Graham: taxpayer successfully appeals against APN penalty

11 January 2019.

In Kevin Graham v HMRC [2018] UKFTT 661 (TC), the First-tier Tribunal (FTT) has allowed the taxpayer's appeal against a penalty imposed by HMRC for non-payment of an accelerated payment notice (APN).


Mr Kevin Graham (the taxpayer) had participated in a tax avoidance arrangement during the 2008/09 tax year. As part of the arrangement, qualifying loan interest payments for that year were included in his tax return and as a result the return showed a repayment due to the taxpayer of  £26,472. HMRC opened an enquiry into the  return. 

Nothing appeared to have happened in relation to the enquiry until April 2015, when the taxpayer was informed by HMRC that he would be receiving an APN, pursuant to section 219, Finance Act 2014. The APN arrived at the end of May 2015 and the sum sought by the APN was £53,607.97. 

The taxpayer contacted HMRC in order to indicate that (1) he was unable to pay the amount demanded by the APN (his company was in a company voluntary arrangement (CVA)), and (2) the sum sought by the APN was incorrect. Further correspondence and calls with HMRC followed but HMRC nonetheless issued three penalty notices to the taxpayer for non-payment of the APN, pursuant to section 226, Finance Act 2014.  

HMRC rejected the taxpayer's arguments that he had a reasonable excuse for not paying the amount sought by the APN. The taxpayer entered into a settlement agreement with HMRC in relation to the underlying tax dispute. The settlement was for a much smaller amount (£9,410.15) than the amount sought by the APN (£53,607) and did not include penalties. 

There was some confusion about how the sum sought by the APN had been calculated and it appeared that it took into account relief for an earlier year that had not been given by HMRC.  

HMRC confirmed that it would not pursue the APN but it would not withdraw the penalties it had issued for non-payment of the APN. The taxpayer appealed against the penalties but was informed he was out of time for the latter two penalty notices.  The taxpayer's appeals were transmitted to the FTT.

FTT decision

The appeals were allowed and the penalties were cancelled.

The FTT had to determine a preliminary issue in relation to whether permission should be granted to the taxpayer to bring his appeals out of time in relation to the second and third penalty notices. The FTT was sympathetic to the taxpayer. In particular, the FTT commented on the confusion the taxpayer had suffered as a result of him having to deal with multiple sections of HMRC on the same issue: Counter Avoidance the APN team and Debt Management. Accordingly, the FTT gave permission for all of the appeals to be heard.  

With regard to the substantive arguments, the taxpayer maintained that the penalties were based on incorrect figures. He argued that they should have been calculation by reference to the figures agreed in his settlement agreement with HMRC. 

HMRC contended, in reliance on Nijjar v HMRC [2017] UKFTT 175 (TC), that it was not open to the FTT to go behind Conditions A to C in section 219, Finance Act 2014, such that the FTT did not have  jurisdiction to look behind the figures which had been determined by HMRC when calculating the APN.

Although the FTT accepted HMRC's characterisation of the decision in Nijjar, it preferred the position adopted by the FTT in Vasudeva v HMRC [2018] UKFTT 370 (TC), in which it was held that the validity of an APN could be considered by the FTT. The FTT said that such an approach was consistent with the decision of the Court of Appeal in R (oao PML Accounting Ltd) v HMRC [2018] EWCA Civ 2231. 

Unlike in Nijjar and Vasudeva, the current case concerned the question of whether a penalty can be appealed on the basis that the amount of the APN, from which the amount of the penalty derives, has been incorrectly calculated by the HMRC officer preparing it. 

The FTT decided that such a basis could be relied upon, but disagreed with the taxpayer that the correct analysis was to look to the amount in the settlement agreement. In the view of the FTT, the taxpayer was only entitled to question whether the estimate of the tax due had been calculated to the best of the officer's information and belief or if it contained an obvious error. The FTT found that it did contain an obvious mistake. 

Although the FTT did not have the power to amend or quash the APN, it was able to vary the amount used to calculate the penalty. 

Having reduced the value of the penalty in line with what ought to have been the officer's best information and belief at the time, the FTT turned to the question of whether the taxpayer had a reasonable excuse for not paying the APN.  

Lack of funds is not an excuse in itself, unless it is clear that the reason is outside the taxpayer's control. The taxpayer's company had entered a CVA and this had the effect of significantly reducing the taxpayer's earnings. He lived in a property which was in his wife's name and which was subject to a mortgage. In the FTT's view, the CVA and the difficulties the taxpayer's company faced were outside his control and constituted a reasonable excuse. Accordingly, the FTT cancelled the penalties in their entirety. 


The FTT adopted a sensible and pragmatic approach in this case. The decision confirms that where the amount shown in an APN has been miscalculated, the FTT can vary the amount used to calculate any penalties issued by HMRC for failing to make payment.

The FTT has reached different conclusions regarding the extent of its jurisdiction in late penalty appeals. In Nijjar it determined that its jurisdiction did not extend to assessing whether the underlying APN had been lawfully issued, whereas in Vasudeva the FTT concluded that it could. The approach adopted by the FTT in Vasudeva and the present case is to be preferred and is, as the FTT noted, consistent with the judgment of the Court of Appeal in PML Accounting Ltd. The FTT has moved further from Nijjar in its oversight of penalty notices arising from defective APNs and it is to be hoped that it will continue to resist the highly restrictive jurisdictional approach favoured by HMRC in such appeals. 

A copy of the decision can be viewed here

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