First-tier Tribunal (Tax)

[2011] UKFTT 186 (TC)

TC01055

Appeal number: TC/2010/08010

Company Tax—Penalties for late returns (Finance Act 1998, Sch 18, para 17)—Reasonable excuse (Taxes Management Act 1970, s.118(2))—Returns submitted within deadline but rejected by HMRC as accounts were not signed—Burden on HMRC to establish that returns were filed late and therefore to establish in this case that the Appellant was required to submit signed accounts—Appeal allowed

FIRST-TIER TRIBUNAL

TAX

CODU COMPUTER LTD Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: DR CHRISTOPHER STAKER (TRIBUNAL JUDGE) MRS SUSAN LOUSADA (TRIBUNAL MEMBER)

The Tribunal determined the appeal on 21 February 2011 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 12 October 2010, and HMRC’s Statement of Case submitted on 10 November 2010.

© CROWN COPYRIGHT 2011

DECISION

1.       This is an appeal by the Appellant against the imposition of two £100 penalties under paragraph 17(2) of Schedule 18 of the Finance Act 1998, in respect of the late filing by the Appellant of its company tax returns for the accounting periods ending 25 February 2009 and 28 February 2009 respectively. 

2.       The material submitted by both the Appellant in support of the appeal and by HMRC in response is unfortunately thin.  The Tribunal does not have as much material as it would have liked. 

3.       The facts appear to be as follows, some of these facts being asserted by one or other of the parties and apparently not contested by the other.  The Appellant was incorporated on 26 February 2008.  The company tax returns for the accounting periods ending 25 February 2009 and 28 February 2009 were both due no later than 28 February 2010.  Before the expiry of this deadline, the returns were submitted by the Appellant.  However, on 12 March 2010, HMRC rejected the returns on the ground that they were incomplete, on the basis that certain documents accompanying the returns were not signed as required.  These documents that should have been signed are said in the HMRC statement of case to have been the director’s report and balance sheet, although the Appellant’s notice of appeal suggests that the unsigned documents were the “accounts”.  For convenience, reference is made below simply to the “relevant documents”.

4.       The returns were subsequently resubmitted by the Appellant, and were again rejected by HMRC on 1 April 2010.  Eventually the returns were validly submitted online on 5 May 2010.

5.       Even if the returns were submitted late, under s.118(2) of the Taxes Management Act 1970, the Appellant would be deemed to have submitted them on time if the Appellant had a reasonable excuse for not submitting them on time and submitted them without unreasonable delay after the reasonable excuse had ceased.

6.       HMRC submits that there was no reasonable excuse in this case, or at least, no reasonable excuse that existed throughout the period of default.  HMRC submits that it is was a requirement that the relevant documents had to be signed, and that the returns were not deemed to have been delivered if this requirement was not satisfied. 

7.       The Appellant submits that in the case of previous returns, the Appellant’s local tax office (Maidstone) had never requested or required a signature on the relevant documents, and that a name sufficed.  This submission would address the first rejection by HMRC.  What happened in relation to the second rejection is less clear.  According to the HMRC statement of case, on 1 April 2010 the returns were rejected for a second time on the ground that they were incomplete.  According to the Appellant’s notice of appeal, the returns were sent back a second time stating “no accounts attached”.  This suggests that when the returns were resubmitted the second time, the relevant documents had inadvertently not been included with the returns.  The Appellant’s notice of appeal states that “If anyone is to blame it is a fair mixture of Revenue and ourselves [the Appellant’s representative]”, suggesting that the second rejection was in some way or another acknowledged to have involved some omission on the part of the Appellant’s representatives.

8.       If a company tax return is submitted late and a late filing penalty is imposed, the burden of proof is on the company to establish a reasonable excuse for purposes of s.118(2) of the Taxes Management Act 1970.  However, the company is only put in the position of having to establish a reasonable excuse if the return was indeed submitted late.  The initial burden of proof is on HMRC to establish that the return was submitted late.  It is only if HMRC discharges this burden, on a balance of probabilities, that the burden then shifts to the Appellant to establish a reasonable excuse.

9.       The HMRC case is that although the return was initially submitted prior to the deadline, the return was not to be deemed submitted unless it contained all documents that it was required to contain in complete and correct format.  HMRC further submits that the relevant documents were required to be signed and that they were not, so that the returns were deemed not to have been submitted prior to the deadline. 

10.    For this proposition, the HMRC statement of case relies on paragraph 4 of Schedule 18 to the Finance Act 1998, which states that “References in this Schedule to the delivery of a company tax return are to the delivery of all the information, accounts, statements and reports required to comply with the notice requiring the return”.  This provision must be read in conjunction with paragraph 3(1) of that Schedule, which provides that:

11.    The Tribunal has not been provided with a copy of the paragraph 3(1) notice requiring the Appellant to submit the two company tax returns to which the present appeal relates.  Presumably that notice required the Appellant to deliver, amongst other matters, the relevant documents.  However, the HMRC statement of case does not specifically say so, and as the notice has not been produced in evidence, there is certainly no evidence to that effect.

12.    It is not clear from the material before the Tribunal whether the HMRC case is that the paragraph 3(1) notice itself specified that the relevant documents had to be signed, or whether HMRC contends that there is another relevant statutory provision which stipulates that where the relevant documents are required to be submitted by a paragraph 3(1) notice, they must be signed.  However, even if there were such a statutory provision, in the absence of any evidence that the paragraph 3(1) notice in this case required the relevant documents to be submitted, the Tribunal could not conclude that the Appellant failed to comply with a requirement that the relevant documents be submitted with a signature.

13.    HMRC do not appear to contest the Appellant’s contention that the Appellant submitted, within the applicable deadline, the returns together with the relevant documents, albeit that the relevant documents were in unsigned format.  Apart from the fact that the relevant documents were not signed, HMRC do not suggest that what the Appellant filed within the deadline was otherwise deficient.  In the absence of any evidence or authority having been submitted by HMRC in support of the contention that the Appellant was required specifically to submit the relevant documents in signed format, the Tribunal finds that HMRC has failed to discharge the burden of proving that the Appellant did not submit valid returns within the applicable deadline.

14.    The Tribunal has considered whether of its own motion to provide HMRC with an opportunity to submit further material on the issue of whether the relevant documents were required to be signed.  In view of the very small amount at issue in this appeal (£200), and having regard to the overriding objective in Rule 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, the Tribunal decides that the appropriate course is to hear and determine the appeal on the basis of the material before it.

15.    It follows that there is no need to consider any issue of “reasonable excuse”.

16.    For these reasons, the appeal is allowed, and the determination of the two £100 penalties is set aside.

17.    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.