Stringer v Revenue & Customs (Income Tax - application to make a late appeal) [2020] UKFTT 491 (TC)

FTT-Tax
Stringer v Revenue & Customs (Income Tax - application to make a late appeal)
[2020] UKFTT 491 (TC) · 2020-06-10
[1]This is an application by Joanne Stringer (“the appellant”) for permission to bring an appeal against penalties totalling £1,600 imposed by the Respondents (“HMRC”) under Paragraphs 3,4 and 5 of Schedule 55 Finance Act 2009 for the late filing by the appellant of her self-assessment (“SA”) tax return for the tax year 2013-14.[2]HMRC object to the application Penalties for late filing of self-assessment returns[3]A late filing penalty is chargeable where a taxpayer is late in filing their Individual Tax return.[4]Penalties for late filing of a return can be summarised as follows: i. A penalty of £100 is imposed under Paragraph 3 of Schedule 55 Finance Act (“FA”) 2009 for the late filing of the Individual Tax Return. ii. If after a period of 3 months beginning with the penalty date the return remains outstanding, daily penalties at £10 per day up to a total of £900 are imposed under Paragraph 4 of Schedule 55 FA 2009. iii. If after a period of 6 months beginning with the penalty date the return remains outstanding, a penalty of £300 is imposed under Paragraph 5 of Schedule 55 FA 2009. iv. If after a period of 12 months beginning with the penalty date the return remains outstanding, a penalty of £300 is imposed under Paragraph 6 of Schedule 55 FA 2009. Filing date[5]Under s 8(1D) TMA 1970 et seq. a non-electronic return must be filed by 31 October following the end of the relevant tax year or an electronic return by 31 January of the following year. The ‘penalty date’ is defined at Paragraph 1(4) Schedule 55 FA 2009 and is the date after the filing date. Reasonable excuse[6]Paragraph 23 of Schedule 55 FA 2009, provides that a penalty does not arise in relation to a failure to make a return if the person satisfies HMRC (or on appeal, a Tribunal) that they had a reasonable excuse for the failure and they put right the failure without unreasonable delay after the excuse has ended.[7]The law specifies two situations that are not reasonable excuse:(a) An insufficiency of funds, unless attributable to events outside the appellant’s control and(b) Reliance on another person to do anything, unless the person took reasonable care to avoid the failure.[8]There is no statutory definition of “reasonable excuse”. Whether or not a person had a reasonable excuse is an objective test and “ is a matter to be considered in the light of all the circumstances of the particular case ” ( Rowland v HMRC (2006) STC (SCD) 536 at paragraph 18).[9]HMRC’s view is that the actions of the taxpayer should be considered from the perspective of a prudent person, exercising reasonable foresight and due diligence, having proper regard for their responsibilities under the Tax Acts. The decision depends upon the particular circumstances in which the failure occurred and the particular circumstances and abilities of the person who failed to file their return on time. The test is to determine what a reasonable taxpayer, in the position of the taxpayer, would have done in those circumstances and by reference to that test to determine whether the conduct of the taxpayer can be regarded as conforming to that standard. The background facts[10]On 8 May 2013 the appellant registered as self-employed from 22 April 2013, trading in second-hand furniture under the business name ‘JojoatHome’.[11]The notice to file for the year ending 5 April 2014 was issued to the appellant on or around 6 April 2014.[12]The notice to file was issued to the appellant at her last recorded address at 27 Cooper Drive TN39 5EF. There is no assertion by the appellant that she did not receive the notice.[13]The filing date was 31 October 2014 for a non-electronic return or 31 January 2015 for an electronic return.