First-tier Tribunal (Tax)

[2011] UKFTT 260 (TC)

TC01124

Appeal number: TC/2011/00510

Jussila; burden of proof; reasonable excuse; P35; plain dealing; fairness.

FIRST-TIER TRIBUNAL

TAX

N A DUDLEY ELECTRICAL CONTRACTORS LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: GERAINT JONES Q. C. (TRIBUNAL JUDGE)

The Tribunal determined the appeal on 14 April 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 11 January 2011 and  HMRC’s  undated Statement of Case.

© CROWN COPYRIGHT 2011

DECISION

1.       N A Dudley Electrical Contractors Ltd, the appellant, appeals against a penalty imposed by HMRC consequent upon the late filing of a P35 for the fiscal year ended the 5 April 2008. There is one simple ground of appeal, as set out in a letter of 16 October 2008 from the appellant's accountants, which is that no P35 was issued to the appellant by HMRC and so it could not return that which it had not received.

2.       The facts are not substantially in contention. I find them to be as follows. For the tax year ended 5 April 2007 the appellant's  P35 was filed by its accountants using an on line filing facility. The appellant had not registered to undertake its own online filing. HMRC does not contend that the appellant had registered for or elected to undertake online filing. Instead, HMRC contends that because the P35 for the year ended 5 April 2007 was filed online, it was entitled to take it or to assume that the appellant would wish to use the online filing facility in those subsequent years during which it had a choice about whether to file on paper or online. HMRC says that because it made the assumption that the appellant would file subsequent returns online, it desisted from sending a paper return to the appellant in readiness for it to file it by the 19th May 2008.

3.       On page 2 of the Case Statement provided by HMRC it is made clear that because there had been an online filing for the year ended 5 April 2007, no paper return was issued to the appellant for the following year. It is not contended by HMRC that the appellant had made an express election or indicated, in any other way, that it did not wish to receive a paper return for the year ended 5 April 2008.

4.       In this appeal HMRC argues that the appellant must show that it has a "reasonable excuse"  for the entire period of default. The default penalty has been levied as £400 for the period 20th May 2008 - 19th of September 2008 and a further £300 for the period 20th September 2008 - 5thDecember 2008. HMRC argues that a "reasonable excuse" must be some exceptional circumstance which prevented timeous filing. That, as a matter of law, is wrong. Parliament has provided that the penalty will not be due if an appellant can show that it has a "reasonable excuse". If Parliament had intended to say that the penalty would not be due only in exceptional circumstances, it would have said so in those terms. The phrase "reasonable excuse" uses ordinary English words in everyday usage which must be given their plain and ordinary meaning.

5.       HMRC correctly contents that section 113 of the Taxes Management Act 1970 places a responsibility on the employer to deliver the correctly completed return form by the due date. One cannot deliver that which one has not received.

6.       It must be remembered that this is a case in which a penalty has been levied. In those circumstances the decision of the European Court of Human Rights in Jusilla v Finland (73053/01) ECtHR (Grand Chamber) is highly material. The Court decided that a penalty or supplement charged by the revenue authorities of a member country is a penalty of the character imposed for a criminal offence and thus any proceedings in respect of it attract article 6 ECHR (right to a fair trial). Thus, in my judgement, it is for HMRC to satisfy me so that I can be sure, that the appellant had elected, by word or deed, not to receive a paper P35 return and that HMRC was justified in failing to provide the necessary paper return to the appellant. I am far from satisfied that either of those matters has been proved. HMRC has adduced no evidence to that effect. Indeed, it acknowledges that it did not send a paper return to the appellant. It is also clear from the Case Statement under the subheading "Facts" that HMRC assumed that it need not issue a paper return to the appellant for the year ended 5 April 2008. A paper return would have pointed out to the appellant the need to submit that return by the 19th May 2008.

7.       HMRC says in its letter of the 21 October 2010 to the appellant that as a previous return had been submitted online “HMRC would not automatically issue a manual return for completion.” There is, quite literally, no evidence to the effect that that was made known to the appellant. It has to be borne in mind that we are dealing with a time period when online filing for P35’s was not compulsory.

8.       I am satisfied that given the ordinary and natural meaning of the words “reasonable excuse" the appellant has established that it had a reasonable excuse throughout the entire default period, given that HMRC accepts that it failed to send a paper return to the appellant. HMRC has failed to satisfy me that it was justified in assuming that it need not send a paper return to the appellant simply because, as a matter of fact, its P35 for the year ended 5 April 2007 had been filed online by its agent.

9.       I should also make it clear that if the first penalty had stood, in the sum of £400, the second penalty, in the sum of £300, could not stand. That is because HMRC , well knowing that the P35 had not been filed on time, desisted from sending a first penalty notice to the appellant until 29 August 2008, being 19 days after the start of the period when a second penalty (£300) could be levied. That is not plain dealing. It might be the case that there is no obligation upon HMRC to issue a reminder but given that it has the statutory power and/or duty to issue a penalty notice, that should be done timeously and well before any second penalty period begins because, as a matter of common fairness and justice, that operates to put the defaulting party on notice that it is in default and gives that party a proper opportunity to remedy that default. In my judgement it is not open to HMRC to take advantage of its own default in sending a timeous default notice to a taxpayer. That would offend the common law principle of fairness and most right thinking members of the public would find it repugnant, especially on the part of a public body. In those circumstances, even if the initial £400 penalty had stood, the second penalty of £300 could not have stood.

10.    However, in the result, this appeal is allowed in full.

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.