In Bells Financial Services Ltd v HMRC [2018] TC06326, the First Tier Tribunal (FTT) cancelled penalties charged because HMRC’s system was confused by a leap year, also a penalty automatically issued by a computer was invalid: it was not issued by 'an officer of the board' and HMRC’s arguments about when accounting periods begin and end were “simply wrong”.

A company is required to file a return online for each accounting period. An accounting period starts on the day after the previous accounting period ends and runs until the earlier of one year and the start of another accounting period. Late Filing Penalties apply if this is not filed on time.

Bells drew up its accounts to 28 February each year, including 2016. HMRC issued a notice to file on the assumption that the 2016 accounts would be drawn up to 29 February (though Bells denied receipt thereof).

HMRC’s online systems did not permit accounts and tax return for the period ended 28 February 2016 to be filed.

HMRC issued penalties on the basis that no return for the year ended 29 February 2016 had been filed. The taxpayer requested Statutory Reviews and these upheld the penalties.

The FTT found:

  • It was more likely than not that the Notice to File had been correctly delivered, though HMRC had not provided evidence of their systems for ensuring the notice is issued.
  • The second penalty was invalid, because HMRC had issued a determination for the first penalty (Paragraph 17 of Schedule 18 FA 1998) and not “discovered anything about the penalty” under s100(5) of TMA, which would have permitted a further determination to be made.
  • As the computer had issued the first penalty automatically, no “officer of the board” had made the determination so the penalty was not valid
  • The taxpayer had a Reasonable Excuse.
    • The Notice to File required a Return to be filed for an accounting period ending before the end date in the Notice (this was met by the 28 February 2016 returns).
    • HMRC’s software would not accept a return for the correct period
    • HMRC’s arguments about when accounting periods begin and end were “simply wrong”. Particularly, HMRC were not correct to say a one day accounting period would need to be filed (for 29 February) if a return to 28 February were filed.
  • “HMRC cannot take responsibility for 2016 being a leap year. The responsibility for that lies with the emperor Augustus Caesar… But the taxpayer was not… seeking to blame HMRC for the fact 2016 was a leap year.”


Penalties: Late filing

Statutory Review

Grounds for Appeal: HMRC Error

Grounds for Appeal: Taxpayer Excuse

External Bells Financial Services Ltd v HMRC [2018] TC06326