ATED daily penalties discharged as retrospective

In Heacham Holidays Limited v HMRC [2020] TC07883, the First Tier Tribunal (FTT) upheld fixed penalties imposed by HMRC for the late-filing of the taxpayer's Annual Tax on Enveloped Dwellings (ATED) return but discharged the daily penalties imposed as they were issued retrospectively without notice.

• Heacham Holidays Limited (Heacham) own caravan parks in Heacham, Norfolk.
• It is a small family run business providing services related to the provision of caravans.
• They used a local firm of accountants, Wheelers Chartered Accountants (Wheelers), for both business and personal matters and had been with them for over 20 years.
• Heacham bought a nearby cottage, Old Hall Cottage, to operate as a Furnished Holiday Let on 6 July 2017. 
• Wheelers were aware of the purchase and of the Annual Tax on Enveloped Dwellings (ATED), but there was uncertainty as to whether it applied to Heacham in this instance.
• The purchase did bring Heacham within the ATED rules and the first return was due 30 days after acquisition on 6 August 2017, for the year ended 31 March 2018.
• A return was also due on 30 April 2018 for the year ended 31 March 2019.
• Both returns were filed on 29 January 2019.

HMRC issued a series of penalties and notices including fixed and daily penalties for both years. The penalties were appealed and dismissed by HMRC but a review was offered and accepted. The review decision was as follows:

• The 2017/18 penalties (£1600) were withdrawn due to being issued with the incorrect date. The penalty was later reissued at £100.
• The 2018/19 penalties (£1200) were upheld as no special circumstances were found.

Heacham appealed the decision on the following grounds:

• It was not unreasonable to rely on the advice provided by Wheelers.
• The penalties were disproportionate as there was no liability under ATED.
• There was no notice provided as to the penalties as required under para 4(1)(c) of Sch 55 and as per Advantage Business Finance Ltd [2019] UKFTT 30 (TC) (‘ABF’).

HMRC disputed the use of ABF as they disagreed with the reasoning behind the decision. HMRC highlighted that para 4(3)(a) of Sch 55 states that the daily penalties can start on a date earlier than that of the notice of the penalties.

The FTT found:

• The fact that Heacham had relied on the advice of Wheelers was not a reasonable excuse. Wheelers were aware of the ATED rules and still took 18 months to resolve the matter, which is not acceptable. That Wheelers incorrectly advised Heacham is a matter for the two parties involved and not a reasonable excuse in this case.
• Had there been an ATED tax liability due, HMRC had an option to charge further penalties under Sch 56. The penalties imposed were regardless of tax liability and not disproportionate.
• Judge Poon re-examined her decision in ABF and confirmed her findings that para 4(1)(c) is intended to be issued as a forewarning to a taxpayer of their requirement to file a return and the penalties arising if this is not done in a timely manner. Whilst this notice can be delivered after the start of penalties as per para 4(3)(a), this does not override the original intention of being a forward notice and cannot be issued after the filing of a late return.

The £100 penalty relating to 2017/18 had been paid and was not considered. The 2018/19 fixed penalties of £100 and £300 (paras 3 and 5 Sch 55) were confirmed and the daily penalties (para 4) of £900 were discharged.

Links

Annual tax on enveloped dwellings (ATED)
The Annual Tax on Enveloped Dwellings (ATED), originally called the Annual Residential Property Tax, is an annual charge on UK dwellings held by a non-natural person, e.g. a company.

Penalties: Annual tax on enveloped dwellings
Penalties for the Annual Tax on Enveloped Dwellings (ATED) regime fall under Schedule 55 FA 2009 (failure to make returns) and Schedule 56 FA 2009 (failure to make payment on time), together with Schedule 24 FA 2007 (penalties for errors).

Penalties: Late payment
What penalties are charged when tax is paid late? A guide for Subscribers

Appeals: Grounds for appeal toolkit
What grounds are there to appeal a tax penalty? How can you word a tax appeal? Can you appeal HMRC errors? What is a reasonable excuse?

External links

Heacham Holidays Limited v HMRC [2020] TC07883