Griffiths v Revenue & Customs (Income tax – self assessment – late filing) [2019] UKFTT 424 (TC)

FTT-Tax

Griffiths v Revenue & Customs (Income tax – self assessment – late filing)

[2019] UKFTT 424 (TC) · 2019-06-12

[29]In my view, this decision clearly explains that the test is an objective one: it involves considering the actual circumstances of the taxpayer in question but applying an objective analysis of those circumstances. 43. And at [31]:

[31]A taxpayer may be spared a surcharge if the taxpayer has an excuse, but the excuse must be a reasonable one. The word “reasonable” imports the concept of objectivity, whilst the words “the taxpayer” recognise that the objective test should be applied to the circumstances of the actual (rather than some hypothetical) taxpayer. 44. And at [36]:

[36]The excuse must be objectively reasonable and that test must be applied to the facts of the individual case. 45. The Upper Tribunal in Perrin (cited at [19] above) settled the correct test to be applied when considering reasonable excuse arguments in this Tribunal. It determined as follows: [70] …[T]he task facing the FTT when considering a reasonable excuse defence is to determine whether facts exist which, when judged objectively, amount to a reasonable excuse for the default and accordingly give rise to a valid defence. The burden of establishing the existence of those facts, on a balance of probabilities, lies on the taxpayer. In making its determination, the tribunal is making a value judgment which, assuming it has(a) found facts capable of being supported by the evidence,

(b) applied the correct legal test and

(c) come to a conclusion which is within the range of reasonable conclusions, no appellate tribunal or court can interfere with. [71] In deciding whether the excuse put forward is, viewed objectively, sufficient to amount to a reasonable excuse, the tribunal should bear in mind all relevant circumstances; because the issue is whether the particular taxpayer has a reasonable excuse, the experience, knowledge and other attributes of the particular taxpayer should be taken into account, as well as the situation in which that taxpayer was at the relevant time or times (in accordance with the decisions in The Clean Car Co and Coales ). [72] Where the facts upon which the taxpayer relies include assertions as to some individual’s state of mind (e.g. “I thought I had filed the required return”, or “I did not believe it was necessary to file a return in these circumstances”), the question of whether that state of mind actually existed must be decided by the FTT just as much as any other facts relied on. In doing so, the FTT, as the primary fact-finding tribunal, is entitled to make an assessment of the credibility of the relevant witness using all the usual tools available to it, and one of those tools is the inherent probability (or otherwise) that the belief which is being asserted was in fact held; as Lord Hoffman said in In re B (Children)

[2008] UKHL 35

[2009] 1AC 11

at [15]:

“There is only one rule of law, namely that the occurrence of the fact in issue must be proved to have been more probable than not. Common sense, not law, requires that in deciding this question, regard should be had, to whatever extent appropriate, to inherent probabilities.” [73] Once it has made its findings of all the relevant facts, then the FTT must assess whether those facts (including, where relevant, the state of mind of any relevant witness) are sufficient to amount to a reasonable excuse, judged objectively. [74] Where a taxpayer’s belief is in issue, it is often put forward as either the sole or main fact which is being relied on – e.g. “I did not think it was necessary to file a return”, or “I genuinely and honestly believed that I had submitted a return”

. In such cases, the FTT may accept that the taxpayer did indeed genuinely and honestly hold the belief that he/she asserts; however that fact on its own is not enough. The FTT must still reach a decision as to whether that belief, in all the circumstances, was enough to amount to a reasonable excuse. So a taxpayer who was well used to filing annual self assessment returns but was told by a friend one year in the pub that the annual filing requirement had been abolished might persuade a tribunal that he honestly and genuinely believed he was not required to file a return, but he would be unlikely to persuade it that the belief was objectively a reasonable one which could give rise to a reasonable excuse. [75] It follows from the above that we consider the FTT was correct to say (at [88] of the 2014 Decision) that “to be a reasonable excuse, the excuse must not only be genuine, but also objectively reasonable when the circumstances and attributes of the actual taxpayer are taken into account.” 46. The paragraphs quoted from Perrin are binding on me and set out the test to be applied in this case. Special circumstances 47. Referring to Paragraphs 16 and 22 of Schedule 55 to FA09 (quoted at [41]-[42] above), the Tribunal in Ghafoor v HMRC

