Heronslea Ltd v Revenue & Customs [2011] UKFTT 102 (TC)

FTT-Tax
Heronslea Ltd v Revenue & Customs
[2011] UKFTT 102 (TC) · 2011-02-03
[1]Heronslea Limited (“Heronslea”) is a contractor operating within the Construction Industry Scheme ("CIS"). Contractors are required to file monthly returns, and the late filing of a return triggers a penalty. This is Heronslea’s appeal against a £100 late filing penalty for the tax month ended 5 June 2010. The legislation[2]CIS was introduced in 1975 to counteract perceived evasion of tax by self-employed workers in the building industry. The current rules are set out at FA 2004, ss 58-63 and Schedule 11 of that Act, together with the Income Tax (Construction Industry Scheme) Regulations 2005 (“the Regulations”).[3]Regulation 4 deals with the submission of monthly returns. The paragraphs relevant to this appeal are as follows:
“(1) A return must be made to the Commissioners for Her Majesty's Revenue and Customs in a document or format provided or approved by the Commissioners— (a) not later than 14 days after the end of every tax month, by a contractor making contract payments or payments which would be contract payments…. (10) If a contractor who has made a return, or should have made a return, under this regulation makes no payments under construction contracts in the tax month following that return, the contractor must make a nil return not later than 14 days after the end of that tax month. (11) … (12) Subject to paragraph (13), section 98A of TMA (special penalties in the case of certain returns) applies to the requirements in— (a) paragraph (1), (b) paragraph (3)(b), (c) paragraph (3)(c), (d) paragraph (10). (13) A penalty under section 98A of TMA in relation to a failure to make a return in accordance with paragraphs (1) or (10) arises for each month (or part of a month) during which the failure continues after the 19th day of the sixth month following the appointed day.”
[4]Taxes Management Act 1979, s 98A, under the heading ‘Special penalties in the case of certain returns’ so far as is relevant in this case, reads:
“(1) …regulations under section 70(1)(a) or 71 of the Finance Act 2004 (sub-contractors) may provide that this section shall apply in relation to any specified provision of the regulations. (2) Where this section applies in relation to a provision of regulations, any person who fails to make a return in accordance with the provision shall be liable— (a) to a penalty or penalties of the relevant monthly amount for each month (or part of a month) during which the failure continues… (b) … (3) For the purposes of subsection (2)(a) above, the relevant monthly amount in the case of a failure to make a return— (a) where the number of persons in respect of whom particulars should be included in the return is fifty or less, is £100….”
[5]The Interpretation Act 1978, s 7 is as follows:
“Where an Act authorises or requires any document to be served by post (whether the expression "serve" or the expression "give" or "send" or any other expression is used) then, unless the contrary intention appears, the service is deemed to be effected by properly addressing, pre-paying and posting a letter containing the document and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.”
The issue[6]The issue is straightforward: HMRC’s case is that Heronslea’s CIS return for June 2009 was due on 19 June 2009, but was not received until 22 June, and that the company must thus pay the £100 late filing penalty.[7]Mr Clifton, Heronslea’s director, appealed the penalty on behalf of the company. Mr Clifton said he had posted the return in June in good time so as to meet the deadline. Heronslea’s evidence and submissions Correspondence about this penalty[8]Heronslea provided the following correspondence between Mr Clifton and HMRC dated 16 July 2010, in which Mr Clifton states:
“we always ensures that the Return is posted well in time and we always use first class mail. This particularly applies to the return to 05/06/2010 as the undersigned went on holiday in June and positively ensured that everything had been attended to before he went. this included your Return, the payment of the PAYE/NIC that was due, and the VAT return… we are a small company and to us £100 is a lot of money. Why should we risk paying this by the late sending in of Returns. We always send them in well in advance. Is the post to blame? Your ‘Charge Notice’ took ten days to reach us.”
[9]In Mr Clifton’s request for a HMRC review of the decision dated 13 September 2010 he states:
“It is suggested that we obtain proof of posting. The local post office is closed when we finish work for the day at 6.00pm, or later. We have twice attempted to obtain proof of posting but gave up due to the length of the queue. Time wasting is something we are unable to afford.”
[10]The HMRC Appeal Review Unit wrote to Heronslea on 30 September 2010, upholding the original decision and stating:
“ Our records show that you have had previous appeals upheld in your favour and an education letter was issued on 05/05/10. This letter advised you that ordinary first class post is insufficient. Your letter of 23/08/10 states that you send all returns by first class post however they should be sent using the large letter postal rate. You were also advised that if future appeals cited postal delays we would require evidence of postage with your appeal. This has not been provided. All CIS returns received at HMRC are date stamped on day of receipt and that is the date recorded on our systems.”