[14]In accordance with Paragraph 3 of Schedule 55 FA 2009, as the appellant did not submit a return by the filing date of 31 January 2015, she was liable to a penalty of £100.[15]HMRC issued a notice of penalty assessment on or around 18 February 2015 in the amount of £100. The notice (SA326D) serves as a warning of the daily penalties.[16]Pursuant to Paragraph 4 of Schedule 55 FA 2009, as the return had still not been received 3 months after the penalty date, the appellant was liable to daily penalties of £10 per day up to a period of 90 days. HMRC issued a notice of daily penalty assessment on or around 14 August 2015 in the amount of £900, calculated at £10 per day for 90 days.[17]Pursuant to Paragraph 5 of Schedule 55 FA 2009, as the return had still not been received 6 months after the penalty date, the appellant was liable to a penalty of £300.[18]HMRC issued a notice of penalty assessment on or around 14 August 2015 in the amount of £300.[19]Pursuant to Paragraph 6 Schedule 55 FA 2009, as the return had still not been received 12 months after the penalty date, the appellant was liable to a penalty of £300. HMRC issued a notice of penalty assessment on or around 23 February 2016 in the amount of £300.[20]Under paragraph 21 of Schedule 55, an appeal is to be treated as an appeal against an assessment to the tax concerned.[21]Section 31 Taxes Management Act (“TMA”) 1970 gives a right of appeal against tax assessments. Section 31A says the appeal must be within 30 days of the specified date, being the date the notice was given.[22]When an appeal is received by HMRC more than 30 days after the penalty has been issued, HMRC can consider the appeal if there is a reasonable excuse for the delay in appealing.[23]HMRC’s records show that the appellant or her agent contacted HMRC on numerous occasions after the 2013-14 return due date of 31 January 2015, but have not taken any action regarding the outstanding return. · On 9 April 2015 the appellant registered further self-employment. As from 20 March 2015 the appellant commenced trading as ‘Vintaged by Colour’, painting second-hand furniture. · HMRC’s Debt Management and Banking team issued outstanding debt letters on 19 May 2015, 4 June 2015, 18 June 2015, 29 July 2015, 13 October 2015, 31 December 2015 and 28 October 2015. · On 27 June 2016 the appellant phoned HMRC to check if a Pay As You Earn (PAYE) repayment was due to her for 2016-17. · On 8 July 2016 the appellant phoned HMRC regarding the PAYE repayment. · On 1 August 2016 the appellant phoned HMRC regarding her PAYE liability for 2015-16. HMRC issued a repayment to the appellant on 8 August 2016. · On 9 August 2016 the appellant phoned HMRC to update HMRC regarding her current employment situation and form P45. · On 26 September 2017 HMRC received form 64-8, authorising HMRC to correspond with Tax Returned Ltd, acting as agent for the appellant. · On 28 September 2017 HMRC received a claim for flat rate expenses in respect of the appellant’s employment for 2013-14 to 2016-17. · On 2 May 2018 the appellant phoned HMRC with regard to appealing the penalties, after she had been contacted by HMRC’s Debt Management division. She was advised to file her return for 2013-14. · On 12 November 2018 the appellant phoned HMRC to give her new address. · On 27 October 2019 HMRC received an unsolicited 2018-19 return from the appellant, claiming allowable expenses of £3,665 incurred in her employment. If an employee wishes to claim allowable business expenses of over £2,500 in any tax year, they must complete a self-assessment return.[24]On 20 November 2019 HMRC was in receipt of an appeal dated 15 November 2019 from the appellant’s agent in respect of the penalties charged. The agent said:
“... during 2013 - 14 the appellant was unemployed and had no income. She therefore did not meet the criteria to be in self-assessment.”
