First-tier Tribunal (Tax)

[2017] UKFTT 750 (TC)

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TC06161

 

Appeal number: TC/2017/02087  

 

Income tax - Schedule 55 Finance Act 2009 - fixed penalties for late filing of self-assessment returns - Appellant out of UK for extended period - whether reasonable excuse - no - appeal dismissed

 

 

FIRST-TIER TRIBUNAL

TAX CHAMBER

 

 

 

	MOHAMMED FAZLUL KARIM MONDOL	Appellant
	- and -
	THE COMMISSIONERS FOR his MAJESTY’S	Respondents
	REVENUE & CUSTOMS

 

 

 

TRIBUNAL:	JUDGE MICHAEL CONNELL

 

 

The Tribunal determined the appeal on 26 July 2017 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 2 February 2017, HMRC’s Statement of Case dated 26 April 2017 and the Appellant’s reply of 21 June 2017.

 

 

 

 

© CROWN COPYRIGHT 2017

DECISION

 

 

1.              This is an appeal by Mr Mohammed Fazlul Karim Mondol (‘the Appellant’) against penalties totalling £1,300 imposed by the Respondents (‘HMRC’) under Paragraphs 3,4, and 5 of Schedule 55 Finance Act 2009 for the late filing by the Appellant of his self-assessment (‘SA’) tax return for the tax year ending 5 April 2015.

2.              The Appellant’s return, if filed electronically, was due no later than 31 January in the year following the end of the financial year to which it related. The return was therefore due by 31 January 2016, but was not filed until 29 September 2016 and processed on 16 November 2016.

3.              The penalties for late filing of a return can be summarised as follows:

                                  i.             A penalty of £100 is imposed under Paragraph 3 of Schedule 55 Finance Act (‘FA’) 2009 for the late filing of the Individual Tax Return.

                                ii.             If after a period of 3 months beginning with the penalty date the return remains outstanding, daily penalties of £10 per day up to a total of £900 are imposed under Paragraph 4 of Schedule 55 FA 2009.

                              iii.             If after a period of 6 months beginning with the penalty date the return remains outstanding, a penalty of £300 is imposed under Paragraph 5 of Schedule 55 FA 2009.

                              iv.             If after a period of 12 months beginning with the penalty date the return remains outstanding, a penalty of £300 is imposed under Paragraph 6 of Schedule 55 FA 2009.

4.         Penalties of £100, £900, and £300 were imposed, under (i), (ii) and (iii) above.

5.         The Appellant’s appeal is against all the penalties.

Filing date and Penalty date

6.         Under s 8(1D) TMA 1970 a non-electronic return must be filed by 31 October in the relevant financial year or an electronic return by 31 January in the year following. The ‘penalty date’ is defined at Paragraph 1(4) Schedule 55 FA 2009 and is the date after the filing date.

7.              A late filing penalty is chargeable where a taxpayer is late in filing their Individual Tax return.

 

Reasonable excuse

8.              Paragraph 23 of Schedule 55 FA 2009, provides that a penalty does not arise in relation to a failure to make a return if the person satisfies HMRC (or on appeal, a Tribunal) that they had a reasonable excuse for the failure and they put right the failure without unreasonable delay after the excuse ceased.

9.              The law specifies two situations that are not reasonable excuse:

(a) an insufficiency of funds, unless attributable to events outside the Appellant’s control, and

(b) reliance on another person to do anything, unless the person took reasonable care to avoid the failure.

10.           If there is a reasonable excuse it must exist throughout the failure period.

The background facts

11.           The notice to file for the year ending 5 April 2015 was issued to the Appellant on 6 April 2015.

12.           The filing date for the Appellant’s return was 31 October 2015 for a non-electronic return and 31 January 2016 for an electronic return.

13.           As the return was not received by the filing date, HMRC issued a notice of penalty assessment on or around 17 February 2016 in the amount of £100.

14.           As the return was not received until over three and six months after the penalty date, HMRC issued further notices of penalty assessments of £900 on or around 12 August 2013 and £300 on the same date.

