Alasdair Charleson v Revenue & Customs [2011] UKFTT 759 (TC) (23 November 2011)
[2011] UKFTT 759 (TC)
TC01596
Appeal number: TC/11/05678
Income
Tax – Penalty Assessment – Section 93 of the Taxes Management Act 1970 –
whether return received by tax payer or agent – HMRC errors – reasonable excuse.
Appeal allowed.
FIRST-TIER TRIBUNAL
TAX
ALASDAIR
CHARLESON Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL JUDGE: W Ruthven Gemmell, WS
Sitting in public at George
House, 126 George Street, Edinburgh on Friday 11 November 2011
Ian Smith, CA for the
Appellant
Pauline Carney of H M Revenue
and Customs for the Respondents
© CROWN COPYRIGHT
2011
DECISION
Introduction
1. This
is an appeal against a penalty assessment under Section 93 of the Taxes Management
Act 1970 for a sum of £100 in relation to a late submission of a personal
income tax return.
2. The
penalty relates to the tax year 2009-2010.
3. The
issue before the Tribunal rested on the credibility of the likely sequence of
events.
The Facts
4. The
evidence consisted of a bundle of documents and evidence was given by Alasdair
Charleson (“AC”) and by his agent Ian Smith (“IS”), both of whom were credible.
5. The
following facts were found –
6. IS
had been AC’s agent for fifteen years.
7. IS
stated that he lodged the 2009-2010 return on 12 July 2010 but claimed not to have received the tax return which HMRC, according to their computerised records,
returned to him on 22 July 2010.
8. IS
stated that he had received all other correspondence from HMRC relevant to the
appeal and AC’s tax affairs which they had sent to him.
9. HMRC
confirmed that they had sent letters that should have been sent to IS to AC.
10. No copy of the
tax return which was sent on 12 July 2010 was submitted to the Tribunal by IS
or AC or HMRC.
11. HMRC claim that
the original return was sent back because the foreign income section of the
return had been omitted.
12. IS denied that the
section had been omitted and produced in evidence, his working schedule which
showed an amount of two USA pensions due to AC, together with a note of the columns
which he said they had been entered in to in the tax return.
13. A self
assessment calculation dated 13 July 2011, showing the tax calculation for
2009-2901 for AC, showed an amount of foreign income of £17,045. This led IS
to assume that they had reached this total by adding the gross amount of the
pensions, translated in to sterling at an exchange rate of US$2.52 to £1 and
the taxable amount (after the deduction of 10%).
14. A further self
assessment tax calculation for 2009-2010 was produced on 21 July showing the taxable
amount of £8,074 as the foreign income, being the net amount alone, which IS
confirmed was correct.
15. IS had no
photocopying facilities and, accordingly, had kept no copy of AC’s tax return
nor copy of his handwritten letters although copies of the letters were
subsequently retrieved from HMRC and produced in evidence.
16. HMRC were unable
to produce, as is their custom, the computerised letter of 22 July 2010
sending the return to IS.
17. AC’s tax return,
being a paper return, was due to be submitted by 31 October 2010.
18. In December
2010, IS stated that he telephoned AC’s tax office and was assured the return
had been received and that no mention had been made of it being returned.
19. There was no written
note of this telephone conversation and no note of the individual concerned at
HMRC to whom IS spoke.
20. On 15 February 2011, a notice of determination of penalty for a late tax return was sent by
HMRC and a response sent by IS on 23 February 2011.
21. The letter of 15 February 2011 sent to AC stated that HMRC had not received AC’s return by the due date.
This was later, in correspondence, clarified by HMRC to mean that the return
had been received but was incomplete.
22. IS then wrote to
HMRC with the details of the return and requested clarity as to why the return
was incomplete.
23. HMRC wrote to AC
on 30 March 2011 intimating their review and upholding their decision on the
penalty. AC and IS did not receive this letter until 21 April 2011 and it was answered by IS on 22 April 2011.
24. HMRC admitted
that there had been inefficiencies in relation to the initial first self
assessment calculation and in replying to letters sent by IS to AC.
