Steady v Revenue and Customs (INCOME TAX/CORPORATION TAX : Penalty) [2016] UKFTT 473 (TC)
[59][the HMRC assessing officer] explained how he applied HMRC's guidance […]. In particular he considered that a condition of suspension could not properly apply to a “one-off event.” 60. On the face of the wording of paragraph 14 (3) there is no restriction in respect of a "one-off event". Nonetheless, it is clear from the statutory context that a condition of suspension must be more than an obligation to avoid making further returns containing careless inaccuracies over the period of suspension (two years). Paragraph 14 (6) provides: "If, during the period of suspension of all or part of a penalty under paragraph 1, [the taxpayer] becomes liable for another penalty under that paragraph, the suspended penalty or part becomes payable." 61. If the condition of suspension was simply that, for example, the taxpayer must file tax returns for a period of two years free from material careless inaccuracies, paragraph 14 (6) would be redundant. 62. Moreover, it is difficult to see how a taxpayer could satisfy HMRC that the condition of suspension, if it contained no requirement other than a condition not to submit careless inaccuracies in future tax returns, had been satisfied as required by paragraph 14 (6). This would, effectively, require the taxpayer to prove a negative and would require HMRC to conduct a detailed review of the taxpayer's tax returns. 63. For these reasons we do not agree with Mr Lever's suggestion that a suitable condition of suspension would be a requirement that the Appellant correctly returned other income (e.g. rental income) on his tax return for the next two years. 64. A condition of suspension, therefore, must contain something more than just a basic requirement that tax returns should be free from careless inaccuracies. This suggests, therefore, that the condition of suspension must contain a more practical and measurable condition (e.g. improvement to systems) which would help the taxpayer to achieve the statutory objective i.e. the tax returns should be free from errors caused by a failure to exercise reasonable care. HMRC’s case 26. HMRC submit that Mr Steady’s case is on all fours with that of Mr Fane – Mr Steady had made a “one off” error, and it was not possible to establish conditions that would help Mr Steady avoid careless inaccuracies in the future. HMRC further submitted that maintaining a spreadsheet of the sort suggested by Mrs Fane was no more than HMRC would expect of a prudent taxpayer in any event. Discussion 27. We find that HMRC’s decision to refuse to suspend penalties is flawed, as they have reached a decision that is Wednesbury unreasonable. In essence, HMRC have fundamentally misinterpreted the operation of paragraph 14 of Schedule 24. They say that because Mr Steady was careless in filing his returns, it is impossible to set SMART conditions. But penalties only arise in the case of careless or deliberate behaviour. And those penalties can only be suspended in the case of careless behaviour. The fact that Mr Steady was careless does not mean that it is impossible to establish suspension conditions – to the contrary, it is only because he was careless that he may become entitled to have his penalty suspended. Further, the mere fact that Mr Steady was careless does not mean that it is impossible to establish conditions to suspension that meet the requirements of paragraph 14. 28. Mr Steady’s case is not on all fours with Fane . In Fane , the suspension condition being considered was merely that Mr Fane file accurate self-assessment returns in future. In Mr Steady’s case, it is proposed that a detailed schedule of his savings accounts is kept, and that this will help him to ensure that his tax returns are accurate in future. It matters not that a prudent taxpayer might keep such a schedule (although we would question whether a typical prudent taxpayer would keep such a schedule) – indeed it could be argued that the purpose of the suspension conditions is to bring the standard of compliance of the careless taxpayer up to the standard of a prudent taxpayer. We are satisfied (and find) that a requirement to maintain a schedule of the sort described by Mrs Foyle, would be a practical and measurable condition (e.g. improvement to systems) which would help Mr Steady to achieve the statutory objective that his tax returns should be free from errors caused by a failure to exercise reasonable care. 29. We find HMRC’s decision not to suspend penalties to be flawed, we allow Mr Steady’s appeal, and we order HMRC to suspend the penalty. 30. We do not have powers to set conditions for suspension, but in order to avoid further appeals in this case, we would recommend that HMRC give consideration to the following conditions as to suspension:(1) That Mr Steady instructs a firm of chartered accountants, chartered certified accountants or chartered tax advisors to prepare a draft of his tax return for 2015/16.(2) That the firm so instructed maintains a spreadsheet setting out for each investment account held by Mr Steady, the account name and number, the date opened, the closing date (if the account is for a fixed term), the interest frequency, and the amounts of interest paid in each tax year.(3) That Mr Steady files his 2015/16 tax return and pays the tax due by the due date.(4) That the condition has effect until 31 January 2017. 31. Mr Steady did not appeal against the penalty, only its suspension. Therefore, we did not consider in any detail Mr Steady’s actions, and whether they amounted to carelessness. But the mere fact that there is an error in a tax return does not mean that a taxpayer has been careless. Moreover, on the basis of the material we have seen, we consider that Mr Steady would have had a strong arguable case that his behaviour was not careless. To levy a penalty of £368.65 on a taxpayer who heretofore has had a good compliance record over many years, and then to refuse to consider suspension of those penalties, does not reflect well on HMRC. Conclusion 32. We find HMRC’s decision not to suspend penalties to be flawed, we allow Mr Steady’s appeal, and we order HMRC to suspend the penalty. 33. 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. NICHOLAS ALEKSANDER TRIBUNAL JUDGE RELEASE DATE: 5 July 2016
Cited in 3 later judgments