Royal Institute of Navigation v Revenue & Customs [2012] UKFTT 472 (TC) (24 July 2012)
[2012] UKFTT 472 (TC)
TC02149
Appeal number:
TC/2011/09182
Delivery
by post. S7 Interpretation Act 1978. Delivery in due course of post – meaning
of. Foresight Financial Services [TC/2011/04204] considered. Conscionable
conduct. Penalties – P35.
FIRST-TIER TRIBUNAL
TAX CHAMBER
ROYAL
INSTITUTE OF NAVIGATION Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
& CUSTOMS Respondents
TRIBUNAL:
JUDGE GERAINT JONES Q. C.
ANNE REDSTON
Sitting in public at 45 Bedford Square, London WC1 on 22 June 2012.
Mr. Stitt for the Appellant.
Miss Oromoloye, instructed by
the General Counsel and Solicitor to HM Revenue and Customs, for the
Respondents.
© CROWN COPYRIGHT
2012
DECISION
1. The appellant,
the Royal Institute of Navigation, should have filed its P35 for the fiscal
year ended 5 April 2009, by 19 May 2009. It accepts that it did not do so but
there is a dispute as to when the P35 was eventually filed. The competing
contentions are that the appellant says it was filed on or about 3/4 August
2009 whereas the respondent claims that it was not filed until 8 February 2010.
The respondent also contends that no P14s accompanied the P35 and so the filing
(if it took place in August 2009) was invalid. It thus contends that valid
filing did not take place until 24 January 2011.
2. The
appellant was issued with penalty notices totalling £400 and appeals against
that penalty on two distinct bases. Those bases are :
(1)
that it did validly file its P35 (including the P14s) by posting it on 3
August 2009 so that it should have been received by the respondent, in due
course of post, by 4 August 2009;
(2)
that, in any event, there has been unfairness or unconscionable conduct
on the part of the respondent and so the maximum recoverable penalty is limited
to £100.
3. The
Tribunal decided the first issue in the appellant’s favour. However, we could
not agree on the second issue. Judge Jones is the Presiding Member for the
purposes of this Tribunal
and as such has the casting vote.
Paragraphs 25 to 30 set out Judge Jones’ conclusions. As he exercised his
casting vote, Judge Jones’ conclusions are the decision of the Tribunal.
Paragraphs 31 to 42 set out Mrs Redston’s dissenting judgment.
Authorities and evidence
4. In support
of its first argument the appellant relies on the decision of this Tribunal in MEM
Industrial Roofing [2011] UKFTT 604(TC), and in support of its second
argument it relies upon this Tribunal’s decision in Hok [2011] UKFTT 433 (TC).
5. Each side
has submitted various documents to the Tribunal. Mr Stitt is the Treasurer of
the appellant and gave witness evidence as well as making submissions. The
documents included the following:
(1)
An email from the RIN’s Chairman to its part-time book-keeper, dated 17
July saying “Thanks for PAYE details. I have transferred £4,798.65 to HMRC
through internet banking and let them know. They remind us that we have not yet
submitted a P35”.
(2)
A copy of the P35 signed by the Chairman as Director and dated 1 August
2009, together with a further copy sent to HMRC and date stamped by them as
received on 8 February 2010.
(3)
An extract from the Register of Use of the appellant’s Pitney-Bowes
franking machine for August 2009.
(4)
A copy of the penalty notice issued by HMRC, dated 28 September 2009 and
date stamped as received on 5 October 2009.
(5)
HMRC’s Charter.
(6)
A copy of HMRC’s “Joint Initiative on HMRC Service Delivery” together
with a print out from their website headed “Employers will be told sooner about
PAYE returns”.
(7)
An email from Mr Stitt to the book-keeper, dated 11 October 2009 asking
“has the missing annual return been filed” and the book-keeper’s reply of the
same date, in which she says:
“it was filed months ago, but it was filed late...the
reason it wasn’t filed is because I misunderstood what was required. I have
processed payroll many times but have never been responsible for the annual
returns, and at the time, upon reading the form, I thought it was to do with
P11Ds. I explained this to the HMRC at the time and they told me that we would
probably be fined anyway...”
The first issue: delivery
Submissions on behalf of the appellant
6. The
appellant's case is that it completed its P35 on Saturday 1 August 2009, and it
was signed by its director on that date. The P35 was sent to the respondent by
posting it in the A5 envelope provided on 3 August 2009, being the following
Monday.
7. The
appellant’s Register of Use of the Pitney-Powes franking machine (“the
Register”) shows that its finance section were charged for three letters in
August, two were franked as sent first-class on 3 August 2009 and one was sent
second class on 20 August. Mr Stitt gave evidence that one of the letters sent
first class on 3 August was the P35. While the Register does not tell us to
whom any stamped letter was addressed, it is however consistent with the
appellant’s evidence that the P35 was signed on Saturday 1 August and then sent
out first class (which Mr Stitt said was unusual and a sign of urgency) on the
first posting day thereafter.
