In Castlelaw (No 628) Limited and Irene Douglas v HMRC [2020] TC7540, the First Tier Tribunal upheld penalties under the Senior Accounting Officer rules for failures to make notifications about a dormant company. An innocent mistake was not a reasonable excuse.
Qualifying companies must have a Senior Accounting Officer (SAO). The company must make an annual notification to HMRC no later than the deadline for submitting accounts to Companies House. These specify:
- The financial year to which it relates.
- The name and contact details of the SAO.
- The period within the year in which they were the SAO.
HMRC may assess flat rate penalties of £5,000 where there is a failure to make the notification or where the notification includes a careless or deliberate inaccuracy.
- This is payable by the person responsible for the failure.
- A penalty may not be due if there is a reasonable excuse for the failure.
Castlelaw (No 628) Ltd (Castlelaw) was part of a group of over 100 companies. Irene Douglas was the SAO for Castlelaw as well as being the group company secretary and group SAO.
- The group had been under the SAO rules since their introduction in 2009. The HMRC customer relationship manager in a presentation to the group about the rules had led them to believe that HMRC would adopt a pragmatic approach, saying “errors don’t automatically mean failure”.
- A group structure chart, provided to HMRC as part of a business risk review, omitted Castlelaw. Mrs Douglas explained this was inadvertent due to the company having been dormant for CT purposes since its incorporation in 2006.
- When Mrs Douglas submitted the SAO notification for the group for the 2016 accounting period, Castlelaw was not included though it had been included in the 2015 submission.
- HMRC issued two £5,000 fixed penalties; one to Castlelaw and one to Mrs Douglas. Both were appealed.
The FTT dismissed the appeal:
- HMRC had a discretion whether to impose the penalties or not. The tribunal did not have the jurisdiction to rule whether HMRC might have exercised their discretion and could only determine whether there was a reasonable excuse for the failure. Likewise, the tribunal could not consider whether the penalty amounts were proportionate.
- A company’s dormancy is not relevant to this part of the SAO rules. It was not reasonable for Mrs Douglas, with her experience and knowledge of the rules, to think otherwise. This was especially so since Castlelaw was correctly included in the report for the prior accounting period.
- Whilst the failure to include Castlelaw was an innocent mistake, this was not a reasonable excuse and the penalties had to stand.
The FTT referenced HMRC’s internal guidance which states that the SAO provisions ‘are not about getting returns in on time’, but about ‘ensuring the tax accounting arrangements allow accurate calculation of its tax liabilities’.
The FTT added that in this case their view was that ‘it would be significantly unfair to the taxpayer to bear the whole penalty’. Had the FTT been allowed by law, they would have considered special reductions but they could only consider the facts in the light of the case law on reasonable excuse.
The suggestion being that HMRC could have exercised their discretion here, but chose not to do so.
Links to our guides:
Penalties: Senior Accounting Officers
The Senior Accounting Officer (SAO) of a large company is required under Schedule 46 FA 2009 to ensure the existence of and report on the appropriateness of their tax accounting arrangements.
How to appeal a tax penalty
How to appeal a tax penalty. What are your rights of appeal if HM Revenue & Customs (HMRC) have assessed you for a tax penalty?
Grounds for Appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal?
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