[25]At best, the appeal was late by 1,136 days and at worst 1,170 days. HMRC considered the late appeal under s 49 TMA 1970 but refused the late appeal. Therefore, no decision has been made regarding the penalties appealed. A late appeal refusal letter was issued on 29 January 2020. This letter offered the appellant an opportunity to provide a reasonable excuse for appealing late or to apply to the First-tier Tribunal by 28 February 2020 to admit a late appeal.[26]On 3 February 2020 the appellant applied to the Tribunal for an extension of time to appeal. Points at issue[27]Whether the appellant has a reasonable excuse for the late appeal.[28]If a reasonable excuse exists, whether the appeal was received without any unreasonable delay once any excuse had ended. Burden and standard of proof[29]The onus of proof is on the appellant to demonstrate that a reasonable excuse exists for the late appeal. The standard of proof is the ordinary civil standard, which is on the balance of probabilities Relevant statutory provisions Taxes Management Act 1970 Section 8 - Personal return- provides as follows:(1) For the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment, [and the amount payable by him by way of income tax for that year,] he may be required by a notice given to him by an officer of the Board- a) to make and deliver to the officer, on or before the day mentioned in subsection (1A) below, a return containing such information as may, reasonably be required in pursuance of the notice, and b) to deliver with the return such accounts, statements and documents, relating to information contained in the return, as may reasonably be so required. (1A) The day referred to in subsection (1) above is- (a) the 31st January next following the year of assessment, or (b) where the notice under this section is given after the 31st October next following the year, the last j day of the period of three months beginning with the day on which the notice is given] (1AA) For the purposes of subsection (1) above- (a) the amounts in which a person is chargeable to income tax and capital gains tax are net amounts, that is to say, amounts which take into account any relief or allowance a claim for which is included in the return; and (b) the amount payable by a person by way of income tax is the difference between the amount in which he is chargeable to income tax and the aggregate amount of any income tax deducted at source and any tax credits to which [section 397(1) [or [397A(1)] of ITTOIA 2005] applies.] (1B) In the case of a person who carries on a trade, profession, or business in partnership with one or more other persons, a return under this section shall include each amount which, in any relevant statement, is stated to be equal to his share of any income, [loss, tax, credit] or charge for the period in respect of which the statement is made. (1C) In subsection (1B) above "relevant statement" means a statement which, as respects the partnership, falls to be made under section 12AB of this Act for a period which includes, or includes any part of, the year of assessment or its basis period.] (1D) A return under this section for a year of assessment (Year 1) must be delivered— (a) in the case of a non-electronic return, on or before 31st October in Year 2, and (b) in the case of an electronic return, on or before 31st January in Year 2. (1E) But subsection (1D) is subject to the following two exceptions. (1F) Exception 1 is that if a notice in respect of Year 1 is given after 31st July in Year 2 (but on or before 31st October), a return must be delivered- (a) during the period of 3 months beginning with the date of the notice (for a non-electronic return), or (b) on or before 31st January (for an electronic return). (1G) Exception 2 is that if a notice in respect of Year 1 is given after 31st October in Year 2, a return (whether electronic or not) must be delivered during the period of 3 months beginning with the date of the notice. (1H) The Commissioners- (a) shall prescribe what constitutes an electronic return, and (b) may make different provision for different cases or circumstances.(2) Every return under this section shall include a declaration by the person making the return to the effect that the return is to the best of his knowledge correct and complete.(3) A notice under this section may require different information, accounts and statements for different periods or in relation to different descriptions of source of income.(4) Notices under this section may require different information, accounts and statements in relation to different descriptions of person.] (4A) Subsection (4B) applies if a notice under this section is given to a person within section 8ZA of this Act (certain persons employed etc. by person not resident in United Kingdom who perform their duties for UK clients). (4B) The notice may require a return of the person's income to include particulars of any general earnings (see section 7(3) of ITEPA 2003) paid to the person.](5) In this section and sections 8A, 9 and 12AA of this Act, any reference to income tax deducted at source is a reference to income tax deducted or treated as deducted from any income or treated as paid on any income. Schedule 55 Finance Act 2009 :[30]The penalties at issue in this appeal are imposed by Schedule 55 Finance Act 2009. The starting point is paragraph 3 of Schedule 55 which imposes a fixed £100 penalty if a SA return is submitted late.