15.           On 28 August 2016 the Appellant appealed against the penalties on the grounds that he had been out of the country and as he is on limited income he cannot afford the penalties.

16.           HMRC sent the Appellant a decision letter on 18 November 2016 rejecting his appeal and offering a review.

17.           On 23 December 2016, the Appellant requested a review of HMRC’s decision, giving the same grounds as in his original appeal and adding that he had a wife and two children to support.

18.           HMRC carried out a review and issued their review conclusion on 3 February 2017. The outcome of the review was that HMRC’s decision should be upheld.

19.           On 22 February 2017, the Appellant notified his appeal to the Tribunal.

 

Relevant statutory provisions

Taxes Management Act 1970

20.           Section 8 - Personal return- provides as follows:

(1) 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 day mentioned in subsection (1A) below, a return containing such information as may, reasonably be required in pursuance of the notice, and

b)      to deliver with the return such accounts, statements and documents, relating to information contained in the return, as may reasonably be so required.

(1A) The day referred to in subsection (1) above is-

(a) the 31st January next following the year of assessment, or

(b) where the notice under the section is given after the 31st October next following the year, the last  [day of the period of three months beginning with the day on which the notice is given]

(1AA) For the purposes of subsection (1) above-

(a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return; and

(b) the amount payable by a person by way of income tax is the difference between the amount in which he is chargeable to income tax and the aggregate amount of any income tax deducted at source and any tax credits to which [section 397(1) [or [397A(1)] of ITTOIA 2005] applies.]

(1B) In the case of a person who carries on a trade, profession, or business in partnership with one or more other persons, a return under the section shall include each amount which, in any relevant statement, is stated to be equal to his share of any income, [loss, tax, credit] or charge for the period in respect of which the statement is made.

(1C) In subsection (1B) above "relevant statement" means a statement which, as respects the partnership, falls to be made under section 12AB of the Act for a period which includes, or includes any part of, the year of assessment or its basis period.]

(1D) A return under the section for a year of assessment (Year 1) must be delivered-

(a) in the case of a non-electronic return, on or before 31st October in Year 2, and

(b) in the case of an electronic return, on or before 31st January in Year 2.

(1E) But subsection (1D) is subject to the following two exceptions.

(1F) Exception 1 is that if a notice in respect of Year 1 is given after 31st July in Year 2 (but on or before 31st October), a return must be delivered-

(a) during the period of 3 months beginning with the date of the notice (for a non-electronic return), or

(b) on or before 31st January (for an electronic return).

(1G) Exception 2 is that if a notice in respect of Year 1 is given after 31st October in Year 2, a return (whether electronic or not) must be delivered during the period of 3 months beginning with the date of the notice.

(1H) The Commissioners—

(a) shall prescribe what constitutes an electronic return, and

(b) may make different provision for different cases or circumstances.

(2) Every return under the section shall include a declaration by the person making the return to the effect that the return is to the best of his knowledge correct and complete.

(3) A notice under the section may require different information, accounts and statements for different periods or in relation to different descriptions of source of income.

(4) Notices under the section may require different information, accounts and statements in relation to different descriptions of person.

(4A) Subsection (4B) applies if a notice under the section is given to a person within section 8ZA of the Act (certain persons employed etc. by person not resident in United Kingdom who perform their duties for UK clients).

(4B) The notice may require a return of the person's income to include particulars of any general earnings (see section 7(3) of ITEPA 2003) paid to the person.

(5) In the section and sections 8A, 9 and 12AA of the Act, any reference to income tax deducted at source is a reference to income tax deducted or treated as deducted from any income or treated as paid on any income.

Schedule 55 Finance Act 2009:

21.           The penalties at issue in the appeal are imposed by Schedule 55 FA 2009.

Paragraph 1 (4) states that the ‘penalty date’ is the date after the ‘filing date’.

Paragraph 3 of Schedule 55 imposes a fixed £100 penalty if a self-assessment return is submitted late.