8. Mr Stitt
told the Tribunal that the procedure was that the post room put the franked
letters into a pouch and they were collected from the appellant’s office by the
Post Office on a daily basis.
9. In support
of the proposition that the P35 was accompanied by the appropriate P14s, the
appellant relies upon the Declaration signed by the Chairman at the bottom of
the P35, where the box has been ticked declaring that forms P14 are enclosed.
Submissions on behalf of HMRC
10. HMRC’s Statement of Case
said that:
“The
legislation does not define ‘delivery’. HMRC takes this to mean that a paper
return must be physically handed over to Revenue staff or placed in the office
letter box. A return sent by post is thus not delivered until it reaches the
office.”
11. On the question of the P14s,
Miss Oromoloye argued (by reference to the e-mail dated 11 October 2009) that
because the appellant's book-keeper commented that she had originally
misunderstood what was required concerning filing forms P35, we should infer
that no forms P14 accompanied the P35 which the appellant says was posted on 3
August 2009. She also said that when the appellant sent a copy of the P35 to
HMRC, which was received by them on 8 February 2011, this P35 did not have the
P14s attached.
Decision on the first issue
12. The appellant has satisfied
us on the evidence set out above that it did post the P35 on 3 August 2009.
That being so, it is for the respondent to prove, if it is able so to do, that
same were not posted and/or received in due course of post. That is because
section 115(2) Taxes Management Act 1979 provides for delivery by post. By
reference to section 7 Interpretation Act 1978:
“Where an Act authorises or requires any document to
be served by post .... then, unless the contrary intention appears, the service
is deemed to be effected by properly addressing, prepaying and posting a letter
containing the document and, unless the contrary is proved, to have been
affected at the time at which the letter would be delivered in the ordinary
course of post.”
13. Thus, in circumstances where
we accept on the evidence that the P35 has been properly addressed, prepaid and
posted, the onus shifts to the respondent to demonstrate, on the balance of
probabilities, that the documents were not served or filed by being delivered
in the ordinary course of post. The expression “ordinary course of post"
means delivery on the next business day (including Saturdays) where first-class
post is used and two business days later where second-class post is used.
14. The respondent has adduced
no evidence that goes anywhere near to rebutting the evidence and presumption
arising from section 7 Interpretation Act 1978 that the P35 was placed into the
post and was received in the ordinary course of post.
15. We considered
the parties’ submissions on whether the P35 was accompanied by the P14s. We do
not consider the inference which Miss Oromoloye asks the Tribunal to draw from
the email of 11 October 2009 to be a legitimate or proper inference to draw
given that the e-mail plainly relates to the state of mind or understanding of
the book-keeper at the time when she originally received the P35. The e-mail
does not speak to, nor does it purport to speak to, her state of knowledge or
state of mind at any later date. We fear that if we were to proceed as
suggested on behalf of the respondent, we would be basing our decision upon
speculation rather than legitimate inference. We accept the appellant’s
submission that ticking of the box on the P35 is supportive evidence for the
inclusion of those documents with the P35.
16. Accordingly, we
find that any penalty must be limited to £300, being £100 for the two complete
months from 20 May 2009 to 19 July 2009, and the part-month from 20 July 2009
until the P35 was deemed delivered under section 7 of the Interpretation Act,
on 4 August 2009, regardless of whether the appellant does or does not succeed
on the second basis for its appeal.
The second issue: fairness/unconscionable conduct.
17. Having decided that issue,
we moved on to consider the second issue.
18. The appellant does not
dispute that it filed its P35 late and that some penalty is due. As we have set
out above, it was not filed until about 4 August 2009. It is also not in
dispute that the appellant did not receive any form of penalty notice until the
Notice of Penalty Determination was issued on 28 September 2009, more than four
months after the filing deadline of 19 May 2009.
19. However, the appellant
accepts that on 17 July 2009 its Chairman telephoned the respondent concerning
PAYE matters and, during the course of that telephone conversation, quite
fortuitously he was informed that the respondent had not yet received the P35
for the fiscal year ended 5 April 2009. As we have indicated above, the
necessary filing took place about two weeks thereafter. The Tribunal asked Mr
Stitt why there was a delay of two weeks, and he said he had “no idea”.
20. Mr Stitt asked the Tribunal
to apply and follow the decision of this Tribunal in Hok. That case is
under appeal to the Upper Tribunal, in particular on the issue of whether the
First-tier Tribunal has the jurisdiction to consider HMRC’s procedural
fairness.
21. Miss Oromoloye said that
HMRC did not accept that the Tribunal had this jurisdiction but given that the
issue is about to be heard by the Upper Tribunal neither she nor Mr Stitt put
forward authorities in support of their contentions. Instead, they went on to
consider the position assuming that the Tribunal does have that jurisdiction.