[2019] UKFTT 205 (TC)

(Judge Andrew Scott and Julian Sims) wrote: [56] Although it is provided that certain cases do not constitute “special circumstances”, no further assistance is provided by the legislation in determining what counts as “special”. HMRC guidance refers to the decision in Crabtree v Hinchcliffe

[1971] 3 All ER 967

and the decision in Clarks of Hove Ltd v Bakers’ Union

[1979] 1 All ER 152

for help. There is [sic for “are”] dicta in those cases to the effect that special circumstances means something “exceptional, abnormal or unusual” or “something out of the ordinary run of events”. [57] It seems to us that neither of those cases provides any meaningful assistance. They concerned different legislation with a different purpose from that of Sch.55 to FA09. The expression “special circumstances” is not a term of art used by Parliament to engage case law relevant to its meaning in other (different) statutory contexts. Rather, it is an ordinary English expression that, in accordance with basic rules of statutory interpretation, must be given its ordinary meaning. We should consider the language that Parliament has chosen to use, not other synonymous expressions. 48. HMRC directed me to Crabtree v Hinchcliffe and Clarks of Hove Ltd v Bakers’ Union in its Paper Hearing Submission. I was also directed to David Collis v HMRC

[2011] UKFTT 588 (TC)

at [40] in support of the proposition that the special circumstances must apply to the particular taxpayer and may not be general circumstances that apply to many taxpayers by virtue of the penalty legislation. 49. These authorities were reviewed by the Upper Tribunal in Edwards at [68] and following. The Upper Tribunal decided: [72] In our view, as the FTT said in Advanced Scaffolding (Bristol) Limited v HMRC

[2018] UKFTT 744 (TC)

at [99], there is no reason for the FTT to seek to restrict the wording of paragraph 16 of Schedule 55 FA 2019 by adding a judicial gloss to the phrase. In support of that approach the FTT referred to the observation made by Lord Reid in Crabtree v Hinchcliffe at page 731D-E when considering the scope of “special circumstances” as follows:

“the respondent argues that this provision has a very limited application… I can see nothing in the phraseology or in the apparent object of this provision to justify so narrow a reading of it”. [73] The FTT then said this at [101] and [102]: “101. I appreciate that care must be taken in deriving principles based on cases dealing with different legislation. However, I can see nothing in schedule 55 which evidences any intention that the phrase “special circumstances” should be given a narrow meaning. 102. It is clear that, in enacting paragraph 16 of schedule 55, Parliament intended to give HMRC and, if HMRC’s decision is flawed, the Tribunal a wide discretion to reduce a penalty where there are circumstances which, in their view, make it right to do so. The only restriction is that the circumstances must be “special”

. Whether this is interpreted as being out of the ordinary, uncommon, exceptional, abnormal, unusual, peculiar or distinctive does not really take the debate any further. What matters is whether HMRC (or, where appropriate, the Tribunal) consider that the circumstances are sufficiently special that it is right to reduce the amount of the penalty.” [74] We respectfully agree. As the FTT went on to say at [105], special circumstances may or may not operate on the person involved but what is key is whether the circumstance is relevant to the issue under consideration . (My emphasis) 50. The reference to judicial review principles at Paragraph 22(4) of Schedule 55 to FA09 (and commented on briefly in Ghafoor at [55]) was helpfully explained in Abel v HMRC

[2018] UKFTT 194 (TC)

(Judge Tony Beare) at [19]: …[T]he decision as to whether any particular circumstances constitute “special circumstances” is entirely a matter for the Respondents to determine in their own discretion and… their decision can be impugned only if they have acted unreasonably in the sense described in the leading case of Associated Provincial Picture Houses, Limited v Wednesbury Corporation