[31]Paragraph 4 of Schedule 55 provides for daily penalties to accrue where a return is more than three months late as follows:(1) P is liable to a penalty under this paragraph if (and only if)-- (a) P's failure continues after the end of the period of 3 months beginning with the penalty date, (b) HMRC decide that such a penalty should be payable, and (c) HMRC give notice to P specifying the date from which the penalty is payable.(2) The penalty under this paragraph is £10 for each day that the failure continues during the period of 90 days beginning with the date specified in the notice given under sub-paragraph (1)(c).(3) The date specified in the notice under sub-paragraph (1)(c)-- (a) may be earlier than the date on which the notice is given, but (b) may not be earlier than the end of the period mentioned in sub-paragraph (1)(a).[32]Paragraph 5 of Schedule 55 provides for further penalties to accrue when a return is more than 6 months late as follows:(1) P is liable to a penalty under this paragraph if (and only if) P's failure continues after the end of the period of 6 months beginning with the penalty date.(2) The penalty under this paragraph is the greater of-- (a) 5% of any liability to tax which would have been shown in the return in question, and (b) £300.[33]Paragraph 23 of Schedule 55 contains a defence of “reasonable excuse” as follows:(1) Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a return if P satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure.(2) For the purposes of sub-paragraph (1)-- (a) an insufficiency of funds is not a reasonable excuse, unless attributable to events outside P's control, (b) where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and (c) where P had a reasonable excuse for the failure but the excuse has ceased, P is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased[34]Paragraph 16 of Schedule 55 gives HMRC power to reduce penalties owing to the presence of “special circumstances” as follows:(1) If HMRC think it right because of special circumstances, they may reduce a penalty under any paragraph of this Schedule.(2) In sub-paragraph (1) "special circumstances" does not include-- (a) ability to pay, or (b) the fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another.(3) In sub-paragraph (1) the reference to reducing a penalty includes a reference to-- (a) staying a penalty, and (b) agreeing a compromise in relation to proceedings for a penalty.[35]Paragraph 20 of Schedule 55 gives a taxpayer a right of appeal to the Tribunal and paragraph 22 of Schedule 55 sets out the scope of the Tribunal's jurisdiction on such an appeal. In particular, the Tribunal has only a limited jurisdiction on the question of “special circumstances” as set out below:(1) On an appeal under paragraph 20(1) that is notified to the tribunal, the tribunal may affirm or cancel HMRC's decision.(2) On an appeal under paragraph 20(2) that is notified to the tribunal, the tribunal may-- (a) affirm HMRC's decision, or (b) substitute for HMRC's decision another decision that HMRC had power to make.(3) If the tribunal substitutes its decision for HMRC's, the tribunal may rely on paragraph 16-- (a) to the same extent as HMRC (which may mean applying the same percentage reduction as HMRC to a different starting point), or (b) to a different extent, but only if the tribunal thinks that HMRC's decision in respect of the application of paragraph 16 was flawed.(4) In sub-paragraph (3)(b) "flawed" means flawed when considered in the light of the principles applicable in proceedings for judicial review. The Appellant’s case[36]The appellant’s grounds for making an application for permission to bring a late appeal, as set out in her Notice of Appeal to the Tribunal are:
“I am liable for late self-assessment on a tax return dating 2013 - 14 I did not fully understand what to do during that time, I was suffering from depression and had started a small business up alone. I made no money from this and thus ceased trading. From what I know, I have never made an error like this before, but my state of mind at that time was not clear and I moved that same year to Crawley, West Sussex where I could be close to my family for support and try to start again. I understand there are concerns over the late return but I am deeply worried and would like to resolve this as soon as possible. I work all the hours available full-time and I have tried relentlessly to ring but I cannot get through to talk to anyone about this. Please consider my reasons. My desired outcome is to try and settle the penalty given at an affordable rate out of my earnings.”