22. Mr Stitt said that the
penalty should be reduced to £100 on the basis that anything more was unfair;
Miss Oromoloye asked the Tribunal to distinguish this case from Hok. She
said that in Hok the appellant was only informed by HMRC in September
that it had incurred a penalty; here the appellant had been informally told in
July. She also said that HMRC was not required by parliament to give reminders
about filing failures; in contrast, there is a statutory obligation placed on
the appellant to send in its returns on time.
23. Mr Stitt invited the
Tribunal to consider the HMRC Charter, submitting that HMRC had failed to help
and support the appellant to get things right, and had failed to act
professionally. Miss Oromolye said there had been, on the evidence, no breach
of the Charter.
24. Mr Stitt also referred the
Tribunal to HMRC’s “Joint Initiative on HMRC Service Delivery” and the website
printout headed “Employers will be told sooner about PAYE returns”. He said
that this change of practice was as close as one would get to an admission by
HMRC that the practice which was in place for the 2008-09 P35s had been unfair/unconscionable.
Miss Oromolye disagreed, saying that these documents were not relevant to the
Tribunal’s decision.
Judge Jones’s analysis and conclusions
25. My starting point is Hok and
also the case of Foresight Financial Services [2011] UKFTT 647 (TC). I
refer specifically to paragraphs 3 - 22 in the Decision in the Foresight
Financial Services case and incorporate them herein by reference. I do not
consider it necessary to set them out in extenso.
26. Events have moved on since
the decisions to which I have just referred. Mr Stitt pointed out to us that in
the documents published by HMRC “Joint Initiative on HMRC Service Delivery”, it
is stated that in December 2011 HMRC stated that by 31 March 2012 it was
committed to working together with taxpayers to find ways of avoiding employers
incurring and building up end of year P35 filing penalties without being aware
of them.
27. Even more encouragingly Mr
Stitt pointed out that if we now go to www.hmrc.gov.uk/news/p35-pens.htm
we find that HMRC now says: ”From 28 April 2012, when they believe a
2011-2012 P35 remains outstanding, they will issue an "Employer Annual
Return Reminder" and from 31 May 2012, introduce a "P35 Interim
Penalty Letter" which will be issued over a five-day period, so that it reaches
employers within a month of the filing deadline.”
28. As Mr Stitt put it, that is
as close as one will come to an admission from HMRC that its previous practice,
as identified in Hok, was at least inappropriate and, quite probably,
unfair or unconscionable. I agree. Mr Stitt also pointed out that the change of
stance is to be seen as compatible with the HMRC Charter with which HMRC should
comply pursuant to section 16A Commissioners for Customs and Excise Act 2005,
albeit that that statutory provision talks in terms of HMRC aspiring to reach
certain objectives rather than being under a statutory duty so to do.
29. Consistently with the
decisions referred to above, I find that there was unfairness and
unconscionable conduct in this case because HMRC failed to issue a first
penalty notice timeously in accordance with its statutory duty to do so,
pursuant to Parliament placing upon it a duty to issue penalty notices if the
relevant filing obligations were not met. In my judgment a reasonable time
within which a first penalty notice should be issued is not more than 28 days
after 19 May in any fiscal year. As previously pointed out HMRC has no
difficulty in issuing default notices or demands within 14 days when VAT
filings or payments are not made by a due date and it is inconceivable that its
computers could not be persuaded to issue Penalty Notices very much earlier
than four months post default, that is, within 28 days of any default
occurring.
30. It follows that so far as
this appeal is concerned, if the appellant had been provided with a first
penalty notice not more than 28 days after the default, it would have received
a de facto reminder (HMRC being under no statutory duty to provide an
actual reminder) to file its P35. Even when it received the fortuitous informal
reminder, during a telephone conversation in July 2009, the appellant
thereafter took about two weeks to undertake the necessary filing. It is
reasonable to proceed on the basis that had the appellant received a de
facto reminder some 28 days or thereabouts post default, it would
nonetheless have incurred a second £100 penalty for the second month (or part
thereof), in addition to the penalty for the first month, with the result that
the penalty in this case should be reduced to £200.
Ms Redston’s analysis and conclusions
31. In answer to the
question “what does fairness require in the present case” Lord Mustill in R
v Home Secretary ex p Doody [1994] 1 AC 531 at 560 set out guidelines which
have been widely accepted and followed. He said:
“What does fairness require in the present case? My Lords, I think it
unnecessary to refer by name or to quote from, any of the often-cited
authorities in which the courts have explained what is essentially an intuitive
judgment. They are far too well known. From them, I derive that (1) where an
Act of Parliament confers an administrative power there is a presumption that
it will be exercised in a manner which is fair in all the circumstances. (2)
The standards of fairness are not immutable. They may change with the passage
of time, both in the general and in their application to decisions of a
particular type. (3) The principles of fairness are not to be applied by rote
identically in every situation. What fairness demands is dependent on the
context of the decision, and this is to be taken into account in all its
aspects...”
