that the returns were not received until more than 3 months had passed since the respective filing dates.

6.       HMRC contend that there is no record of Paystream submitting a return on behalf of the Appellant, nor any evidence of posting in support of the Appellant’s contention. HMRC submit that responsibility for filing by the due date cannot be transferred to an agent and that any failure by an agent should not be deemed by the Tribunal to constitute a reasonable excuse. Furthermore HMRC assert that had the return been filed in January, then the penalty notice issued on 30^th June 2009 would have alerted the Appellant to the fact that this was not the case, however the Appellant took no action until October 2009 when he first tried to rectify the situation, although no valid return were in fact received until 17 December 2009. As regards the assertion by the Appellant that HMRC acted unlawfully in increasing the penalty, having stated in correspondence that the penalties were postponed, HMRC accept having stated that collection of the penalties was postponed, but contend that this does not have the effect of preventing the increase of penalties as proscribed by legislation. HMRC submit that there has been regular contact with the Appellant and any perceived delay cannot amount to reasonable excuse. The statement of case also outlines that irrespective of any overpayment of tax by the Appellant, penalties were due as a result of late filing and that there is no discretion on the part of either HMRC or the Tribunal where the fact of the penalty and amount is set in statute.

7.       In reaching its decision the Tribunal considered all of the Appellant’s written submissions and facts of the case carefully. The Tribunal found as a fact that HMRC had not acted unlawfully or in contravention of any applicable legislation. Nor did the Tribunal accept that there had been any breach of guidelines or policy which provided the Appellant with a reasonable excuse. The Tribunal found as a fact that the imposition and amount of penalties is set by statute and that correspondence from HMRC to the Appellant dated 29 September 2009 stated that collection of the penalty would be postponed but made no reference to the amount of any penalty remaining the same. Ignorance of the law cannot in such circumstances amount to a reasonable excuse and the Tribunal found that the Appellant either must have known, or ought to have known that penalty charges would continue until the returns were filed. The Tribunal found as a fact that HMRC had not misled the Appellant in this regard. In respect of the collection of part of the penalty, the Tribunal found no facts upon which it could conclude the Appellant had been tricked into paying the sum of £214.37. The Tribunal considered the Appellant’s argument that HMRC initially denied that

Paystream were authorised to act as agents on behalf of the Appellant. The Tribunal noted that correspondence from HMRC to the Appellant dated 30^th June 2009 had also been copied to the agent, whilst correspondence from HMRC to the Appellant dated 1^st July 2010 states that there is no record of authorisation. Despite the apparent confusion on the part of HMRC, the Tribunal did not consider that the issue as to whether Paystream were authorised to act on the Appellant’s behalf impacted on the point to be determined by the Tribunal as there was no suggestion that this was the cause or a contributory factor in the late filing of the returns and consequently did not amount to reasonable excuse.

8.       In respect of the first return due by 18^th April 2009, the Tribunal was concerned as to the inconsistent accounts contained within the evidence. The Appellant asserted that the return had been filed on time by post on 19^th January 2009 by his agents, and provided a letter of confirmation from Mr Cleal, Accounts Manager for Paystream, unsigned and dated 29^th June 2010. However correspondence from the Appellant to HMRC dated 11 July 2009 stated that the return was filed online by the Appellant’s agent on 23^rd April 2009. The Tribunal inferred that this letter referred to the same return as the Appellant refers to only one penalty in the sum of £100 and at that time there had been no reference by either party to the second return which was due, consequently and in the absence of any explanation to the contrary, the Tribunal found as a fact that, at that point, the Appellant was only aware that one return was late. The Tribunal noted email correspondence between Mr Tariq of Paystream and the Appellant dated 14^th, 15^th and 18^th May 2010 which confirmed that the return had been posted on 19^th January 2009, but noted that despite the reference to Paystream’s records supporting this assertion, the said records were not provided and in light of the inconsistency above, the Tribunal could not be satisfied on the balance of probabilities that the return had been filed. Furthermore, the Tribunal noted that even after the Appellant became aware that the return had not been received and engaged in correspondence with HMRC, it was still not filed until 17^th December 2009 and therefore found that the Appellant did not have a reasonable excuse for such late filing of the return.

9.       The return due by 30^th April 2009 was also received by HMRC on 17 December 2009. This return had been returned to the Appellant twice, on 22^nd October 2009 and 1^st December 2009 as incomplete and therefore invalid. The Appellant appears in his response to HMRC’s statement of case to accept this as the position by stating “Once I released what information require in September 2009 I have provided all information to HMRC to the best of my ability and resubmit my CT 600 in December 2009. It is worth to mention that I am not accountant and that was my first time to file a CT 600”. This being the case, the return was already at least 4 months overdue. The legislation and case law make clear that the onus to ensure a return is filed on time rests with the taxpayer and ignorance of the law or inexperience at the procedure involved cannot amount to a reasonable excuse.

10.    The Tribunal dismissed the appeals and confirmed the penalties.

11.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

TRIBUNAL JUDGE

RELEASE DATE: 25 November 2010