[11]Mr Clifton replied to HMRC on 11 October 2010 (for which he obtained a certificate of posting) saying:
“All our returns were sent using the large letter postage rate, at first class rate. We do not appreciate your remark.”
The March penalty[12]Mr Clifton also provided the Tribunal with correspondence relating to a late filing penalty imposed for the month ended 5 March 2010.[13]The letter from Mr Clifton to HMRC dated 22 April 2010 explains that Heronslea had not been sent a CIS return for March, that it was not possible to download one from the internet as each return is individually marked with a bar code, and listing four separate conversations with the CIS Helpline as Mr Clifton sought to obtain a copy of the CIS return in time to comply with the filing deadline. The letter includes the following paragraph:
“so you can see we tried very hard to obtain a return, and expended a lot of time and effort in so doing. By rights we should be charging the Revenue for our time. We submitted the Return as soon as we finally received a copy.”
[14]HMRC’s reply was dated 5 May 2010 (the “education letter” referred to above). This accepted Heronslea’s appeal “based on the reasons you have provided” and cancelled the penalty. In relation to posting the returns the letter includes the paragraph:
“Rate of postage Your monthly returns should be sent using the large letter postage rate. Ordinary first class post is insufficient. If any future appeals against late filing penalties mention postal delays then we will require evidence of postage with your appeal.”
Earlier cancelled penalties[15]Mr Clifton also provided earlier correspondence in relation to three earlier penalties imposed by HMRC for alleged late filing, all of which were cancelled following receipt of Mr Clifton’s further information.[16]The earliest was date 20 November 2007, in relation to a late filing penalty imposed for the month ended 5 May 2007. He says:
“We do not appear to have received the original return to 05.05.07, and possibly this was due to the return being wrongly addressed - it was sent to our Registered Office at Cranwood Street which is the address of our auditors…We did not receive it. As regards the addressing, we altered the address on the returns we received from our Auditors, as you will see on the returns we submitted to you. We also phoned and on one occasion we were asked to hold on, which we did for several minutes, and then we were cut off. This prompted us to write to the Head Office of HM Revenue and Customs. They did not reply so we wrote again and to date we are still without a reply. Eventually on the 15 October we spoke to a lady named Kathleen at your Dundee office, an the address was finally amended - see the return to 05.11.07. Since then we have moved to the address as shown on this letterhead. Today we spoke to a lady named Georgina who confirmed that your records show our Bushey Heath address, as we had sent out change of address cares. We told Georgina that the first return was a Nil return anyway. We have fulfilled our obligations to the best of our ability at all times. We repeatedly tried to have the change of address amended from 5-7 Cranwood Street. We did not receive the first return - why were we not chased for the return? We have submitted all subsequent returns on time. We pay our monthly PAYE/NIC on time. We do not think we should be fined £100.”
[17]On 19 December Mr Clifton received a letter of apology from HMRC, which ended by noting that a further penalty had been levied in relation to the month ended 5 November 2010, and offering to review this penalty.[18]Mr Clifton replied on December 2007 saying:
“regarding the return for the month ended 05 November 2007, we are surprised that you did not receive the return until 21 November 2007. As previously explained, we always undertake to fulfil our obligations on time. We are not a large company, and do not enjoy and really cannot afford, being fined. As for the exact date we posted the return - we do not keep a record, or post book, of our outgoing mail. We would ensure that the return was posted in time for it to reach you by 19 November. Why should we risk being fined? We would have posted the return on either 12th or 13th November, with a first class stamp, so there was no reason for it not to arrive by the 19th.”
[19]The penalty for November was then cancelled.[20]A further penalty was levied in relation to the month ending September 2009, and this also was cancelled after HMRC received Mr Clifton’s letter of 19 October 2009 which said:
“ we posted the Return on Friday the 11 September, using a ‘Large’ first class which was necessary due to the size of the envelope. If you refer to your records you will see they were filed on time. There is no reason for us to be late. Our Returns are ‘Nil’ Returns.”
HMRC’s evidence and submissions[21]HMRC submitted as evidence several of the same letters as were included with Heronslea’s appeal. In addition, their Statement of Case states that “the return was finally received on 22 June 2010” and responds to Heronslea’s grounds of appeal as follows:
“ A contractor is obliged to ensure that HMRC has received their return by the 19th of the month - it is not enough simply to have posted the return in what is believed to be sufficient time to reach HMRC by the 19th of the month. The return should be sent using the first class letter rate… This was not the first occasion on which this issue of a late return had arisen. HMRC themselves had allowed previous appeals by the appellant n this basis, most recently for the month ended 5 March 2010, but had written to him on 5 May 2010 [the ‘education letter’ referred to above] advising him that should any further appeals be received in relation to postal delays then appropriate proof of posting would be required. That should have put a reasonable taxpayer on particular notice to ensure that the risk of postal delays was minimised and that proof of posting should be routinely obtained. Although proof of posting is not a legislative procedure, in cases where the grounds for reasonable excuse are cited as postal delays or when it is contend that the return was posted in good time, it is reasonable to expect that some evidence of actual postage should be provided. The Appellant has neither provided HMRC with evidence of postage nor an actual date when the return was posted.”
