In Caris Properties Limited v HMRC [2019] TC7481, the First Tier Tribunal upheld tax-geared penalties for a late filed CT return. Brexit was not a reasonable excuse.

Late filing penalties for corporation tax are covered by the rules in Schedule 18 of the Finance Act 1998.

  • Flat rate penalties are £100 rising to £200 after six months, unless it is the third consecutive late filed return.
  • Where the return is over 6 months old, there are tax-geared penalties of 10% of the unpaid tax.

Caris Properties Limited, a property developer, filed its return for the year ended 30 September 2016 seven months late and only paid the tax due two weeks later.

  • It appeared from the evidence given that the directors may have deliberately held back from filing the return on time as they knew they did not have the funds to pay the tax due. There also seemed to be some question of unpaid accountancy fees, the accountants having ceased to act prior to the return being filed.
  • As well as flat-rate penalties of £200, HMRC levied tax geared penalties of £34,871.
  • Caris appealed the tax-geared penalties on the grounds of reasonable excuse:
    • The company was facing cashflow issues due to the downturn in the property market following the Brexit referendum result in 2016.
    • They had believed their accountant had filed the return before ceasing to act and had not received reminders as the registered office remained with the former accountant.

In dismissing the appeal the judge said the tribunal was unable to make a conclusive finding of fact as to the true cause and timing for the decision to hold back the filing of the return or as to the accountants reasons for ceasing to act, due to inconsistencies in the evidence given.

  • In this case reliance on the accountant was not a reasonable excuse; the directors were experienced business people who had made a conscious decision to delay filing the return and who were fully aware of their compliance responsibilities.
    • Insufficient funds were not an excuse. A delay in filing the return only delayed the demand for the CT payment, it made no difference to the due date for the tax as the filing and payment dates operate independently from each other.

The judge commented, "Any adverse impact on the property market from the Brexit referendum result was part of the normal hazards of the trade in which the appellant is engaged. A prudent taxpayer, having proper regard for the obligation to meet payment of tax on time, would have retained proceeds to meet the tax liability.”

This is the first case we have seen where Brexit has been offered as a reasonable excuse, but we suspect there will be more to come.

Links to our guides:

Penalties: Corporation tax

Grounds for Appeal: Reasonable excuse

How to appeal a tax penalty

Adviser's Tax Penalty Planner

External link:

Caris Properties limited v HMRC [2019] TC7481