Legislation
25. Section 93 Taxes
Management Act 1970 – as amended -
Failure to make return for income tax and
capital gains tax
(1)
This section
applies where—
(a)
any person (the
taxpayer) has been required by a notice served under or for the purposes of
section 8 or 8A of this Act … to deliver any return, and
(b)
he fails to
comply with the notice.
(2)
The taxpayer
shall be liable to a penalty which shall be £100.
(8)
On an appeal
against the determination under section 100 of this Act of a penalty under
subsection (2) or (4) above [that is notified to the tribunal], neither section
50(6) to (8) nor section 100B(2) of this Act shall apply but the [tribunal]
may—
(a)
if it appears …
that, throughout the period of default, the taxpayer had a reasonable excuse
for not delivering the return, set the determination aside; or
(b)
if it does not
so appear …, confirm the determination.
(9)
References in
this section to a liability to tax which would have been shown in the return
are references to an amount which, if a proper return had been delivered on the
filing date, would have been payable by the taxpayer under section 59B of this
Act for the year of assessment.
(10)
In this
section—
[“the filing date” in respect of a return for a
year of assessment (Year 1) means—
(a)
31st January of
Year 2, or
(b)
if the notice
under section 8 or 8A was given after 31st October of Year 2, the last day of
the period of three months beginning with the day on which the notice is
given.]
“the period of default”, in relation to any
failure to deliver a return, means the period beginning with the filing date
and ending with the day before that on which the return was delivered.]
Submissions of the Parties
26. IS stated that
until the hearing he was unaware that HMRC were claiming the allegedly
“incomplete” return had been sent to him but, in any event, said that it had
been received neither by him nor by AC.
27. IS stated that
AC would always refer any matters that had been sent to him, albeit correctly
by HMRC, to IS to deal with. IS had received no incomplete return from AC and
IS had not received an incomplete return himself.
28. IS stated that
HMRC knew that all correspondence should be sent to him and yet they did not do
so.
29. IS stated that
as soon as the issue became clear to him the correct information was completed
and returned to HMRC who then made a calculation error which had to be
corrected.
30. HMRC stated that
whilst a number of administrative errors were made, the return was sent to IS
by post and made reference to Section 7 of the Interpretation Act 1978 which states
that any document served by post means that unless the contrary intention
appears service is deemed to be effected by properly addressing, prepaying and
posting a letter containing a document and to have been effected at the time at
which the letter would be delivered in the ordinary course of post.
31. HMRC were also unable
to shed any light on why their letter dated 30 March 2011, addressed to AC, was not received until 21 April 2011 and, in consequence, reducing the thirty
day period in which action could be taken.
32. HMRC stated that,
in line with their review of the decision, the penalty should be upheld.
Reasons for the Decision
33. There were
manifest inefficiencies by HMRC in dealing with AC’s and IS’s correspondence in
relation to AC’s tax affairs and an incorrect calculation of his liability when
the information was in HMRC’s view received for the first time.
34. These reasons on
their own are insufficient for the penalty decision to be overturned.
35. The issue comes
down to one of credibility and, unfortunately, neither the letter returning the
tax return was produced in evidence by HMRC nor was the original tax return
produced.
36. AC and IS dealt
with each matter of correspondence as it was received by them or, in AC’s case,
passed this immediately to IS and taking all these factors into account the
reasonable conclusion is that HMRC considered the return made on 12 July
2010 to be incomplete, returned it to IS but on the balance of probabilities it
must have been lost in the post.
37. As soon as the
issue came to the attention of IS and AC the return was completed and completed
correctly which was acknowledged on the second attempt by HMRC when they issued
a corrective assessment on 21 July 2011, accompanied by HMRC’s letter of
apology for this, dated 20 September 2011.
38. The Tribunal consider
that the tax payer acted reasonably in dealing with his tax obligations which
he took seriously and employed an experienced accountant for this purpose.
39. In view of all
the circumstances, the appeal is allowed.
40. 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.
W RUTHVEN GEMMELL, WS
TRIBUNAL JUDGE
RELEASE DATE: 23 NOVEMBER 2011
