HMRC criticised again over delay in issuing late filing penalties

16 December 2011. Published by Adam Craggs, Partner

Readers may recall that in a recent blog I commented on the case of Hok Limited v Revenue & Customs Commissioners (TC1286) .

In that case the Tribunal held that HMRC had not acted fairly and in good conscience where they had deliberately delayed sending out a penalty for the late filing of an employer's end of year return (P35) until some four months after the deadline had expired.  The Tribunal held that a fair organ of the state, acting in good conscious towards its citizens, would send out a penalty notice immediately after default.  Now a new case sheds further light on this area – Foresight Financial Services Limited v HMRC [2011] UK FTT 647.

The Tribunal's judgment was given by Geraint Jones QC who also delivered judgment in the Hok case.  As in Hok, the appellant had appealed in respect of its late filing of its end of year return.  HMRC had issued its first Penalty Notice on 7 September 2010, twelve days short of four months from the default date of 19 May 2011.

The taxpayer appealed on the basis that there had been conspicuous unfairness on the part of HMRC in failing to send out the first penalty notice timeously.  HMRC's position was that, under section 98A(2)(a) TMA 1970, it was lawful to demand penalties regardless of the period of time that had elapsed prior to it sending out its first penalty notice.  Its argument was that the Tribunal should proceed on the basis that its jurisdiction was solely statutory and it could do no more than strictly apply the relevant statutory provisions (contrast HMRC's position when challenging what it considers to be 'unacceptable' tax avoidance), which allowed HMRC to serve a Penalty Notice even after a significant lapse of time.  Common law principles of fairness had no application.

The penalty regime is not intended by Parliament to be a revenue raising device

HMRC's submissions were roundly dismissed by Geraint Jones QC.  In the judge's view, the decision of the High Court in Oxfam v HMRC [2010] STC 686 was authority for the principle that sound principles of common law were "not to be left languishing outside the Tribunal room door when the appeal is heard in the First-tier Tribunal".  Geraint Jones QC said:

"18.     The statutory penalty regime under the 1970 Act was not and is not intended by Parliament to be a revenue raising device… it cannot have been the intention of Parliament, or within its contemplation, that HMRC would desist from sending out a Penalty Notice for many months (with the effect that unless the defaulter suddenly awoke to its default and remedied it further monthly penalties would inevitably accrue).  Such a failure on the part of HMRC (by engaging in a wholly unnecessary delay) would be and is a failure to implement the penalty regime stipulated by Parliament as Parliament intended it to be implemented.  It is unthinkable that Parliament would intend a manifestly unjust situation to arise as a result of HMRC being dilatory and sending out a First (or subsequent) Penalty Notice."


Geraint Jones QC pointed out, in the course of his judgment, that it is not correct to say that the common law has no part to play in any proceedings before a statutory Tribunal.  The Tribunal is under a common law duty to conduct its proceedings in a fair and open manner. Permitting the application of common law principles is simply good sense. Allowing the Tribunal the opportunity to consider common law principles is not tantamount to giving the First-tier Tribunal a full supervisory or judicial review function (which is not, of course, within its remit – see Commissioners for Customs & Excise v National Westminster Bank Plc [2003] EWCA 1822 [Ch]). This judgment should be welcomed by taxpayers as implementing and reinforcing the principle enunciated in the Oxfam case.

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