Appeal sees HMRC penalties knocked down to size

The First Tier Tribunal (FTT) has ruled that HMRC’s interpretation of legislation when calculating the penalty for a late self-assessment return was incorrect, reducing a contested £3,200 penalty to £600 in the case of a former taxi driver

The appellant, Scott Anthony Jagger, contested penalties totalling £3,200 imposed by HMRC under Sch 55 of the Finance Act 2009 (FA 2009) for the late filing of self-assessment returns for 2010/2011 (£,600) and 2012/13 (£1,600). Jagger had been self-employed as a taxi driver but for the periods detailed by both of the self-assessment returns his income was less than the personal allowance, meaning that no tax was due in either year.

HMRC had reached these penalty values by interpreting Sch 55 para 3 of FA 2009, which holds that for late filing of self-assessment returns ‘the person is liable to a penalty of £100’, para 4 which allows for a penalty of £10 a day for the failure continuing ‘during the period of 90 days beginning with the date specified in the notice given’.

Jagger claimed that he had posted the returns with ample time for them to be received and had not received any penalty notices. According to his testimony, ‘I completed and submitted my 2008-2009, 2009-2010, 2010-2011, 2012-2013 tax returns between June and August of the particular financial year.

'I do not recall specific dates and times and over the course of moving home some of my accounts have been misplaced or damaged. The documents were sent by first class Royal Mail. Unfortunately, I did not send them recorded delivery as I believed they would reach you’.

The FTT found that he had not submitted any evidence to support his claim and was forced to conclude that he had not established a reasonable excuse.

However, the tribunal also considered whether the penalties had been levied in accordance with legislation. It found that paragraph 17(3) of Sch 55 to FA 2009 restricted penalties under para 5 and 6. According to this clause, penalties are the greater amount of either ‘5% of any liability to tax which would have been shown in the return in question’ or £300.

It concluded that ‘in the case in point for both tax years the first amount is nil because the tax due is nil and 5% of that sum is nil. The second amount is £300. It is clear that the greater amount is £300’.

It also found that HMRC had tried ‘to make a distinction between observing there was no liability to tax and reference to the liability to tax’. This was concluded to be incorrect, and the tribunal judged that ‘If there is any difference between the meaning, the Tribunal does not accept that it alters the fact that the penalties were determined after reference to a liability to tax’.

The FTT concluded that the daily penalties imposed on Jagger by HMRC, in accordance with para 3 and 4 FA 2009, was a correct interpretation of the legislation, but that the application of the 6-month and 12-month penalties applied via para 5 and 6 was incorrect. It therefore dismissed Jagger’s appeal and judged that he was liable to two separate penalties totalling £600 for the outstanding returns.

Jagger v Revenue & Customs [2018] UKFTT 623 (TC) (17 October 2018) is here 

Report by James Bunney

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