[1948] 1 KB 223

(“ Wednesbury ”). In other words, the Tribunal is not permitted to consider the relevant facts de novo and determine whether or not it agrees with the conclusion that the Respondents have reached. Instead, it needs to consider whether, in reaching that conclusion, the Respondents have taken into account matters that they ought not to have taken into account or disregarded matters that they ought to have taken into account. As long as that is not the case, then the Respondents’ decision may be impugned only if it is one that no reasonable person could have reached upon consideration of the relevant matters. The Respondents’ decision cannot be impugned simply because the Tribunal might have reached a different conclusion upon consideration of the relevant matters de novo. Submissions by the appellant 51. The appellant’s evidence, insofar as material, is as follows: (1) The appellant separated from her husband (“H”), from whom she is estranged, in May 2016. She is 62 years old. H is a senior lawyer in private practice at the Bar. (2) Since the breakdown of her marriage, the appellant received no financial support from H for almost three years, until obtaining interim maintenance pending suit in divorce proceedings of £750 per month. In the meantime, the appellant had been living off capital, which is all-but exhausted. The appellant’s remaining capital is a pension of approximately £45,000. (3) The appellant had ceased paid employment in 2002, since when she was totally financially dependent on H. The appellant has been unable to obtain employment since the breakdown of her marriage, despite her best efforts. (4) After the breakdown of her marriage, the appellant’s home was repossessed by the bank. (5) The appellant then moved into rented accommodation but became unable to afford the rent. She drew down £30,000 of pension funds to pay rent in advance. (Presumably once that fund had been exhausted), her landlord granted a rent-free period until January 2019, following which she expected eviction and the necessity of seeking state benefits. (6) During her marriage, the appellant’s tax affairs (which included the receipt of offshore rental property income) had been dealt with by a major accountancy firm with offices in London, the UK and worldwide (“the Accountants”) on the basis of information supplied by H. H was the keeper of all financial records and the appellant’s involvement in her personal tax affairs was limited to signing tax returns prepared by the Accountants. (7) The financial aspects of the appellant’s divorce from H are contested and protracted, complicated by bankruptcy proceedings against the appellant and H. Whilst the appellant is unrepresented in the application for a financial order in her divorce due to lack of funds, H retains two firms of solicitors and accountants in both his matrimonial affairs and the bankruptcy proceedings. (8) H has been “dragging his feet” in the divorce proceedings and has failed to comply – or has at best complied belatedly – with a number of Court Orders in the Family Division. (9) Since the breakdown of their marriage, H has declined to pay for accountancy and tax advice for the appellant and has instructed The Accountants not to act for the appellant as a result of a conflict of interests given their continuing instructions from him. The Accountants have, in any event, refused to act for the appellant as a result of outstanding fees incurred against her account with them which the appellant has no means to settle. H refuses to settle those fees. (10) The Accountants proposed to the appellant that she should approach the charity “Tax Help for Older People” for assistance in lieu of their advice. It is not clear from the evidence whether the appellant did so. (11) The appellant has obtained a number of Orders against H in the Family Division requiring him to release financial details (relevant to this appeal) to the appellant. At least two of those Orders (dated 2 March 2018 and 24 September 2018) required the Accountants to release information to the appellant but, on legal advice, the Accountants concluded that H must authorise their disclosure of this information. H delayed his consent – without explanation – for a number of months during which time the Accountants did not provide any information to the appellant. H confirmed to the Court on 24 September 2018 that he had given his consent to the Accountants for the release of the relevant information, but the Accountants wrote to the appellant on 10 October 2018 confirming that no such consent had yet been received by them (six months after the date of the 23 March Order). (12) The appellant had been in e-mail correspondence with the Accountants, asking for assistance with her tax returns, and for information about the financial and tax affairs of her and H since at least 16 November 2017 – after the date for submission of a paper Individual Tax Return for the tax year 2016/17, but before the deadline for submission of an online return. The appellant did not receive any material assistance from the Accountants as a result of that correspondence. (13) The appellant had also been in correspondence with HMRC since early 2018 enquiring about the obligation to submit a tax return for 2016/17 as her income was within her personal allowance, resulting in no tax to pay. On 5 June 2018, HMRC wrote to the appellant confirming that a tax return was necessary. (14) On 9 June 2018, the appellant sent an e-mail to the Accountants, which included:

“Perhaps the best way forward is for me just to duplicate my 2017 return and put that in?”. (15) The appellant filed a paper tax return for the tax year 2016/17 on 14 June 2018, after the due date for submission of either a paper return or an online return. (16) HMRC imposed penalties (as set out above) for late submission of the appellant’s 2016/17 tax return. Unlike the two preceding years, HMRC has not cancelled those penalties. The appellant appealed the penalties to HMRC, which upheld its decision. The appellant then appealed to this Tribunal. 52. The appellant contends that these facts make out a reasonable excuse for her failure to file her tax return online and/or that they constitute special circumstances. 53. I am conscious that I only have the appellant’s perspective on these issues, and questions of conduct in matrimonial proceedings are often emotive and partial. I have not had evidence from H. Nevertheless, the overall picture emerging from the appellant’s evidence as summarised in [ 51] above is of a bitter and hard-fought divorce, a continuing and striking degree of financial hardship arising from that, and a complete lack of access to professional assistance. For the purposes of this appeal (but not further or otherwise), I am prepared to treat the appellant’s evidence as summarised above as fact and I so find: the evidence is both internally consistent and consistent with the details one might expect to encounter in a difficult divorce. Submissions by HMRC 54. HMRC’s case is in essence as follows: (1) The appeal is not concerned with an obscure area of tax law but with the ordinary everyday responsibility to file a tax return by the due date. The due date for the return was clearly stated on the notice to file that had (we are assuming for these purposes) been sent to the appellant and information about deadlines and consequences of failing to meet them are readily available. (2) The Appellant did not file a tax return until 14 June 2018 despite the (purported) issue of a Notice to File on 6 April 2017 and the first penalty notification of (or around) 13 February 2018. By being in default of her filing requirements, the appellant did not act in the manner of a prudent person, exercising reasonable diligence and due foresight, having proper regard for her responsibilities under the Taxes Acts. (3) The appellant previously received penalty notices in respect of late filing of her 2014/15 and 2015/16 Individual Tax Returns. Those earlier were cancelled by HMRC pursuant to its powers under s.54 TMA 1970. (4) HMRC acknowledges that the circumstances giving rise to the cancellation of the earlier penalties are still continuing. However, the appellant has not established that her personal difficulties were so serious that they reasonably prevented her from filing the return on time for the tax year 2016/17. The Appellant has therefore not established the existence of a reasonable excuse or special circumstances. Discussion 55. The due date for submission of the return was 31 October 2017 if filed on paper and 31 January 2018 if filed electronically. HMRC contend, and provide evidence in support of the contention, and the appellant has not sought to deny, that the return was filed on paper on 14 June 2018 and processed on 18 October 2018. This followed correspondence between the appellant and HMRC, which concluded on 5 June 2018 with HMRC writing to the appellant to confirm that she should submit a tax return. On the material before me, I find as a fact that this is all so. The appellant does not suggest that the penalties have not been correctly calculated in accordance with the legislation. It follows that the return was late and that as a matter of law the appellant would be liable to the penalties unless she has a reasonable excuse for the lateness, or unless HMRC (or the Tribunal) considers that there are special circumstances justifying a reduction in the penalty. 56. It is well established that the burden is on the appellant to establish the existence of circumstances amounting to a reasonable excuse on a balance of probabilities. A reasonable excuse will serve to relieve a taxpayer of penalties “if the failure is remedied without unreasonable delay after the excuse ceased” (Paragraph 23(2)(c) to Schedule 55 of FA09). 