Bilal Jamia Mosque v Revenue & Customs [2015] UKFTT 126 (TC)

FTT-Tax
Bilal Jamia Mosque v Revenue & Customs
[2015] UKFTT 126 (TC) · 2015-03-18
[15]The statutory framework for the penalties relevant to this appeal is in Schedule 24 Finance Act 2007 and was set out in the Original Decision. For present purposes were are concerned with the power of HMRC to suspend a penalty for careless inaccuracy which is contained in paragraph 14 as follows:[30]“ (1) HMRC may suspend all or part of a penalty for a careless inaccuracy under paragraph 1 by notice in writing to P. (2) A notice must specify— (a) what part of the penalty is to be suspended, (b) a period of suspension not exceeding two years, and (c) conditions of suspension to be complied with by P. (3) HMRC may suspend all or part of a penalty only if compliance with a condition of suspension would help P to avoid becoming liable to further penalties under paragraph 1 for careless inaccuracy. (4) A condition of suspension may specify— (a) action to be taken, and (b) a period within which it must be taken. (5) On the expiry of the period of suspension— (a) if P satisfies HMRC that the conditions of suspension have been complied with, the suspended penalty or part is cancelled, and (b) otherwise, the suspended penalty or part becomes payable. (6) If, during the period of suspension of all or part of a penalty under paragraph 1, P becomes liable for another penalty under that paragraph, the suspended penalty or part becomes payable. ” 16. Paragraph 15(3) provides that a person may appeal against a decision of HMRC not to suspend a penalty. 17. Paragraph 17(4) sets out the jurisdiction of the tribunal in an appeal relating to the suspension of a penalty:
“ (4) On an appeal under paragraph 15(3)— (a) the appellate tribunal may order HMRC to suspend the penalty only if it thinks that HMRC's decision not to suspend was flawed, and (b) if the appellate tribunal orders HMRC to suspend the penalty— (i) P may appeal to the appellate tribunal against a provision of the notice of suspension, and (ii) the appellate tribunal may order HMRC to amend the notice. ” 18. The jurisdiction of the Tribunal to suspend a penalty in circumstances where HMRC’s decision on those matters is challenged is restricted to cases where HMRC’s decision is “flawed”
. In other words, the Tribunal can only intervene if the decision making officer: (1) Failed to take into account relevant matters; (2) Took into account irrelevant matters; (3) Made an error of law; or (4) Reached a conclusion which no reasonable decision making officer properly directed as to the law could have made. Decision 19. We are concerned with a decision of Ms Lyddon made on 23 August 2013. 20. Mr Rayner submitted that HMRC should agree to suspend the penalty because the appellant’s VAT registration has been cancelled. Hence there could not be a repetition of the appellant’s conduct which resulted in late returns. Similarly, the option to tax had been withdrawn. 21. In making that submission Mr Rayner was considering the position as at the date of the hearing. However we are concerned with the position at the date of Ms Lyddon’s decision and in particular whether that decision was flawed. We are not concerned with subsequent events save in so far as they are relevant to the position as at the date of the decision. 22. It is not relevant that the appellant de-registered for VAT with effect from 9 December 2013. That had not happened at the time of Ms Lyddon’s decision. However it is relevant that Mr Rayner had stated in correspondence that he intended to advise the appellant to de-register for VAT, withdraw the option to tax and make a claim under the self build scheme. 23. Paragraph 14(3) provides that HMRC may only suspend a penalty if compliance with a condition would help the appellant avoid becoming liable for further penalties under paragraph 1 for careless inaccuracy. 24. If the condition is satisfied over the suspension period then paragraph 14(5) provides that the suspended penalty will be cancelled. If the condition is not satisfied then the penalty will be payable. Irrespective of the conditions, paragraph 14(6) provides that if the taxpayer incurs another penalty under paragraph 1, in relation to any document or return, then the suspended penalty will become payable. 25. It is clear that if a penalty is to be suspended then HMRC must impose conditions. If there are no conditions which would help the appellant avoid further penalties then we accept that HMRC cannot suspend a penalty. Equally, even if such conditions can be imposed, HMRC still has discretion not to suspend the penalty. 26. Mr Brooke for the respondents relied on a number of decisions of the F-tT in relation to suspension. He submitted as follows: (1) The evident purpose of the suspension provisions was to educate traders who had acted carelessly to help prevent repetition. This applied in particular to areas which an honest trader has found confusing and difficult to deal with in the past (see Shelfside Holdings Ltd v Commissioners for HM Revenue & Customs [2012] UKFTT 290 (TC) ). (2) If the only conditions would be unlikely to have the desired effect then HMRC cannot suspend the penalty (see Fane v Commissioners for HM Revenue & Customs [2011] UKFTT 210 (TC) ). (3) In normal circumstances penalties for “one-off” inaccuracies should not be suspended because in the ordinary course a condition would not help the taxpayer to avoid becoming liable to further penalties (see Fane v Commissioners for HM Revenue & Customs [2011] UKFTT 210 (TC) and Durrant v Commissioners for HM Revenue & Customs [2014] UKFTT 513 (TC) ). (4) The conditions for suspension must be more that an obligation to avoid making further returns containing careless inaccuracies. Otherwise paragraph 14(6) would be redundant (see Fane v Commissioners for HM Revenue & Customs [2011] UKFTT 210 (TC) ). 27. We accept these propositions. 28. Mr Brooke submitted that in circumstances where no further returns would be submitted by the appellant, there were no conditions which could have been imposed to help avoid future careless inaccuracies. He relied on a decision of the F-tT in United European Gastroenterology Federation v Commissioners for HM Revenue & Customs [2013] UKFTT 292 (TC) . In that case it was held that the circumstances did not justify suspension because there was no evidence that the appellant intended to carry on any taxable activities in the future. 