First-tier Tribunal (Tax)

[2011] UKFTT 396 (TC)

TC01251

Appeal number TC/2010/02738

Income tax-late payment surcharge-HMRC standard letter re timeliness of tax return-s59C TMA 1970-whether late payment surcharge still payable-yes

FIRST-TIER TRIBUNAL

TAX

MRS DENISE WILLIAMS Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (INCOME TAX) Respondents

TRIBUNAL: ANDREW LONG (TRIBUNAL JUDGE)

TERENCE BAYLISS

Sitting in public at Auchinleck House, Birmingham B15 1DL on 7 February 2011

The Appellant in person

Paul Reading, Presenting Officer for the Respondents

© CROWN COPYRIGHT 2011

 DECISION

1.       The Appellant Mrs Denise Williams appeals against five surcharge notices issued to her by the Respondent HMRC in respect of tax years ended 5 April 2004, 2005, 2006, 2007 and 2008. HMRC ask us to dismiss the appeal and determine the surcharges, subject to one amendment

2.       The relevant facts are not in dispute. On 31 July 2009 the Appellant, with the assistance of professional tax advisers, delivered to HMRC tax returns for the five tax years ending 2004-2008, together with payment of the additional tax (correctly) calculated as due of £23,732.87. The Appellant had for those years previously paid tax on her income from employment.

3.       Those tax returns revealed that the Appellant had, during those tax years, received dividends from her husband's company totalling £223,800. That income and her chargeability to tax on it had not previously been notified to HMRC nor had she completed or returned tax returns for those years.

4.       The dividends received and tax due were as follows:

5.       On 14 August 2009 HMRC acknowledged receipt of the tax returns for the years ending April 2004-2008 and stated  "I will treat the Tax Returns for all purposes as though you sent them in response to a notice from us which required you to deliver them to us by the date we received them"

6.       On 22 September 2009 HMRC issued five surcharge notices under section 59C (2) and (3) Taxes Management Act 1970. Each of the notices imposed two surcharges of 5% of the tax due stating that full payment had not been made by 28 days after the due date (the first 5%) nor by six months after it (the second 5%). The surcharges totalled £2373.24 and were as follows.

7.       There were two complications. First, the payment of £23,732.87 was initially wrongly credited to the account of the Appellant’s husband. This has since been corrected. Secondly HMRC now accept that the second 5% surcharge of £196.11 should not have been imposed for the year ending 5 April 2008.

8.       HMRC also sought payments of interest on the tax due from 31 January of the year following each respective year of assessment.

9.       The Appellant appealed in writing on 21 October 2009. The grounds for appeal were stated as "I have received several surcharge notices which I feel very strongly contradict the statement of intent detailed in HMRC's letter 14 August 2009. I was given to understand that my tax returns for all purposes were to be treated by HMRC as being received in accordance with a required notice of the same date."

10.    The Appellant requested a review on 4 January 2010. In her request for a review the Appellant stated "once again I draw your attention to HMRC  letter of 14 August 2009, interpreted as the due date being the same as received date, 31 July 2009. Therefore no penalty is incurred, no interest is incurred and no surcharges incurred. Subsequent demands have reneged on this statement"

11.    HMRC communicated the outcome of the review by letter dated 8 February 2010. The letter stated "my conclusion is that the decision in the letter dated 11th of December 2009 should be upheld. HM Revenue and Customs letter dated 14 August 2009 is a stock form issued, when unsolicited tax returns are received, with the purpose of confirming that late filing penalties will not be charged."

12.    The Appellant appealed to this tribunal stating as her grounds of appeal "HM Revenue and Customs have failed to act in accordance with their letter to me of 14 August 2009 which states that my tax returns would be treated for all purposes as though sent in response to a notice from HMRC which required me to deliver them to HMRC by the date they were received. Additionally, the HMRC letter of 8 February 2010 also states that the letter 14 August 2009 is "for the purpose of confirming the late filing penalties will not be charged". It is understood from this correspondence that my tax returns were deemed to be timely and not subject to any penalties i.e. interest or surcharges.”

13.    The principal relevant law is contained in the Taxes Management Act 1970 (‘TMA 1970’).There are however two issues which are distinct,namely the due date of respectively the tax return and the tax payment. By s7(1) TMA 1970 "every person who- (a) is chargeable to income tax or capital gains tax for any year assessment, and (b) has not received a notice under section 8 of this Act requiring a return for that year of his total income and chargeable gains, shall within six months from the end of that year, give notice to an officer of the board that he is so chargeable..."

14.    By s 8(1) TMA 1970 ‘for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, and the amount payable by him by way of income tax for that year, he may be required by a notice given to him by an officer of the Board – (a) to make and deliver to the officer, on or before the date mentioned in subsection (1A) below, a return containing such information as may reasonably  be required in pursuance of the notice..."

