Shaw: Tribunal cancels penalties … again!

In Shaw v HMRC [2018] UKFTT 0381 (TC), the First-tier Tribunal (FTT) has cancelled late filing penalties because HMRC had not satisfied the statutory requirements of section 8(1), Taxes Management Act 1970 (TMA) as a notice to file had not been validly served on the appellant.

Background

On 21 July 2016, Craig Shaw (the appellant) opted-in to HMRC's self-assessment digital service. On 6 April 2016, HMRC claimed to have issued to the appellant, to his online tax account secure mail box, a 'notice to file'. 

The appellant failed to file his electronic return for the tax year 2015/16 on time. It was filed with HMRC on 6 November 2017, whereas the filing date for the return was 31 January 2017 (section 8, TMA).

Failure to file a return on time engages the penalty regime contained in Schedule 55, Finance Act 2009 (references below are to paragraphs in Schedule 55).

As the appellant's return was not received by the filing date, HMRC issued a notice of penalty assessment for a late filing penalty of £100 (paragraph 1).  As the return had still not been received 3 months after the penalty date, HMRC issued a notice of daily penalty assessment for the daily penalty (paragraph 4). As the return had not been received 6 months after the penalty date, HMRC issued a notice of penalty assessment for the 6 month penalty (paragraph 5).

The appellant appealed.

FTT decision

The appeal was allowed.

The question to be determined by the FTT was whether a valid notice to file a return, under section 8 TMA, had been issued to the appellant on 6 April 2016.

As the burden of establishing that a taxpayer is liable to a penalty is on HMRC, it provided the following evidence in support of its claim that it had issued a valid notice:

(1)      an extract from HMRC’s computer records entitled “Return Summary” which purported to indicate that a notice to file for the tax year 2015/16 had been issued on 6 April 2016;

(2)      a "largely illegible" extract from HMRC’s digital records purporting to indicate that a notice to file and an email alert had been sent to the appellant at his secure mailbox in his online account; and

(3)      a copy of a notice to file comprising a pro forma letter, dated 6 April 2016, with no addressee or signature (or indeed signature block).

The FTT, in considering HMRC's evidence, concluded that HMRC had failed to establish that it had served a notice to file on the appellant. Section 8(1) requires a notice to file to be given to a taxpayer "by an officer of the Board". In the view of the FTT, this required a signature by a named officer, regardless of whether the notice was given by post or digitally. The FTT said, at paragraph 5(11):

"The phrase “given to him by an officer of the Board" means what it says.  I would expect any such notice to be signed by a named officer and evidence provided which shows that to be the case.  The officer giving the notice needs to be identified in the notice because the return must be made and delivered to that officer.  In other words there must be evidence that the named officer has signed the notice or it must be otherwise made clear that he is "giving" it."

Extracts from HMRC's computer records purporting to indicate that a notice to file had been issued were inadequate as they failed to name any particular officer. A pro forma notice to file provided by HMRC was similarly inadequate as it contained no signature block or named officer. The FTT noted, at paragraph 8:

"I am being asked to speculate by HMRC that a notice to file was given to this appellant by an Officer of the Board.  I am not prepared to so speculate.  I cannot draw an inference that this was the case from the evidence that has been presented to me."

The FTT concluded that as no valid notice had been given to the appellant, filing penalties could not be validly assessed. This decision follows the decisions of the FTT in Patel & Anor v HMRC [2018] UKFTT 185 and DJ Wood v HMRC [2018] UKFTT 74, which held that only by issuing a notice under section 8, could the corresponding statutory framework be engaged.

As no valid notice had been given, any return made absent a valid notice was voluntary and late filing penalties could not be validly assessed.

Comment

This decision is yet another reminder to HMRC that it must adhere to the statutory requirements of section 8, TMA.

The decision also emphasises the importance of adducing appropriate evidence to the FTT, particularly in the context of penalty proceedings. Readers may recall that in Qureshi v HMRC [2018] UKFTT 0115 (TC), the FTT was critical of HMRC's approach to presenting evidence:

"In the context of it being pointed out to Miss Donovan (for the respondents) that it was incumbent upon the respondents to prove that a notice to file, as required by section 8 Taxes Management Act 1970, had been sent to the appellant, she sought to deflect the need to adduce proper evidence to prove that requirement by informing us that on such evidential matters "HMRC has an understanding with the Courts and Tribunals." She did not further particularise what she claimed the nature or extent of any such alleged understanding might be.

We wish to make it clear beyond doubt that the respondents, as a litigant, hold no privileged position. If the Courts and/or Tribunals had any "understanding" with HMRC concerning what evidence it does or does not need to adduce, that would be a betrayal of the duty of those sitting in our Courts or Tribunals to act wholly independently and to adjudicate upon each case without fear or favour, while applying the relevant law and accepted rules of procedure and evidence to the proceedings in hand."

Evidential issues can often be critical in determining the outcome of a case before the FTT and it is therefore important that taxpayers and their advisers not only prepare their own cases well but also identify any weaknesses in HMRC's case. It is not sufficient for HMRC to simply make assertions. It must adduce appropriate evidence to make good any such assertions.