Ahmed - HMRC cannot 'refresh' penalty time limit by reissuing information notices
In Salim Ahmed v HMRC [2020] UKFTT 337 (TC), the First-tier Tribunal (FTT) allowed the taxpayer’s appeal against a penalty for failing to comply with an information notice because the penalty notice was not issued within 12 months of the taxpayer becoming liable to a penalty and HMRC could not refresh the time period by issuing a subsequent information notice which merely repeated earlier information notices.
Background
HMRC wrote to Mr Salim Ahmed (the taxpayer) in July 2017, informing him that it had received information that he had failed to declare that he had purchased and disposed of a number of properties.
The taxpayer did not respond to this correspondence and on 11 October 2017, HMRC issued to him a notice pursuant to paragraph 1, Schedule 36, Finance Act 2008, requiring him to produce certain documents by 20 November 2017 (the First Notice).
On 20 December 2017, HMRC issued to the taxpayer a penalty notice for non-compliance with the First Notice, pursuant to paragraph 39, Schedule 36, Finance Act 2008. HMRC later cancelled this penalty notice after realising that it had been sent to the wrong address.
In January 2018, Mr Mudabbir Hussein, the taxpayer's accountant, contacted HMRC and provided some of the documentation which HMRC required.
On 30 July 2018, a second notice was issued to the taxpayer (the Second Notice) and on 23 January 2019, a third notice was issued to the taxpayer (the Third Notice). During this period, Mr Hussein continued to liaise with HMRC in relation to its requests for documents. Following receipt of the Second Notice, Mr Hussein sent HMRC an email attaching all of the documents requested in the Second Notice, other than those which were no longer in the taxpayer's "possession or power". HMRC failed to respond to this email for over four months and as a result Mr Hussein assumed that the matter was closed.
On 19 March 2019, HMRC issued a penalty notice to the taxpayer pursuant to paragraph 39, Schedule 36, Finance Act 2008, for non-compliance with the Third Notice (the Penalty Notice). Mr Hussein wrote to HMRC expressing his frustration. He complained that there had been three HMRC officers dealing with the matter in relatively quick succession and explained that he had sent a great many documents to the two previous officers and did not know exactly which documents HMRC required. This letter was treated as an appeal against the Penalty Notice and the appeal was refused. The taxpayer appealed to the FTT.
FTT decision
The appeal was allowed.
The FTT allowed the appeal and cancelled the Penalty Notice for the following reasons:
1) Paragraph 46, Schedule 36, provides that a penalty can only be issued within twelve months after a person becomes liable to a penalty. The Penalty Notice was issued more than twelve months after the First Notice. HMRC cannot refresh the twelve month time limit by the simple device of reissuing a notice and repeating the information request. To the extent that the Penalty Notice related to a failure to comply with requirements referred to in the First Notice, it was invalid.
2) To the extent that the Penalty Notice related to information requests which were previously in the Second Notice, it was issued within the twelve month time limit. However, HMRC has the burden of proving that the taxpayer did not comply with those requirements and paragraph 18, Schedule 36, provides that a notice can only require a person to produce a document if it is in the person's "possession or power".
3) After the issuance of the Second Notice, Mr Hussain had emailed HMRC saying he was attaching all the relevant documents other than those which were no longer in the taxpayer's possession or power (this was confirmed in a witness statement from Mr Hussain). In contrast, HMRC had not provided the FTT with any explanation or witness evidence. As there can be no failure to comply if documents are not in a person’s possession or power, HMRC failed to meet its burden of proof in relation to the remaining information requirements in the Third Notice.
Comment
It is clear from this decision that the FTT will not countenance any attempt by HMRC to circumvent the statutory time limits for imposing penalties, by simply reissuing information notices which are, in substance, the same as notices previously issued.
Many taxpayers will recognise the lack of continuity in the manner in which HMRC dealt with this matter. Three HMRC officers dealt with this matter over the course of a relatively short period of time. It would appear that there was also a failure on the part of HMRC to respond to Mr Hussain in a timely manner.
Confirmation from the FTT that HMRC bears the burden of proving that a taxpayer has failed to provide documentation which is within his "power or possession" will be welcomed by taxpayers.
The decision can be viewed here.