Paragraph 4 of Schedule 55 provides for daily penalties to accrue where a return is more than three months late as follows:

(1) P is liable to a penalty under the paragraph if (and only if)-

 

(a) P's failure continues after the end of the period of 3 months beginning with the penalty date,

(b) HMRC decide that such a penalty should be payable, and

(c) HMRC give notice to P specifying the date from which the penalty is payable.

 

(2) The penalty under the paragraph is £10 for each day that the failure continues  during the period of 90 days beginning with the date specified in the notice given under sub-paragraph (1)(c).

(3) The date specified in the notice under sub-paragraph (1)(c)-

(a) may be earlier than the date on which the notice is given, but

(b) may not be earlier than the end of the period mentioned in sub-paragraph (1)(a).

 

Paragraph 5 of Schedule 55 provides for further penalties to accrue when a return is more than 6 months late as follows:

(1) P is liable to a penalty under the paragraph if (and only if) P's failure continues after the end of the period of 6 months beginning with the penalty date.

 

  (2) The penalty under the paragraph is the greater of-

(a) 5% of any liability to tax which would have been shown in the return in question, and

  (b) £300.

 

Paragraph 23 of Schedule 55 contains a defence of “reasonable excuse” as follows:

 (1) Liability to a penalty under any paragraph of the Schedule does not arise in relation to a failure to make a return if P satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure.

 

(2) For the purposes of sub-paragraph (1)-

(a) an insufficiency of funds is not a reasonable excuse, unless attributable to events outside P's control,

(b)  where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and

(c)  where P had a reasonable excuse for the failure but the excuse has ceased, P is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

 

Paragraph 16 of Schedule 55 gives HMRC power to reduce penalties owing to the presence of “special circumstances” as follows:

(1) If HMRC think it right because of special circumstances, they may reduce a penalty under any paragraph of the Schedule.

 

  (2) In sub-paragraph (1) "special circumstances" does not include-

 

(a) ability to pay, or

(b) the fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another.

  (3) In sub-paragraph (1) the reference to reducing a penalty includes a reference to-

(a) staying a penalty, and

(b) agreeing a compromise in relation to proceedings for a penalty.

 

Paragraph 20 of Schedule 55 gives a taxpayer a right of appeal to the Tribunal and paragraph 22 of Schedule 55 sets out the scope of the Tribunal’s jurisdiction on such an appeal. In particular, the Tribunal has only a limited jurisdiction on the question of “special circumstances” as set out below:

(1) On an appeal under paragraph 20(1) that is notified to the tribunal, the tribunal may affirm or cancel HMRC's decision.

(2) On an appeal under paragraph 20(2) that is notified to the tribunal, the tribunal may-

  (a) affirm HMRC's decision, or

(b) substitute for HMRC's decision another decision that HMRC had power to make.

(3) If the tribunal substitutes its decision for HMRC's, the tribunal may rely on paragraph 16-

(a)   to the same extent as HMRC (which may mean applying the same percentage reduction as HMRC to a different starting point), or

(b) to a different extent, but only if the tribunal thinks that HMRC's decision in respect of the application of paragraph 16 was flawed.

(4) In sub-paragraph (3)(b) "flawed" means flawed when considered in the light of the principles applicable in proceedings for judicial review.

 

The Appellant’s case

22.           The Appellant’s grounds of appeal as notified his appeal to the Tribunal, were:

·         Mr Mondol had assigned an accountant who he was hoping would submit his 2014-15 return on his behalf but the accountants closed down.

·         Mr Mondol was out of the country for work and was therefore unable to submit his return on time.

·         Mr Mondol lives on a limited income and the penalty imposed was so high that it is impossible for Mr Mondol to pay.

·    As this had happened for the first time HMRC didn’t consider the Appellant’s circumstances at all.

 

HMRC’s case

23.           HMRC set up an SA record for the Appellant on 21 September 2011 as he  had completed a CWF1 form informing HMRC that he was self-employed as a solicitor. HMRC records show the Appellant had been submitting returns since the 2011-12 tax year and so he was an experienced filer.

24.           Self-assessment places a greater degree of responsibility on customers for their own tax affairs. This includes ensuring that returns are filed by the due dates. The tax guidance and HMRC website give plenty of warning about filing deadlines. It is the customer’s responsibility to make sure they meet the deadlines.