29. It is notable that the power to suspend in paragraph 14 refers to avoiding “ further penalties under paragraph 1 for careless inaccuracy ”. It does not expressly refer to such further penalties arising in respect of the same type of document or indeed the same tax. That is relevant in the present case because Mr Rayner had advised the appellant to de-register and reclaim the input tax incurred pursuant to the DIY Builders Scheme rather than through a VAT return. A claim under the DIY Builders Scheme would be covered by paragraph 1 of Schedule 24 which refers to inaccuracies in VAT returns and also returns, statements and declarations in connection with a VAT claim. 30. Mr Brooke submitted that any condition would have to relate to the error that was made and gave rise to the penalty. The error in the present case was claiming input tax credit in a VAT return and not in a DIY Builders claim. 31. We accept Mr Brooke’s submission in so far as it seems to us that any condition would have to relate to the error that was made and gave rise to the penalty. In our view it would not be within the scope of paragraph 14 to impose a condition seeking to avoid careless inaccuracies in an inheritance tax return where the careless inaccuracy arose in relation to a completely separate matter in a VAT return. However, on the facts of the present appeal the error arose in relation to claiming an input tax credit. If a condition could be formulated which sought to avoid a similar error when claiming credit for the same or similar input tax in a DIY Builders claim then in our view it would fall within the scope of paragraph 14. The real question is whether an appropriate condition could have been formulated. 32. In applying the approach described above to the facts of the present appeal, the starting point is the decision of Ms Lyddon. In her letter dated 23 August 2013 she gave her reasons for not suspending the penalty. 33. The first reason was that the VAT registration would need to remain in force and future returns would have to be submitted and paid on time for the penalty to be suspended. Ms Lyddon seems to have been saying that because the appellant was intending to cancel the VAT registration, there would be no conditions which could help to avoid errors in future returns because there would be no future returns. 34. If that is what Ms Lyddon meant, then in our view she was wrong. For the reasons given above if a condition could be formulated to avoid a similar error in a DIY Builders claim then the penalty could, at least in principle be suspended. 35. The second reason was that the appellant had a history of late filing of VAT returns. That does not amount to a reason as to why conditions could not be set. Rather it seems to be one factor which, even if conditions could be set, should be taken into account as a matter of discretion in deciding whether to suspend a penalty. 36. In our view therefore Ms Lyddon did not adopt the correct approach to the question of whether the penalty should be suspended. She took too narrow a view as to what conditions might be imposed. She also seems to have conflated the separate questions of whether conditions might be applied in principle, and whether as a matter of discretion the penalty ought to be suspended. 37. We are satisfied therefore that Ms Lyddon’s decision not to suspend was flawed. Pursuant to paragraph 17(4) we therefore have discretion to order HMRC to suspend the penalty. 38. We must consider whether there are conditions which would help the appellant avoid becoming liable for further penalties. We note that the appellant in 2013 was intending to de-register for VAT. There is no suggestion that it would not have followed Mr Rayner’s advice in that regard. The appellant would not be making input tax reclaims in the future, but it was intending to reclaim input tax under the DIY Builders Scheme. 39. In principle there may have been conditions which would have helped the appellant avoid becoming liable for penalties in relation to a claim under the DIY Builders Scheme. 40. Mr Rayner did not suggest any conditions which might have been applied, beyond the conditions referred to in his letter dated 5 July 2013. We do not consider that those conditions would help the appellant avoid an inaccuracy in a DIY Builders claim. They are simply conditions which would have removed the requirement to make VAT returns, replacing it with a DIY Builders claim at some time in the future when the building works were complete. 41. We can envisage that a condition might have been formulated which required the appellant to have a DIY Builders claim prepared and submitted or perhaps certified in some way by a suitably qualified person. As appears in the Original Decision it was the absence of competent advice at the time of the initial claims which at least contributed to the penalty in the first place. 42. Mr Brooke submitted that even if a condition could be formulated so as to help avoid errors in a DIY Builders claim, such a claim could only be made in the period of 3 months after completion of the works. There was no evidence that the works would be completed within the maximum period of 2 years for which penalties can be suspended. 43. The fact that there is no certainty or even likelihood that another return, claim or document within paragraph 1 will be submitted in the suspension period is a relevant factor in the exercise of our discretion. We cannot be satisfied that any condition would help to avoid an error because unless a claim is made there is no prospect of an error. The position is similar to the “one-off” errors mentioned above. 44. Further, in exercising our discretion whether to order HMRC to suspend the penalty we must take into account all the circumstances. We have considered the facts found in the Original Decision and the facts found in this decision. We note in particular the following matters: (1) The penalty arose in connection with the second claim for input tax credit in the 04/10 Return. The appellant had already been refused input tax credit when the first claim was submitted in the 04/08 Return. (2) The appellant has been found liable to a penalty for deliberate inaccuracy in connection with the input tax claim. (3) There was no indication as to when a DIY Builders claim might be made. It might well not have been made in the period of suspension. 45. We acknowledge our finding that the appellant could not have been more helpful in quantifying the inaccuracies when the second claim was challenged by HMRC. However taking all the circumstances into account we do not consider it appropriate to order HMRC to suspend the penalty. Conclusion 46. For the reasons given above we dismiss the appeal in so far as it relates to the decision on suspension of the penalty. 47. 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. JONATHAN CANNAN TRIBUNAL JUDGE RELEASE DATE: 18 March 2015