15.    By s 59B(1) TMA 1970 "subject to subsection (2) below, the difference between- (a) the amount of income tax and capital gains tax contained in a person's self-assessment under section 9 of this Act for any year of assessment, and (b) the aggregate of any payments on account made by him in respect of that year ... And any income tax which in respect of that year has been deducted at source,.....shall be payable by him....."

16.    By s59B(3) TMA 1970 "in a case where the person-(a) gave the notice required by section 7 of this act within six months from the end of the year of assessment but (b) was not given notice under section 8 or 8A of this Act until after the 31st October next following that year,...... the difference shall be payable or repayable at the end of the period of three months beginning with the day on which the notice under section 8 or 8A was given"

17.    By s59B(4) TMA 1970 "in any other case, the difference shall be payable or repayable on or before the 31st January next following a year of assessment"

18.    By s59C(2) TMA 1970 "where any of the tax remains unpaid on the day following the expiry of 28 days from the due date, the taxpayer shall be liable to a surcharge equal to 5% of the unpaid tax"

19.     By s59C(3) TMA 1970 "where any of the tax remains unpaid on the day following the expiry of six months from the due date, the taxpayer shall be liable to a further surcharge equal to 5% of the unpaid tax"

20.    Application of the above law to the facts. The first analysis is of the position that would have applied if the letter of 14 August 2009 had not been written.  Surcharges are applicable under s59C by reference to expiry of periods from "the due date".

21.    The due date is calculated by reference to s59B. Two different dates may apply. The first applies if the conditions in subsection (3) are met. The first condition in that subsection at (a) is that the person ‘gave the notice required by section 7 of this Act within six months from the end of the year of assessment’ The notice required by section 7 is the notice of liability to income tax given by a taxpayer to HMRC. No such notice was given

22.    If the conditions in subsection (3) are not met, then subsection (4) applies. In that event and by virtue of subsection (4) then the tax is payable ‘on or before the 31st January next following year of assessment’.

23.     No such notice under section 7 was given by the Appellant by the relevant six months from the end of the year of assessment. Applying this to the facts of the year ended April 2004, the Appellant did not give a notice under s7 by 31 January 2005 and therefore tax was due for the year ended April 2004 on 31 January 2005 and surcharges therefore apply after the expiry of 28 days and 6 months respectively from 31 January 2005. The same point applies for each succeeding year until payment of tax on 31 July 2009.

24.    Does the letter of 14 August 2009 change the position? We will assume for these purposes that it has legal effect and is binding on HMRC. In that event  the tax returns are ‘treated for all purposes as if sent in response to a notice from (HMRC) which required (the Appellant) to deliver the tax returns by the date HMRC received them’

25.    The hypothesis in the letter of 14th of August 2009 is that the tax returns were received on the same date as they actually were received, but that there had been a notice requiring those tax returns by the date on which they were delivered. The effect of the letter of 14 August 2009 therefore requires an assumption that a notice had been given by the HMRC requiring tax returns to be delivered to them. That is a notice by HMRC under section 8. The fact that there had been compliance with a hypothetical notice under section 8 does not mean that the taxpayer had given the notice under section 7 by 31 January 2005. Therefore there is still no section 7 notice from the Appellant at all; therefore she cannot bring herself within nor meet the conditions of  s59B(3).The provisions of s59B(4) still apply. The tax remained due for the year ended April 2004 on 31 January 2005.

26.    In simple terms the effect of the letter of 14 August 2009 is that the tax return is treated as not late but the payment of tax is still late. The due date of the tax payment is not determined by the timeliness or otherwise of the tax return. The due date of the tax is therefore unaffected by the letter of 14 August 2009. Accordingly, the tax is still paid late even if the tax return is treated in accordance with the letter "for all purposes" as though sent in response to a notice which required delivery of the return by the date of receipt.

27.    Therefore the letter of 14 August 2009 has, in law, the effects which HMRC intended; namely that it absolves the Appellant from any late filing penalty. However interest and surcharges for late payment of the tax due remain payable.

28.    In this case "reasonable excuse" was rightly not argued as the Appellant's arguments were based on a letter from HMRC after the event and therefore could not apply throughout the period of default

29.    However, although the appeal is dismissed, HMRC should note that the letter in this case, which is said to be widely used, has the potential to mislead ordinary taxpayers. The interpretation placed on it by the Appellant is understandable, even though wrong. Moreover, she told us that were it not for the letter of 14 August 2009 she would not have disputed the surcharges. HMRC would do well to reconsider the terms of the letter, failing which there are likely to be more appeals like this one.

30.    Therefore the appeal is dismissed and the surcharges confirmed, subject only (as HMRC accept) that the second surcharge for the year ended 5 April 2008 should not have been raised. The tax was paid on 31 July 2009 and therefore not after the expiry of 6 months from 31 January following the year of assessment.

31.    This appeal appears to (in places) be against both the surcharges and interest. We do not think that we have jurisdiction in relation to an appeal in relation to interest because of the provisions of s86 TMA 1970. However, even if we have jurisdiction, the appeal in relation to interest fails for the same reason as does the appeal in relation to the surcharges.

32.    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.