57. The salient reasons, briefly stated (and based on the facts I have found at [ 53] above), which the appellant contends amount to a reasonable excuse are: (1) The lack of information available to her about her financial and tax affairs given that this information was controlled by H and that the Accountants (who had previously prepared her tax returns on information from H) would not release details to her; (2) The fact that she had taken “significant steps” to obtain the information from H (via the Family Division) and from the Accountants by correspondence; (3) The fact that as a result of the breakdown of her marriage, her separation and estrangement from H – and the dire financial consequences for her as a result – she has no funds from which to pay a penalty. 58. In the alternative, the appellant argues that her personal circumstances are “both uncommon and exceptional” and, as such, merit treatment as “special circumstances” warranting reduction of penalties to zero. 59. Insofar as aspects of the appellant’s grounds of appeal are not mentioned in [57] and [58], I do not consider them persuasive and I discount them. In particular, any uncertainty in which the appellant found herself about her responsibility to file a tax return is not relevant to the question of her having a reasonable excuse, nor is the fact that she had no tax liability for the tax year in question. 60. HMRC accepts (at paragraph 68 of the Paper Hearing Submission) that “[the appellant’s] personal difficulties [which had merited the cancellation of penalties for the 2014/15 and 2015/16 tax years] remained”, but objects that these difficulties do not, in the context of the previous penalty waivers, constitute a reasonable excuse for late filing in the 2016/17 tax year. 61. HMRC notes that the appellant had been in the self-assessment tax regime since 2006/7, when an unsolicited tax return was received containing income from property over £2,500. HMRC argues from this that the appellant was “…experienced in the annual cycle of receiving a notice to file and making arrangements for that return to be completed.” 62. HMRC contends that absent current information from H and/or the Accountants, the appellant should have submitted an in-time tax return based on estimated figures drawn from her 2015/16 tax return, which she had submitted after the breakdown of her marriage and in respect of which the information was available to her. 63. HMRC objects that the appellant’s correspondence with them only began after the due date for filing an online tax return had passed. Conclusions on reasonable excuse and special circumstances 64. Apropos of reasonable excuse, and adopting the test in Perrin at [70] to [75], I have decided as follows: (1) The appellant has discharged her burden of proof in respect of the facts found at [51] above. (2) I agree with the appellant that the relevant circumstances are those summarised at [57] above. (a) I have taken into account the particular circumstances of the appellant, in terms of her divorce and the significant effect it has evidently had on her life – not least in terms of the instability it has caused to her housing position. (b) I have considered HMRC’s inference (at [61] above) that because the appellant had been in the self-assessment tax regime for a number of years that she was experienced in such matters and should therefore have been accustomed to filing tax returns. I find on the balance of probabilities that the appellant had little or no practical experience of such matters because the Accountants dealt with her tax affairs on the basis of instructions and information from H and that the appellant’s involvement was limited to signing tax returns put before her. (c) Whilst the appellant’s correspondence with HMRC only began after the due date for filing her tax return had passed, the appellant had in fact taken steps beforehand to ascertain her tax position: she had, for example, sent an e-mail to the Accountants on 16 November 2017 asking for details and explaining her “desperate” financial position. That correspondence continued throughout the relevant period. (d) On 9 June 2018, the appellant sent an e-mail to the Accountants including for the first time the suggestion that “[p]erhaps the best way forward is for me just to duplicate my 2017 return and put that in?”

