In Darren Locke v HMRC [2025] TC09604, the First Tier Tribunal (FTT) found that a taxpayer had deliberately failed to notify HMRC of his chargeability to Income Tax. The obligation to notify applied to all taxable income and did not rest solely on whether a profit had been made in the taxpayer’s rental business.
On 16 December 2022, HMRC opened a compliance check and requested information from the taxpayer, Mr Locke, about undisclosed rental income. He had been receiving rental income from two properties, one since 2006 and the other since 2011.
- On 4 January 2023, the taxpayer advised he had previously disclosed rental income to HMRC after purchasing his first property and later received a letter, dated 22 January 2007, confirming he did not need to file tax returns unless his circumstances changed.
- The taxpayer later said that, after receiving a general ‘Income from Letting Property’ letter dated 19 June 2018, he informed HMRC about both properties and confirmed there were no profits to declare.
- On 6 January 2023, HMRC informed the taxpayer that his 2006-07 return did not include rental income, and should have.
- Over subsequent months, the taxpayer sent a summary of the rental income received, his profit calculations and other information.
- The taxpayer was unable to provide evidence for Maintenance and refurbishment expenses, despite HMRC confirming they would accept email and text exchanges, contractor names, letters, quotes, and bank withdrawals.
- On 22 August 2023, HMRC advised that they were considering charging penalties because of the taxpayer’s Failure to notify.
- Notices of assessment for Income Tax and penalties for the 2019-20, 2020-21, and 2021-22 tax years were issued in November 2023.
- The taxpayer appealed the assessments and penalties, providing photos showing some of the refurbishment work. HMRC upheld the assessments.
- On 18 April 2024, HMRC issued their Review Conclusion letter:
- The review upheld the Discovery assessments but increased allowable expenses. This led to the cancellation of the 2019-20 assessment and penalty, and reductions for those of 2020-21 and 2021-22.
- On 9 May 2024, HMRC issued amended tax assessments and penalty details for the three tax years.
- On 14 May 2024, the taxpayer agreed to the assessment but asked that unclaimed business mileage from the past five years of employment be deducted.
- On 4 June 2024, HMRC advised the taxpayer that the review was complete and to contact the helpline about a claim.
- On 14 June 2024, the taxpayer wrote setting out his four grounds for disagreeing with the Penalties, and then on 24 June 2024 appealed to the First Tier Tribunal (FTT). Although the appeal was made late, HMRC did not object.
- The taxpayer argued that:
- No profit arose in 2006-07, so there was no failure to notify.
- He had declared the properties in his 2018 call to HMRC, and there was no profit to pay tax on.
- The compliance check began before the 2021 return was due, so HMRC had already been notified.
- Business mileage claims would offset the tax due, reducing penalties to £nil.
The FTT found that:
- The taxpayer had failed to notify HMRC of his chargeability to Income Tax.
- The obligation to notify does not rest on whether a profit has been made but rather on a taxpayer’s chargeability to Income Tax.
- The Taxes Management Act (TMA) 1970 requires that notification be made by 5 October following the tax year in question.
- The call made in 2018 did not absolve the taxpayer from needing to notify in later tax years.
- The compliance check began on 16 December 2022, after the deadlines for notifying both tax years had passed.
- The penalty amounts were neither excessive nor unreasonable.
- The FTT agreed with HMRC’s assessment that the taxpayer’s behaviour was Deliberate but not concealed.
- The disclosure was only prompted by the compliance checks.
- HMRC were not obliged to reopen their compliance check and review process for the business mileage claim.
- This factor was not raised until after the compliance check process had been completed.
- Because there was no actual claim and the matter had just been raised in a letter, there was no appealable decision.
The appeals were dismissed.
Useful guides on this topic
Failure to notify chargeability to tax
What is failure to notify chargeability to tax? What happens if you fail to notify HMRC about your taxes? What penalties apply for failing to notify HMRC that you have a tax liability?
Penalties: Failure to Notify
What tax penalties apply if you fail to notify HMRC that you are chargeable to tax? Can they be appealed or reduced?
Penalties: Deliberate Behaviour
What penalties apply to deliberate behaviour? What is deliberate behaviour?
Penalties: Late Filing (deliberately withholding information)
Finance Act 2021 introduced a system of enhanced late filing penalties where tax information is deliberately withheld from HMRC by failing to file returns on time.
How to appeal a tax penalty (subscriber version)
What are the steps in making an appeal? What should your appeal cover? What does recent case law say on this topic?
Appeals: Late
When can you make a late tax appeal? What conditions must be met?
External link