32. At page 561 of the same
decision the following principle, accepted by both parties in that case, was
endorsed by Lord Mustill:
“It is not enough …
to persuade the court that some procedure other than the one adopted by the decision-maker
would be better or more fair. Rather, they must show that the procedure is
actually unfair. The court must constantly bear in mind that it is to the
decision-maker, not the court, that Parliament has entrusted not only the
making of the decision, but also the choice as to how the decision is made.”
33. I am thus required to
consider whether HMRC have exercised their power in a manner which is fair “in
all the circumstances”. I note in particular that the principles of fairness
“are not to be applied by rote” but instead depend on “the context of the
decision and this is to be taken into account in all its aspects.”
34. The most significant factor
here is that the appellant in this case was advised by HMRC on 17 July 2009
that it had not filed its P35. It is thus, as Ms Oromoloye submitted, different
from Hok, where the taxpayer was not informed until after 19 September
2009 (by way of the penalty notice) that there had been a default. In Hok, the
minimum penalty charged was £500, as the taxpayer would have been in default
for four months and one part month even if the failure had been rectified
immediately after notification of the penalty.
35. Another relevant factor is
that there is, as Ms Oromoloye says, no statutory obligation on HMRC to give
reminders. The statutory obligation is on the taxpayer to complete its P35s by
the due date.
36. I take into account the two
week delay between HMRC informing the company of its compliance failure and the
return being completed, a delay which Mr Stitt was unable to explain.
37. I have also considered
whether the book-keeper’s actions before 19 July are relevant. She received the
P35 form, but thinking “it was to do with P11Ds” did not complete it until
after the conversation between the Chairman and HMRC in July. At that point she
called HMRC and obtained advice. Mr Stitt sought to persuade the Tribunal that
this was an irrelevant factor: had HMRC provided the information to the
appellant sooner, the book-keeper’s failure to take proper advice when she
received the P35 would have been discovered more quickly and the penalty would
have been lower.
38. I am, however, required by ex
parte Doody to take into account “the context of the decision...in all its
aspects”, and one aspect is the behaviour of those acting for and on behalf of
the appellant. Nevertheless, there is some force in Mr Stitt’s submission, and
for completeness I state that my decision would be the same without taking the
book-keeper’s failure before 19 July into account.
39. Mr Stitt said that HMRC’s
alleged non-compliance with the Charter was relevant to the question of
fairness. Like Miss Oromolye, on the facts of this case I could not discern any
failure by HMRC to live up to their Charter. They had provided help and
support, in advising the Chairman of the late return and in assisting the
book-keeper to understand the appellants’ statutory obligations. There was no
evidence of any lack of professionalism. Even if there had been a breach of the
Charter, I do not consider that this is necessarily an aspect which should be
considered in deciding whether HMRC had acted unfairly.
40. Mr Stitt also sought to rely
on HMRC’s subsequent change of practice, from the previous system of informing
taxpayers for the first time in the September that they had failed to file
their P35, to the current system of informing them within a month. In
considering this point, I bear in mind the words of Lord Mustill, cited above,
that it is not enough for me to find that an alternative (such as a penalty
notice issued within a month of the deadline) might have been fairer. In my
judgment, the fact that under the new approach taxpayers are alerted to their
defaults within a few days of the deadline does not mean that HMRC acted
unfairly when it told the appellant of its default two months after the filing
date.
41. For the appellant to
succeed, I must find that HMRC have acted unfairly in all the circumstances.
Taking into account the factors set out above, and in particular the fact that
the onus was on the appellant to complete the forms by the due date, and that
HMRC informed it of the default only two months after that date (even though
there was no statutory obligation so to do), I find that there was no
unfairness.
42. As a result, I agree with
Miss Oromoloye that the correct penalty is £300.
The Tribunal’s decision on the second issue
43. The decision of the Tribunal
on the second issue, as explained at the beginning of this decision notice, is
that of Judge Jones, who exercised his casting vote. It is set out below.
44. Mr Stitt asked that the
Tribunal’s decision should make provision for the eventuality that the appeal
in Hok might succeed. The Tribunal cannot, however, make a conditional
decision.
45. Nevertheless, if Hok and
Foresight Financial Services are decided in HMRC’s favour, the parties
can of course avoid the expense of an appeal against this decision by the
appellant agreeing to pay the sum which would be due had HMRC succeeded on the
second issue in this case. But that is a matter for them.
46. 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.
Decision.
The penalty is reduced to £200.
GERAINT JONES Q.
C.
TRIBUNAL JUDGE
RELEASE DATE: 24 July 2012