The reply from the Accountants on 11 June does not address that question. The appellant filed her tax return on 14 June. (e) I consider it relevant that the appellant tried a number of times to compel H to deliver to her relevant financial information, including by means of applying for and obtaining Orders in the Family Division but I note that the extent to which H complied with those Orders is unclear, and his compliance such as it was evidently took a considerable amount of time. In the circumstances, I do not consider that the appellant could have done anything more to obtain information from H or the Accountants and (subject as follows) I accept that they were the only ones in possession of the relevant information. I do not consider that the proposal by the Accountants that the appellant should contact the charity “Tax Help for Older People” to have been a credible proposal and no blame attaches to the appellant if she did not do so. (f) HMRC’s argument that the appellant should have submitted a timely self-assessment tax return using estimated data based on her 2016/17 return has force. In fact, had the appellant done so, it is likely that she would have avoided the difficulties about these penalties entirely. This is certainly the course of action that would have recommended itself to someone experienced in tax matters. I find that it did not occur to the appellant, who was evidently concentrating her efforts on establishing the actual details for her tax return, until on or around 9 June 2018, when she first proposed it (in the form of a question) to the Accountants. I agree with HMRC that the notes to help individuals complete tax returns helpfully deal with estimated figures, but I find that the appellant (who was inexperienced in tax matters) had no reason to be aware of them and there is no evidence that they were brought to her attention. The question for me is whether the reasonable taxpayer having the characteristics of the appellant (as I have found them to be) and finding him- or herself in the circumstances in which the appellant found herself to be (as found) would have used estimated figures based on a previous year’s tax return to enable them to submit a timely tax return in 2016/17. I find that whilst a taxpayer experienced in the the self-assessment regime would probably have done so, a reasonable taxpayer with the characteristics of the appellant and in the personal circumstances in which she found herself would not necessarily do so and that the appellant’s failure to do so was accordingly reasonable in the circumstances for her. (3) I do not consider that the state of mind of the appellant was a material factor. (4) I conclude that the factors identified above, viewed objectively, are sufficient to constitute a reasonable excuse for her failure to submit her 2016/17 tax return. (5) Alternatively, or in addition, I find that the appellant’s present severe and persistent financial hardship, which amounts to a marked insufficiency of funds, is attributable to events outside her control. As she argues, it is attributable to the bitter divorce she is going through and, on her evidence, the lack of assistance from H. That finding enables me to determine that the restriction in Paragraph 23(2)(a) of Schedule 55 to FA09 (which excludes lack of funds as a reasonable excuse, save where the insufficiency of funds is attributable to events outside the appellant’s control) is not in point. This factor is relevant to the wider considerations set out above in respect of reasonable excuse; I hold that it also qualifies as such in its own right. 65. Turning finally to special circumstances, I have some sympathy with the appellant’s view that her circumstances throughout have been “both uncommon and exceptional”. I have in mind the view stated by the Tribunal in Advanced Scaffolding at [102] and approved by the Upper Tribunal in Edwards at [74]: “[w]hat matters is whether HMRC (or, where appropriate, the Tribunal) consider that the circumstances are sufficiently special that it is right to reduce the amount of the penalty.” 66. I note that HMRC had considered the appellant’s circumstances in 2014/15 and 2015/16 to merit cancelling penalties and HMRC acknowledged in this appeal that those circumstances persisted throughout the tax year 2016/17. The point is not expressly pleaded by HMRC, but insofar as I can tell, the difference is that in 2016/17, in HMRC’s view, the appellant had relevant information from her 2015/16 return and could and should have made a return using estimated figures based on that information. I have already held at [64(2)(f)] above that I do not consider this to be determinative of the question of reasonable excuse. In my view, the same is true of special circumstances. 67. Were I to have had complete freedom on this point, I would have held that because of the circumstances of the appellant’s divorce and H’s reported conduct, there were special circumstances which merited reducing these penalties to zero. However, I am conscious that I may only overturn HMRC’s decision on this point if I conclude that “it is one that no reasonable person could have reached upon consideration of the relevant matters” (Paragraph 22(4) of Schedule 55 to FA09; Abel at [19], applying Wednesbury ). I would not go that far: I consider that HMRC’s decision, whilst harsh in its effect, was within the penumbra of decisions that a tax authority could reasonably take. I therefore conclude for the purposes of this appeal that there were not special circumstances. Decision 68. The appeal is allowed in full and the penalties are set aside. 69. 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. JAMES AUSTEN TRIBUNAL JUDGE RELEASE DATE: 28 JUNE 2019