HMRC’s Case[37]HMRC set up a SA record for the appellant on 8 May 2013 as she had notified them that she commenced self-employment on 22 April 2013 trading in second hand furniture, under the business name ‘JojoatHome’.[38]On 9 April 2015 HMRC were notified that the appellant had started self-employment on 20 March 2015, trading in painting second-hand furniture to make it look vintage, under the business name ‘Vintaged by Colour’.[39]HMRC also held a Pay As You Earn (“PAYE”) record for Ms Stringer. This had been dormant since she ceased employment in 2011-2012 and reopened when she commenced employment in 2015-2016.[40]In the appeal dated 15 November 2019 the appellant’s agent states she was not self-employed and therefore did not meet the criteria for self-assessment but in her appeal to the Tribunal the appellant confirms she ran a small business during 2013-14. Completion of a return for that year was therefore required.[41]The appellant has not given any reason why she has not yet submitted the return.[42]In her appeal to the Tribunal, the appellant states she has tried ‘relentlessly to ring HMRC’ but she has been unable to get through to talk to anyone about this. HMRC’s records show she spoke to HMRC on several occasions from 27 June 2016 to 1 August 2016 but there is no record of her discussing her outstanding return.[43]On 2 May 2018 the appellant phoned HMRC regarding the outstanding debt on her SA account and was advised to send in her return.[44]In order for the appellant’s appeal to succeed, she must demonstrate that a reasonable excuse existed which prevented her from complying with her Income Tax obligations. HMRC have concluded, based on the evidence held, that no reasonable excuse exists for the non-submission of the Individual tax return and the penalties were correctly charged in accordance with legislation.[45]Late filing penalties for the year ended 5 April 2014 are due in accordance with Schedule 55 FA 2009, even if the appellant had no tax to pay, has already paid all the tax due or is due a refund.[46]Where a return is filed after the relevant deadline a penalty is charged. The later a return is received, the more penalties are charged. This information was clearly shown on the 2013-14 notice to file issued to the appellant on 1 April 2014.[47]The appellant was sent numerous statements of account clearly showing the penalties charged. She does not dispute receiving the statements.[48]When the appellant registered herself for self-assessment in 2013 she should have familiarised herself with self-assessment procedures. There are a number of different routes by which a taxpayer can contact HMRC. Information about self-assessment, the completion of returns, tax payment dates and penalties is well within the public domain and widely available via the Internet including HMRC’s website.[49]Anyone receiving a notice to file must file a return by the specified date filing deadline or otherwise face penalties.[50]Quite apart from the fact that the appellant’s appeal is inordinately out of time, in order for her appeal to succeed it would have to show that she had a reasonable excuse which prevented her from complying with her income tax obligations and that the excuse continued throughout the period of failure until the date her return was actually filed.[51]This appeal is not concerned with specialist or obscure areas of tax law. It is concerned with the ordinary every-day responsibilities of the appellant to ensure her 2013-14 tax return was filed by the legislative date.[52]Self-assessment places a greater degree of responsibility on customers for their own tax affairs. This includes ensuring that HMRC get payment of the correct amount of tax and National Insurance at the correct time. The tax guidance and HMRC website give plenty of warning about filing and payment deadlines. It is the customer's responsibility to make sure they meet the deadlines.[53]Penalties are in place to promote efficient operation of the taxation system and are intended as a measure of fairness, so that customers who file late do not gain any advantage over those who file on time.[54]The amount of the penalties charged is set within the legislation. HMRC has no discretion over the amount charged and must act in accordance with the legislation. By not applying legislation and as such not to have imposed the penalty would mean that HMRC was not adhering to its own legal obligations. Special Reduction[55]Where a person appeals against the amount of a penalty, paragraph 22(2) and (3) of Schedule 55, FA 2009 provide the Tribunal with the power to substitute HMRC’s decision with another decision that HMRC had the power to make. The Tribunal may rely on paragraph 16 (Special Reduction) but only if they think HMRC’s decision was “ flawed when considered in the light of the principles applicable in proceedings for judicial review”.[56]“Special circumstances” is undefined save that, under paragraph 16(2), it does not include ability to pay, or the fact that a potential loss of revenue from one taxpayer is balanced by a potential overpayment by another.[57]In other contexts “special” has been held to mean ‘exceptional, abnormal or unusual’ ( Crabtree v Hinchcliffe [1971] 3 All ER 967 ), or ‘something out of the ordinary run of events’ ( Clarks of Hove Ltd v Bakers' Union [1979] 1 All ER 152). The special circumstances must also apply to the particular individual and not be general circumstances that apply to many taxpayers by virtue of the penalty legislation ( David Collis v HMRC [2011] UKFTT 588 (TC) , paragraph 40.[58]At paragraph 36 of his decision in David Collis ,

Judge Roger Berner said:

‘In the context of a decision of HMRC as to whether a reduction in a penalty should be made on account of special circumstances, the general test will be whether the decision is so demonstrably unreasonable as to be irrational or perverse, such that no reasonable authority could ever have come to it.’