25.           To support taxpayers with their responsibility HMRC publishes information and advice about their obligations and how they can adhere to them. This information about self-assessment, the completion of returns, tax payment dates, penalties and so on, is well within the public domain and widely available via the internet at www.gov.uk/hmrc. An individual acting in a responsible manner to ensure that they adhered to their legal obligations would make themselves aware of such information and act accordingly.

26.           In his appeal to the Tribunal the Appellant has said he assigned an accountant who he was hoping would submit his 2014-15 return on his behalf, but the accountants had closed down. The Appellant does not say when he discovered his accountants had closed, but although the first penalty notice showing £100 late filing penalty was issued to the Appellant on 17 February 2016, his 2014-15 return was not received by HMRC until 29 September 2016.

27.           In any event Paragraph 23 of Schedule 55 FA 2009, provides that a penalty does not arise in relation to a failure to make a return if the person satisfies HMRC (or on appeal, a Tribunal) that they had a reasonable excuse for the failure and they put right the failure without unreasonable delay after the excuse has ended.

28.           The law specifies two situations that are not reasonable excuse:

a) an insufficiency of funds, unless attributable to events outside the Appellant's control, and

b) reliance on another person to do anything, unless the person took reasonable care to avoid the failure.

29.           The Appellant says he was out of the country for work and was therefore unable to submit his return on time. He supplied HMRC with a travel schedule showing the periods out of the UK. This shows the Appellant returned to the UK on 22 February 2016 and left the UK on 17 March 2016. During this period the Appellant would have received the first penalty notice issued on 17 February 2016. However there is no record of the Appellant contacting HMRC either by telephone or post to ask about the penalty notice he had received.

30.           The Appellant’s travel records show he was out of the UK on 17 March 2016, returning on 26 March 2016. There are no further records beyond this date to account for the Appellant’s failure to submit his return, which was not received until 29 September 2016.

31.           For an appeal to be successful there must be a reasonable excuse for late filing, which must exist throughout the failure period. In this case, as the Appellant filed a non-electronic paper return the failure period is 31 October 2015 to 28 September 2016.

32.           In his appeal to the Tribunal the Appellant says the penalties imposed are unfair. The Upper Tribunal found that the First-tier Tribunal does not have the power to discharge or adjust a fixed penalty which is properly due because it thinks it is unfair. The Appellant has said he will find payment of the late filing penalties difficult. However, in HMRC’s letter of 3 February 2017, the Appellant was given details of HMRC’s payment helpline 0300 200 3835.

33.           The Appellant said, in his appeal to the Tribunal, as this had happened for the first time HMRC didn’t consider the Appellant’s circumstances at all. HMRC records show the Appellant was charged a late filing penalty for 2013-14 which was cancelled on appeal. Therefore the Appellant  had experience of the penalty regime.

34.           This appeal does not contain anything which shows that either something unforeseen or outside the control of the Appellant prevented filing the 2014-2015 return by the due date. HMRC contend that the Appellant has not provided a reasonable excuse for failing to file the return on time.

35.           Late filing penalties are raised solely because the SA tax return is filed late in accordance with Schedule 55 Finance Act 2009, even if a customer has no tax to pay, has already paid all the tax due or is due a refund. Legislation has been changed and penalties are no longer linked to liability.

36.           Where a return is filed after the relevant deadline a penalty is charged. The later a return is received, the more penalties are charged.

37.           The appeal is not concerned with specialist or obscure areas of tax law. It is concerned with the ordinary every day responsibilities of the Appellant to ensure his tax returns were filed by the legislative dates and payment made on time.

38.           Self-assessment places a greater degree of responsibility on customers for their own tax affairs. This includes ensuring that HMRC receive payment of the correct amount of tax and National Insurance at the correct time. The tax guidance and HMRC’s website give plenty of warning about filing and payment deadlines. It is the customer’s responsibility to make sure they meet the deadlines.

