In HMRC v Duncan Hansard [2019] UKUT 0391, the Upper Tribunal (UT) dismissed a late filing and late payment penalty appeal by HMRC in respect of re-calculated penalties that had been assessed but had not been properly notified.
- Mr. Hansard was late in filing his 2010-11 self assessment return and late in paying his tax liability for the year.
- HMRC assessed late filing penalties and late payment penalties.
- Penalties for being 6 or 12 months late are the higher of £300 and 5% of any liability to tax which would have been shown in the return in question. As there was no return HMRC automatically assessed £300 for each missed deadline.
- When the return was actually filed, HMRC recalculated the original assessments based on the amount of tax due on the return. It deducted the £300 already charged for each penalty, in other words, “6 months late – now you have filed your tax return you have a further penalty to pay. The revised penalty is 5% of £26,416.00 (the total tax due), less the £300 penalty already charged on the tax we determined was due. £1,020.”
The First Tier Tribunal (FTT) decided that the £300 penalties could not have been assessed to the ‘best of HMRC’s information and belief’ as they were automatically issued by a computer. The reassessed penalties were correct despite the fact that they had netted off the original £300. It also found that the penalty notices had been sent to the wrong address and therefore cancelled the penalties on the basis that they had not been properly ‘notified’.
HMRC appealed to the UT. The penalties at stake were £5,766 in total.
HMRC’s grounds for appeal were that:
- "The FTT erred in law in concluding that the Initial £300 Penalty assessments were invalid.
- The FTT erred in law in concluding that the Recalculated Penalties replaced the initial £300 penalties rather than supplementing them.
- While, having not obtained permission to appeal against the FTT’s factual findings, HMRC must now accept that the assessments for the Recalculated Penalties and Late Payment Penalties were not properly notified to Mr. Hansard, the underlying assessments remain valid and so the FTT should not have cancelled them."
The UT considered the effect of wording of the legislation under sch.55 FA 2009 and sch.56 FA 2009 at some length and decided that:
- HMRC’s policy of automatically issuing a £300 penalty for the 6 or 12-month failure in the absence of any return was not unreasonable. It would be unduly onerous to have to forensically examine each taxpayer's tax affairs before issuing a penalty and the system was set to the minimum.
- There is no statutory definition of the term “reassessed”, conceptually. The process of assessing again could involve either making a new assessment that completely replaces the first or making an assessment in addition to the first.
- The FTT had found HMRC had sent penalties to the wrong address and that finding of fact could not be disturbed.
The UT concluded that:
- The FTT had erred in law: the initial £300 automatic penalties were correctly assessed.
- The FTT had made errors in law relating to the recalculated penalties, but it made little difference to the end result.
- The Recalculated Penalties and Late Payment Penalties were assessed but HMRC had failed to send them to the correct address and so they were not properly notified: the FTT had been correct to cancel them.
Comment
The UT had left it open to HMRC to decide if it wishes to re-notify the recalculated penalties to the correct address.
Useful tax guides on this topic
Penalties: SA late filing and payment
Self Assessment (SA) tax penalties: what penalties are due for outstanding tax returns? What penalties are due for late payment?
Penalties, grounds for appeal: HMRC error (subscriber)
When can an error, mistake or procedural flaw made by HMRC provide a valid ground for making an appeal? Our guide outlines the issues.
Penalties: Grounds for Appeal toolkit
What grounds are there to appeal a tax penalty? How can you word a tax appeal? What is a reasonable excuse?
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