First-tier Tribunal (Tax)

[2011] UKFTT 247 (TC)

TC01111

Appeal number TC/2010/09480

Appeal against a penalty imposed for the non compliance with Regulation 26 of the Money Laundering Regulations 2007–appeal allowed in part- penalty reduced on the grounds that the penalty was not appropriate under Regulation 42(1)

FIRST-TIER TRIBUNAL

TAX

DAVID LIERENS T/A MBX GAME EXCHANGE Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: S.M.G.RADFORD

H.MYERSCOUGH

Sitting in public at Portal House, Colchester on 14 February 2011

Appellant not present

Mr R. Basi, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.       Having heard the solicitor for the Respondents and the Appellant failed to attend the hearing.  The Tribunal was satisfied that reasonable steps had been taken to notify the Appellant of the hearing and that it was in the interests of justice to proceed with the hearing. The Appellant lives and works in Leigh-on-Sea. He asked that the hearing be heard in Southend-on-Sea as he had no money for transport and could not close his business for long. Holding the hearing in Colchester meant that he would have had to travel into London and out to Colchester to attend.

2.       This is an appeal against the penalty imposed in the amount of £303.33 under the Money Laundering Regulations 2007 (“MLR”) fees as notified to the Appellant on 13 September 2010 and issued on 13 October 2010.

3.       The Appellant has traded since 1 October 2008 as a game exchange and mail delivery/accommodation address and this is classed as a Trust and Company Service Provider for the purposes of the MLR.

4.       The Appellant took over the business after coming off the job seeker’s allowance. He inherited the accommodation service which had been in operation for over forty years.

5.       He was not informed of the MLR and was unaware that HMRC would be interested in this kind of business as he was still receiving tax credits. The average customer paid £12 per month.

6.       As soon as he became aware of the need for him to register he returned the necessary form MLR 100 on 22 August 2010. He did not enclose the fees.

7.       On 7 September HMRC informed the Appellant of the need to submit the registration fees. HMRC informed him that it would cost £120 to register and £50 for each MLR 101.

8.       On 9 September 2010 the Appellant submitted form MLR 101 “application for fit and proper test” to HMRC.

9.       On 13 September 2010 HMRC wrote to the Appellant informing him of their intention to issue a penalty in the amount of £303.33 for failing to comply with Regulation 26 of the MLR. However although the letter stated that the Appellant had a right to query the way the penalty had been calculated there was no explanation in the letter as to how the penalty had been calculated.

10.    The Tribunal questioned the HMRC solicitor as to the exact method of calculation but he too was unable to explain and had to telephone for instructions. He was then able to inform the Tribunal that £100 was a penalty for failure to register and £203.33- also deemed by HMRC to be a penalty- was for back fees from 1 October 2008 to 31 July 2010.

11.    The Appellant appealed against the penalty and requested a review. He said that he was on working tax credits and could not run his business without them. The review upheld the penalty imposed on the Appellant.

12.     Regulation 3(1)(e) of the MLR states that the regulations apply to trust or company service providers.

13.    Regulation 3 (10) defines a trust or company provider as a firm or sole practitioner who by way of business provides any of the following services to other persons …(c) providing a registered office, business address correspondence or administrative or other related services for a company, partnership or any other legal person or arrangement…

14.    Regulation 26(1) of the MLR states that a person must not act as a trust or company service provider unless he is included in the register.

15.    Regulation 42(1) of the MLR states that a designated authority may impose a penalty of such amount as it considers appropriate on a relevant person who fails to comply with any requirement in regulation 26 and states that for this purpose appropriate means effective, proportionate and dissuasive.

16.    The Appellant contended that his business had been a struggle from the start. He ran a mail box service where his average customer paid £12 per month. He had roughly forty customers at any time. He was still on working tax credits and could not run his business without them. He had had no financial support to build the business the way he would like and needed to support his young family.

17.    As soon as he was informed of the MLR registration he returned the forms straight away. He enclosed a cheque for £80 as part payment and asked for time to pay the balance which would be a struggle for him.

18.    The payment of the penalty would cause extreme hardship for him and his family. All the other shops in his small parade had shut down and he believed it might be better for him to go back on the dole. The size of the penalty could force him to close up. In a letter of 13 December 2010 he asked HMRC to hold off collecting the penalty until his appeal had been heard.

19.    HMRC contended that it was clear from the MLR 100 submitted by the Appellant that he had commenced trading on 1 October 2008 but did not apply to be registered until 22 August 2010. As such he was trading without being registered as required under Regulation 26 of the MLR.

20.    HMRC contended that in the light of a signed form MLR 101 and the availability of guidance in the form of Public Notice 9 it simply could not be the case that the Appellant was unaware of his responsibilities as regards the requirement to be registered.

21.    HMRC contended that the Appellant had disputed the penalty solely on the grounds of unawareness, unfairness and an inability to pay and had not offered any tangible grounds for disputing the penalty.

22.    The Tribunal had sympathy with the Appellant’s dilemma. They found that as a unsophisticated person who had previously been unemployed and welcomed the chance to work for a living it was unlikely that he would have read Public Notice 9 or been aware of the MLR or the need to register.

23.    The Tribunal found that as soon as he became aware of the MLR he took steps to do the right thing and to register and correct his default.

24.    The Tribunal found that the penalty was not “appropriate meaning effective, proportionate and dissuasive” in terms of Regulation 42 (1) of the MLR. The Appellant did not need dissuading. As a result of the matter he was now well aware of his obligations and the Tribunal found that the anxiety of the Appellant was enough to be effective as a deterrent against possible future breaches of the MLR. Finally the Tribunal found that the penalty was not proportionate to the breach. The Appellant was scratching a living from the business and still qualified for tax credits.

25.    The Tribunal decided that the penalty of £303.33 should be reduced to £50 which was more proportionate to the amount earned by the Appellant in his small business.

26.    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.