39.           Penalties are in place to promote efficient operation of the taxation system and are intended as a measure of fairness, so that customers who file late do not gain any advantage over those who file on time.

40.           The amount of the penalties charged is set within the legislation. HMRC has no discretion over the amount charged and must act in accordance with the legislation. By not applying legislation and as such not to have imposed the penalty would mean that HMRC was not adhering to its own legal obligations.

Special Reduction

41.           Paragraph 16(1) of Schedule 55 allows HMRC to reduce a penalty if they think it is right because of special circumstances. “Special circumstances” is undefined save that, under paragraph 16(2), it does not include ability to pay, or the fact that a potential loss of revenue from one taxpayer is balanced by a potential overpayment by another.

42.           In other contexts “special” has been held to mean ‘exceptional, abnormal or unusual’ (Crabtree v Hinchcliffe [1971] 3 All ER 967), or ‘something out of the ordinary run of events’ (Clarks of Hove Ltd v Bakers' Union [1979] 1 All ER 152). The special circumstances must also apply to the particular individual and not be general circumstances that apply to many taxpayers by virtue of the penalty legislation (David Collis [2011] UKFTT 588 (TC), paragraph 40).

43.           Where a person appeals against the amount of a penalty, paragraph 22(2) and (3) of Schedule 55, FA 2009 provide the Tribunal with the power to substitute HMRC’s decision with another decision that HMRC had the power to make. The Tribunal may rely on paragraph 16 (Special Reduction) but only if they think HMRC’s decision was ‘flawed when considered in the light of the principles applicable in proceedings for judicial review’.

44.           HMRC have considered the Appellant’s grounds of appeal but these do not amount to special circumstances which would merit a reduction of the penalties. Accordingly, HMRC’s decision not to reduce the penalties under paragraph 16 was not flawed.

Conclusion

45.           When a person appeals against a penalty they are required to have a reasonable excuse which existed for the whole period of the default. There is no definition in law of reasonable excuse, which is a matter to be considered in the light of all the circumstances of the particular case.

46.           There is no statutory definition of “reasonable excuse”. Whether or not a person had a reasonable excuse is an objective test and “is a matter to be considered in the light of all the circumstances of the particular case” (Rowland V HMRC (2006) STC (SCD) 536 at paragraph 18).

47.            A reasonable excuse is normally an unexpected or unusual event, either unforeseeable or beyond the person’s control, which prevents him or her from complying with an obligation which otherwise they would have complied with.

48.           HMRC’s view is that the actions of the taxpayer should be considered from the perspective of a prudent person, exercising reasonable foresight and due diligence, having proper regard for their responsibilities under the Tax Acts. The decision depends upon the particular circumstances in which the failure occurred and the particular circumstances and abilities of the person who failed to file their return on time. The test is to determine what a reasonable taxpayer, in the position of the taxpayer, would have done in those circumstances and by reference to that test to determine whether the conduct of the taxpayer can be regarded as conforming to that standard.

49.           HMRC sent a late filing penalty to the Appellant on or around 17 February 2016 for £100.  This should have acted as a prompt to him that his return had not been submitted. His return was not received until  29 September 2016, almost eight months late

50.           As stated above, the law specifies that reliance on another person to do anything, unless the person took reasonable care to avoid the failure, is not reasonable excuse. 

51.           Paragraph 23 of Schedule 55 qualifies the defence of “reasonable excuse”:

“…where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and where P had a reasonable excuse for the failure but the excuse has ceased, P is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased”.

52.           Given the inordinate delay in filing his 2014-15 return, the Appellant cannot rely on Paragraph 23. Accordingly no reasonable excuse has been shown for the Appellant’s failure to file his tax return for 2014-15 on time.

53.           The late filing penalties have therefore been charged in accordance with legislation.

54.           The Tribunal find that there are no special circumstances which would allow the penalty to be reduced under Special Reduction regulations

55.           The appeal is therefore dismissed and the late filing penalties confirmed.

56.           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.

 

 

 

MICHAEL CONNELL

TRIBUNAL JUDGE

 

RELEASE DATE: 12 OCTOBER 2017