Tribunal allows taxpayer's appeal in respect of late filing penalties

In Walker v HMRC [2023] UKFTT 865 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against late filing penalties, as the relevant penalty notices had not been validly served.

Background

HMRC claimed that late filing penalty notices had been validly issued to Ms Claire Marie Walker (the Appellant) electronically, by way of HMRC's self-assessment system.

HMRC contended that, on 6 April 2021, the Appellant was issued with a notice to file for the year ending 5 April 2021. HMRC said that the filing date for the Appellant's return was therefore 31 October 2021 (for a non-electronic return), or 31 January 2022 (for an electronic return).

The Appellant's return was not filed by either deadline. Accordingly, HMRC claimed to have issued to the Appellant three late filing penalty notices (the Notices) in March and August 2022, pursuant to paragraphs 3, 4 and 5,  Schedule 55, Finance Act 2009 (FA 2009). As HMRC’s system recorded the Appellant as having signed up to receive paperless contact, no paper copies of the Notices were sent to the Appellant. HMRC claimed to have issued electronic notices instead.  

In September 2022, HMRC sent a hard copy letter to the Appellant regarding outstanding self-assessment payments. Shortly after receiving the letter, the Appellant telephoned HMRC. The HMRC operator explained to the Appellant that her 2020/21 return was still outstanding, advised her to submit the return and explained the appeals process. The Appellant filed her return electronically that same day.

The Appellant appealed the Notices to the FTT, arguing the Notices had never been received and therefore disputing that they had been served. The issues before the FTT were (i) whether the late filing penalties charged to the Appellant were correctly issued; and (ii) if so, whether the Appellant had a reasonable excuse for the late filing of the return.

FTT decision

The appeal was allowed.

HMRC accepted that it had the burden of proving that the Notices had been validly served and sought to discharge that burden by submitting documents containing strings of text it argued proved the Notices had in fact been served electronically on the Appellant. The FTT commented that it found the text relied upon by HMRC "difficult to comprehend". Not surprisingly, the FTT said that it could not accept the presence of particular text strings as providing proof of any particular point and therefore could not come to any conclusion based on that evidence. Rather, the FTT observed that, as a general proposition, if a party wished to put forward complex evidence said to have been extracted from a particular computer system it would expect a witness of fact to provide evidence as to how, when and from where, the data was extracted, as well as an expert witness to enable the FTT to understand the significance of the data. HMRC had failed to do either.

The FTT accepted that the provision of separate witnesses of fact and expert witnesses might be disproportionately costly in some cases. However, it noted that Regulation 6 of the Income and Corporation Taxes (Electronic Communications) Regulations 2003, provided HMRC with a relatively straightforward means by which it could discharge the burden upon it by providing the FTT with a document purporting to be a duly-certified copy of the relevant notice, which would create a rebuttable presumption that the notice contained the information set out in the copy and was delivered. HMRC had chosen not to avail itself of Regulation 6, which the FTT found "surprising".

Similarly, Regulation 9 provides a further rebuttable presumption in relation to delivery if HMRC could prove that such delivery was recorded in an official computer system. Again, HMRC did not avail itself of that option and, in any event, the FTT determined that the evidence adduced by HMRC was insufficient to prove that the requirements of Regulation 9 were satisfied.

While noting that it was intended to be a less formal forum than a court, the FTT stated that it would still normally require cogent and comprehendible evidence on a point of critical dispute between the parties. In that regard, the FTT observed that much of HMRC’s case comprised factual assertions for which no primary evidence was provided, or assertions of fact that purported to be legal submissions. The FTT therefore sounded a general warning that, while it welcomed attempts by advocates to assist the FTT in as far as they are able, they should generally resist the urge to give factual evidence. Rather, if HMRC wished to provide evidence of its internal processes and procedures in order to establish a contested point in relation to which the burden rests upon it, basic fairness required that HMRC put forward a statement from a suitable witness or other relevant primary evidence. It was not fair or appropriate for HMRC to seek to rely on its advocate to fill the gaps in evidence through purported legal submissions.

Accordingly, the FTT concluded that HMRC had not discharged its burden of establishing that the Notices had been properly served, and cancelled the penalties.

Although it was necessary for the FTT to consider the second issue, it did none the less state that inits view the Appellant had failed to establish that she had a reasonable excuse for the late filing of her return. 

Comment

Issues relating to service are a perennial problem for taxpayers involved in disputes with HMRC. This decision highlights the importance of ensuring that HMRC has complied with its procedural obligations and the expectations of the FTT when it comes to HMRC's evidential burden in respect of such matters. In that regard, the FTT's decision also serves as a useful reminder of the importance of evidence generally, and the consequences that may result if a party's evidential case is not properly prepared.