In the case of Peter Marano v HMRC [2024] EWCA Civ 876, the Court of Appeal found the automatic issue of a penalty notice was sufficient to demonstrate its authorisation by HMRC and dismissed the appeal.
Peter Marano is a US citizen who delayed reporting £20 million in capital gains with a tax liability of £5.7m in 2012-13. As a result, HMRC raised a Discovery Assessment in March 2017. The return was filed and Late Filing Penalties issued.
- The taxpayer Appealed to the First Tier Tribunal (FTT) on the basis that the discovery assessment was stale. The Appeal was dismissed.
- A subsequent appeal was made before the Upper Tribunal (UT) concerning the proper delivery of the penalty assessments and the calculation of the penalties. The appeal was dismissed on all grounds.
- The latest appeal related to the proper construction of s.103 Finance Act 2020 and whether that section means HMRC doesn't have to prove the involvement of an 'officer of the Board' in giving a notice to file a tax return and in turn the impact that had on the validity of penalty assessments. The matter before the UT was whether a valid notice to file a tax return had been issued for the purpose of s.8 Taxes Management Act 1970 and if penalty assessments had been validly issued for Schedule 55 paragraph 18.
The Court of Appeal commented as follows:
- The FTT had made its decision based on Rogers and Shaw which made it clear that penalties do not have to be issued by an individual officer. Rather, the notice must be given under the authority of an HMRC officer.
- The UT had found there was limited information in the form of a microfiche to refute the taxpayer's challenge and it was mere "speculation about how the automated system was set up and operated". That was insufficient to prove the notice to file a return was notified under the authority of an officer.
- In relation to the penalty assessments, the UT had noted the statutory requirement was different but still felt that the "very slight evidential material" available to the FTT was insufficient to enable them to draw the inference it had.
- On this basis, the UT would have allowed the appeal if it had solely turned on the Rogers and Shaw basis. However, it also considered the s.103 basis.
- The UT concluded that it was "no longer necessary for HMRC to adduce evidence that an officer of HMRC authorised the criteria for and the establishment and use of an automated computer to send notices to file, or penalty assessments." It simply had to prove the notice issued was HMRC's notice.
- Permission to appeal had been granted on the grounds that the UT believed in error that s.103 removed the need to prove an officer's involvement in the process.
- Even if the Court of Appeal allowed the present appeal, HMRC had countered by way of a Respondent's Notice that the appeal should be dismissed because the UT had erred in saying the FTT was not entitled to make the inference it had from the evidence presented.
The Court of Appeal findings:
- The appellants argument verged on the pointless. Suggesting that "where certain functions must be carried out by an officer of a particular kind, it is still necessary to prove the involvement of such an officer" is contrary to the wording of s.103.
- HMRC is a body comprised of the Commissioners and officers of Revenue and Customs that is an emanation of the State and can only act through individuals whether they use computers or not.
- The express terms of ss.103(1) and (3) make the proof of the involvement of an officer unnecessary. Those sub-sections move the focus from the officer to HMRC as a body.
- This interpretation applies just as much to the issue of penalty notices.
The appeal was dismissed.
Useful guides on this topic
Discovery assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? Can HMRC issue two alternative assessments for the same period? What are your rights of appeal and defences?
Penalties: Late Filing
Late returns can be subject to a mix of fixed and tax geared penalties. What penalties apply for late filing? Which penalty will apply and when?
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
Discovery not stale: Taxpayer's delay was intentional
In Peter Marano v HMRC [2020] TC7685, a US citizen who delayed reporting £20 million in capital gains was unsuccessful in persuading the First Tier Tribunal (FTT) that HMRC's knowledge of his inaction rendered its subsequent discovery assessment as 'stale'. Late filing penalties were also upheld as he had a history of poor compliance.
No identified 'flesh and blood' officer required for the issue of a s.8 notice to file
In HMRC v Nigel Rogers and Craig Shaw [2019] UT 0406, the Upper Tribunal (UT) decided that a section 8 notice to file a return does not have to be issued by an identified “flesh and blood” officer of HMRC. The UT also provided guidance to the FTT on how to address any future concerns that it has on the validity of s.8 notices.
