In HMRC v David Goldsmith [2019] UT 0325, the Upper Tribunal (UT) decided that HMRC may issue a notice to file a tax return in order to collect a PAYE debt. The taxpayer's appeal against late filing penalties was rejected on the basics: he had failed to appeal the amount of the penalty.

  • Mr Goldsmith received a small salary and Employment and Support Allowance (ESA), with full personal allowance given on both.
  • For 2011/12 and 2012/13, HMRC sent out forms P800 showing underpayments due and then issued notices to file tax returns under s8(1) of TMA 1970 to enable the debt to be enforced.
  • The taxpayer filed his returns late.
  • HMRC assessed Late Filing Penalties apply, under Schedule 55 of Finance Act 2009.
  • The taxpayer appealed on the grounds that he had not received any notices to file a tax return.

The First Tier Tax Tribunal (FTT) found that:

  • HMRC had issued notices to file and, in the absence of a dispute about addresses, the onus was on Mr Goldsmith to demonstrate the Returns had not been received. He had not met this burden and so had no Reasonable Excuse for not filing the returns.

The FTT went on to decide that the penalties were not valid because the Returns were not issued under s8(1) TMA 1970, but to create an enforceable debt. This was not an argument advanced by the taxpayer. Alternatively, special circumstances applied:  

  • HMRC already knew the correct tax due so did not need the actual return.
  • This being the case, the penalties would not assist in allowing HMRC to “know as soon as it can that the correct amount of tax … is payable”; their purposes could have been achieved by issuing a determination under s28C of TMA once the notice to file had been issued.

The FTT reduced the penalties to nil.

HMRC appealed to the Upper Tribunal (UT).

The UT considered the FTT's reasoning and chose to follow the conclusions of a another FTT decision, Stuart Crawford v HMRC [2018] TC6594, where Judge Mosedale had interpreted s8 differently.

  • S8 says that it is ‘for the purpose of establishing the amounts in which a person is chargeable to income tax’.
  • Judge Thomas had and it should be read as referring to the effect of a self assessment return.
  • It should not be read merely as: ‘for the purpose of calculating the amounts in which a person is 45 chargeable to income tax…’ (as interpreted by FTT Judge Thomas in Crawford  but as: ‘for the purpose of calculating and assessing the amounts in which a person is chargeable to income tax….’

The UT concluded that HMRC was entitled to issue a s8 notice to file.

In considering whether it had any other powers to adjust the penalties charged, the UT found that the taxpayer had failed on the basic requirement to appeal the amount of the penalty. It could not therefore consider special circumstances and adjust the penalty.

Comment

How horribly harsh for the taxpayer! How on earth did we engineer a modern penalty system that is so difficult to interpret.

Our topical guides

How to appeal a tax penalty
This guide is designed to avoid this kind of outcome: it takes you through the essential steps in lodging a successful appeal and if followed should ensure that you 'tick the boxes' for each element of the appeal.

Grounds for appeal: HMRC error or flaw
When can an error, mistake or procedural flaw made by HMRC provide a valid ground for making an appeal? 

Late Filing Penalties
Which penalties apply, why and when and how they interact: Schedule 55 of Finance Act 2009.

External Links

UT decisions HMRC v David Goldsmith [2019] UT 0325

FTT decision David Goldsmith v HMRC [2018] TC062

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