HMRC’s computer says no!
In Varma v HMRC  UKFTT 006 (TC), the First-tier Tribunal (Tax Chamber) ('FTT') quashed a penalty that had been issued to a taxpayer for late filing of a self-assessment tax return.
This case provides interesting comments on treating taxpayers in a fair and even-handed manner, and the precarious world of online filing of tax returns.
On 6 April 2012, HMRC issued a notice to the appellant taxpayer to file a self-assessment tax return for the 2011/12 tax year. The return was to be submitted by 31 January 2013 at the latest.
On 25 January 2013, the appellant’s agent submitted the appellant’s return online. By chance, the appellant witnessed and oversaw the agent doing so. On the same day, the agent submitted returns for four other taxpayers who were in a similar position to the taxpayer: all were sole traders, and all were non-taxpaying due to insufficient income.
Something went awry in the submission of the appellant’s tax return. Although it appeared to the agent and appellant to have been submitted successfully, it was apparently never received by HMRC.
The decision is unclear as to when the late filing penalty was notified to the appellant, but presumably in reaction to it, the return was submitted online again, this time successfully, on 22 February 2013. Late filing penalties were also issued to the other four taxpayers whose returns had been filed by the agent on 25 January 2013, HMRC having apparently received none of them.
On 11 March 2013, the agent wrote to HMRC, with the names of the five taxpayers and asking for the taxpayers’ penalties not to be enforced.
On 5 April 2013, the agent wrote to HMRC again, to explain that (at that stage) three of the taxpayers concerned had had their penalties cancelled.
On 8 May 2013, HMRC rejected the appeal on the grounds that the return was received late and no reasonable excuse had been established. The agent’s explanation was not accepted. An HMRC review upheld that decision.
A Notice of Appeal was filed with the FTT dated 28 August 2013.
On 25 September 2013, the agent wrote to the FTT, by which time the other four taxpayers’ penalties had been quashed. The agent noted the similarities between the five taxpayers and the events surrounding their respective tax returns, and observed “The only discernible difference between this taxpayer and the other four is that he has a foreign name.”
The FTT noted that an appeal against a late filing penalty will be successful if the appellant taxpayer can establish that he had reasonable excuse for filing late.
In HMRC’s letter concluding its review, it stated that “failure to hit the final submission button when filing the return online is not regarded as grounds of reasonable excuse for late filing of your return”. The letter stated “I am unable to treat any one individual any differently to any other”.
The FTT said that it regretted that “HMRC has chosen not to say what distinguishes the appellant’s case from the other four. It would have been entirely possible for them to do so without offending the principles of confidentiality.” It observed that the only evidence for HMRC’s assertion that the final submission button had not been pressed is that HMRC did not receive the return.
The FTT accepted the agent’s submission that the five cases were strikingly similar, and HMRC had made no submissions to challenge that statement. Because the other four taxpayers’ penalties had been quashed on the basis that reasonable excuse had been established, the FTT found that the appellant’s penalty should also be quashed, in the interests of fairness and even handedness.
The FTT also noted the availability of paragraph 9, Schedule 56, Finance Act 2009 (Special Reduction), which provides HMRC with discretion to reduce any penalty if they think it right to do so because of special circumstances. The FTT held that HMRC should have treated the appellant’s case as a special circumstance (and so quash the penalty) if they were unwilling to accept the appellant’s case that he had a reasonable excuse.
This case illustrates the importance of thorough case preparation. HMRC failed to adduce sufficient evidence in support of its assertion that a button had not been pushed and that as a consequence it had not received the appellant's tax return. The FTT also emphasised the importance of HMRC treating taxpayers fairly and in an “even handed” manner.
The blog was written by Nigel Brook.