The appellant’s appeal against penalties (under FA 2009, Sch 55) for the late filing of his tax return for 2010/11 was allowed, as the assessment by HM Revenue and Customs (HMRC) of daily penalties was invalid, and as his imprisonment constituted a reasonable excuse against the fixed, six-month, and twelve-month late filing penalties.
Background
HMRC issued the appellant with a notice to file an income tax return for the tax year 2010/11 on 6 April 2011. The return was filed electronically on 16 August 2013 (the filing deadline was 31 January 2012). HM RC issued penalty notices (under FA 2009 Sch 55). The appellant appealed.
The appellant was in prison between February 2012 and February 2013. HMRC accepted that its notice imposing a late filing penalty (under FA 2009, Sch 55, para 3), which was issued in February 2012, in all likelihood did not reach the appellant in view of his period of imprisonment, and had ‘taken the decision to remove it’. However, the First-tier Tribunal (FTT) pointed out that HMRC does not have the power to unilaterally ‘remove’ a penalty that had been validly assessed.
Decision
HMRC had imposed daily late filing penalties (under FA 2009, Sch 55, para 4). The FTT considered the Court of Appeal’s decision in Donaldson v HMRC [2016] EWCA Civ 761. The FTT also considered whether HMRC had shown that the date from which the Late Filing Penalties were payable was specified in a notice to the appellant (as required by para 4(1)(c)). The FTT held on the evidence that HMRC had not given any notice to the appellant within para 4(1)(c) specifying the date from which the daily Late Filing Penalties were payable. The penalty assessment was invalid.
It was therefore unnecessary for the FTT to consider for the purposes of the para 4 penalties whether the appellant had a reasonable excuse for failing to file his return on time, or whether, if there was such an excuse, it ceased to be one and whether the appellant remedied the failure to file the return ‘without unreasonable delay’ after the excuse ceased (as required by para 23(2)(c)). However, the issue was relevant for the daily (para 3) penalty, and also the six-month (para 5) and twelve-month (para 6) penalties.
The FTT accepted that going to prison was an unusual event beyond the appellant’s control and that being in prison made it difficult, if not impossible, for a prisoner to attend to his tax affairs. The default in filing the return happened before the appellant was sent to prison. However, the FTT accepted it was likely that on or shortly before 31 January 2012 the appellant would have been preoccupied in dealing with his case. In the FTT’s view, the pre-imprisonment events gave the appellant a reasonable excuse, which ‘morphed’ into a different reasonable excuse, namely his imprisonment.
The appellant was released from prison in February 2013 but did not file his return until 16 August 2013. However, the FTT held that the appellant continued to have a reasonable excuse for not filing the return after his release from prison. The appellant had been put on notice of his failure to file by the receipt of penalty assessments on 16 July 2013. He remedied the failure to file on 16 August 2013, which did not, in the FTT’s view, amount to unreasonable delay. He, therefore, continued to have a reasonable excuse for filing his return late. Consequently, the penalties under paras 3, 5 and 6 could not stand either.
The FTT, therefore, canceled the penalty assessments under FA 2009, Sch 55, paras 3, 4, 5 and 6. The appellant’s appeal was allowed.
Comment
As reported on Tax Insider the FTT observed that the six-month and twelve-month penalty assessments were made before the return was delivered. Para 24(2)(a) requires that ‘HMRC is to determine the amount mentioned in sub-paragraph (1) to the best of HMRC’s information and belief.’ However, in the absence of any indication that a ‘flesh and blood human being’ formed a belief about the level of penalties appropriate in this case, the FTT found it difficult to see how the automatic para 5 and 6 assessments could be valid. This point may perhaps be relevant with the advent of making tax digital.
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