[22]HMRC also refer to the certificate of posting obtained by Heronslea for the letter dated 11 October 2010, and say: ‘this shows the Appellant is able to obtain evidence of posting for correspondence sent to HMRC. HMRC further contend that this evidence of postage has no bearing on the Appellant’s appeal against the penalty imposed for the month ended 5 June 2010.”[23]They also submit that “the penalties were imposed to promote the efficient operation of the system” and that “HMRC have to be seen to be consistent in our approach to all our customers, particularly those who comply with the regulations.” The posting date[24]The first question is when Mr Clifton posted the return. We are not provided with the date of posting, but Mr Clifton submits that he always posts the return in good time and that he particularly knows this was the case in June as he was going on holiday and dealt with all his tax matters beforehand.[25]The Tribunal thus has to decide what Mr Clifton meant by “in good time”. On his evidence the company’s normal pattern is that the return is posted between 11 th and 13 th of the month, and the Tribunal accepts this is what Mr Clifton meant by “in good time”.[26]Secondly, did Mr Clifton post this particular return in accordance with that normal pattern? His evidence is that he did so, and he supports this by his reference to his absence on holiday and the fact that the other returns were completed at the same time.[27]In weighing Mr Clifton’s evidence, the Tribunal has considered the other evidence available to it, and in particular whether Heronslea had - as HMRC imply - a history of late filing.[28]Of the four previous penalty notices, two were cancelled because the fault lay with HMRC - once for not sending out a return at all, and once for sending it to the wrong address. The other two were cancelled by HMRC when they accepted Mr Clifton’s statement that he had posted them in good time.[29]The picture which emerges from the correspondence is not of a serial late filer of returns, but of a diligent taxpayer endeavouring to meet his obligations. Heronslea made four separate calls to the CIS helpline in March 2010, before a return was finally sent for the company to complete; the company’s considerable efforts in 2007 to get its CIS returns sent to the correct address are detailed above.[30]The Tribunal therefore accepts Mr Compton’s evidence that he posted the return in good time to reach HMRC by the deadline of 19 June 2010. Using the company’s normal posting pattern, and since 13 June 2010 was a Sunday, the Tribunal finds that the return was posted no later than 14 June 2010.[31]It is true that no proof of posting was obtained, but as HMRC concede, “proof of posting is not a legislative (sic) procedure”, Clearly, where such proof is provided, it is conclusive; in its absence, the Tribunal must, as here, weigh up the evidence provided. But obtaining proof of posting is not a legal obligation and HMRC cannot insist upon it. As Mr Clifton says, it can be an onerous requirement, particularly for a small business with extended working hours. The delivery date[32]The Regulations require that the CIS return “must be made to the Commissioners” by the due date, and the CIS return can be “made” by being sent in the post.[33]As stated above, the Interpretation Act 1978, s 7 applies where:
“an Act authorises or requires any document to be served by post (whether the expression ‘serve’ or the expression ‘give’ or ‘send’ or any other expression is used) then, unless the contrary intention appears, the service is deemed to be effected by properly addressing, pre-paying and posting a letter containing the document.”
[34]In the absence of any contrary intention in the relevant legislation, and noting in particular the width given to the expression “serve”, the Tribunal finds that the Interpretation Act s 7 applies to the delivery of Heronslea’s CIS return to HMRC.[35]It takes judicial notice of the fact that first class post normally arrives, if not the next day, at least by the day after that. A letter posted first class on 14 June could thus be expected to arrive on or before 16 June - in good time for the deadline of 19 June.[36]Section 7 further states that the deemed delivery date applies “unless the contrary is proved.” Heronslea’s return is thus deemed to be delivered in the normal course of post unless HMRC can rebut that presumption.[37]HMRC state that all CIS returns are date stamped on the day of receipt and this date is then recorded on the HMRC computer. However, the Tribunal were not provided with the date-stamped CIS return, nor a computer print-out showing the date of receipt, nor any evidence, in relation to the particular HMRC office concerned, as to procedures for opening the post and logging it. The Tribunal thus has no evidence, other than the Statement of Case itself and the correspondence with Mr Clifton, to support HMRC’s case that the return was delivered late. It thus finds that the presumption has not been rebutted. The decision[38]Once the posting date has been established, the onus is on HMRC to prove that the return was not delivered in the normal course of post. HMRC have not discharged this burden and the Tribunal therefore allows Heronslea’s appeal.[39]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. Anne Redston TRIBUNAL CHAIR RELEASE DATE: 3 February 2011

Cited in 2 later judgments