[59]At paragraph 86 in the Upper Tribunal case of Barry Edwards v HMRC [2019] UKUT 137 (TCC), it was confirmed that the Schedule 55 regime was proportionate and penalties are correctly due even in circumstances where there is no additional tax liability, ‘In view of what we have said about the legitimate aim of the penalty scheme, a penalty imposed in accordance with the relevant provisions of Schedule 55 FA 2009 cannot be regarded as disproportionate in circumstances where no tax is ultimately found to be due. It follows that such a circumstance cannot constitute a special circumstance for the purposes of paragraph 16 of Schedule 55 FA with the consequence that it is not a relevant circumstance that HMRC must take into account when considering whether special circumstances justify a reduction in a penalty’.[60]Part of the consideration for Special Reduction includes whether in HMRC’s opinion a penalty has been raised when the legislation did not intend that taxpayer to be subject to the penalty regime. As the taxpayer was in the SA process, had not submitted a return as required by the notice and failed to do so after penalties and warnings of further penalties, HMRC do not consider that special reduction applies. Conclusion[61]The appellant’s appeal is significantly out of time. The Upper Tribunal in Martland v HMRC 2018 UKUT 178 (TCC) said that when considering applications for permission to appeal out of time, the starting point is that permission should not be granted unless the Tribunal is satisfied on balance that it should be. In considering that question, there is a three-stage process, first is to establish the length of delay, secondly to consider the reasons why the default occurred and thirdly an evaluation of all the circumstances of the case. Having considered those criteria and the appellant's grounds of appeal, I am not satisfied that permission to appeal out of time should be granted.[62]In any event when a person appeals against a penalty they are required to have a reasonable excuse which existed for the whole period of the default.[63]In considering whether the appellant has a reasonable excuse for the default it is necessary to consider her actions from the perspective of a prudent tax-payer exercising reasonable foresight and due diligence and having proper regard for their responsibilities provided by legislation. A reasonable excuse is normally an unexpected or unusual event, either unforeseeable or beyond the person’s control, which prevents him or her from complying with an obligation which otherwise would have been complied with.[64]Although the appellant says that she was depressed around the time that her 2013-14 return was due to be filed, that is 31 January 2015, she has not provided any medical evidence in support. Furthermore it was not long after, that she started to trade as ‘Vintaged by Colour’. After that, she was employed and in regular contact with HMRC regarding PAYE issues.[65]The appellant says she did not know what to do (in terms of complying with her SA obligations) but she previously had the foresight to register for SA in April 2013 and received the Notice to File in April 2014. This would have put her on notice that she had to file her return by 31 January 2015. Furthermore, when she received the first £100 penalty, she must have realised that her SA return was overdue, but did nothing about it either then, or at all even up to the date of this appeal.[66]Even if the appellant had a reasonable excuse at the time of the initial failure, too much time has passed since then. Any reasonable excuse has to continue to the date when the failure is remedied which clearly did not happen in this case.[67]I concur entirely with HMRC’s submissions as set out above. I find that the appellant’s appeal is out of time and that in any event she would not have been able to show a reasonable excuse for the late filing of her 2013-14 return.[68]The application for permission to appeal out of time is refused and the penalties are confirmed.[69]I note that in her appeal notice, the appellant’s desired outcome is that she is allowed ‘to try and settle the penalty at an affordable rate out of my earnings’. HMRC will no doubt take notice of this and I trust come to some arrangement with the appellant. I cannot interfere in that process.[70]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. MICHAEL CONNELL TRIBUNAL JUDGE RELEASE DATE: 04 DECEMBER 2020