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Is it worth taking penalty appeals to First Tier Tax Tribunal?

New client came to us as previous agent had stopped answering calls & correpondence and seems to have "vanished".  All HMRC correspondence went to previous agent and client thought all matters were up to date which turns out now not to be the case.  CT600s have gone in albeit late (they were before client came to us) and some fairly hefty penalties have arisen.  An appeal stating the client's plight has gone to HMRC which after a second review has been rejected with the only option being for the matter to be heard at the first tier tax tribunal.  Has anyone taken such a matter to first tier tax tribunal or is this just a waste of time as HMRC's decision to reject the appeal is based on legislation which is clear cut?  

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09th Mar 2012 10:11

Tribunal Appeal

If the issue is whether the Client has a 'reasonable excuse' for his failure to submit and/or pay, then the negligence of the previous agent may provide such a defence.

It is worth looking at.

The Tribunal can decide cases on documents only. This avoids the cost and additional stress of going to a Hearing. But you would need to provide an accurate and detailed explanation of what went wrong.

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09th Mar 2012 10:32

this may help

Mrs A M Rowland v The Commissioners For Her Majesty’s Revenue & Customs (2006): - http://www.financeandtaxtribunals.gov.uk/judgmentfiles/j2353/spc00548.doc

Note the Special Commissioner stated (in paragraph 25) “I conclude that in the direct tax context reliance on a third party can be a reasonable excuse”. The reasoning behind the decision was: - 

"It was reasonable for Mrs Rowland to rely on her then accountantIt was this reliance that led to the underpaymentThis was the excuse for making the underpayment and, as the reliance was reasonable, the excuse was at first blush reasonableReliance on a third party can be a reasonable excuseMrs Rowland has a reasonable excuse for not paying the tax on time She had this reasonable excuse throughout the period of default"

Look at the facts of your case and see whether this reasoning applies to your client.

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09th Mar 2012 11:14

The penalty could also be reduced

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Odds could be better than 50:50 - just

The sands have been shifting on Reasonable Excuse, as AccountingWEB's scorecard has shown over the past year. Of the cases we've logged, taxpayers are ahead by 20-12. BUT - many of them are to do with late PAYE and CIS returns, where large sums built up due to monthly penalties that were not notified for several months.

Geraint Jones QC has decided that in instances where it appears HMRC is operating the penalty system as a revenue-generating exercise, the accrued penalties are unfair.

Under the new regime for most types of tax, there is a £3,000 cap for late filing penalties. In an article discussing the new regime, Rebecca Benneyworth suggested approaching the officers to see if they would entertain a deal based on the new penalty rate.

As originally mentioned (phone has gone and I got distracted from completing this comment), most of the cases that succeeded with reasonable excuse claims were multiple penalty situations rather than straightforwardly failing to file an annual CT return. But the Rowland case mentioned by stephenkendrew and the presence of other "reliance on third parties" verdicts in our scorecard suggest that you may have a chance - but I'm no tax lawyer, and as an interested onlooker, I wouldn't want you to hold me to the odds I put on your chances!

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12th Mar 2012 11:19

appeals

Reading the FT Tribunal decisions.

Two things occur:

1. It is always worth a try

2. There are not as many appeals as there could be.....perhaps HMRC drop the appeals because of a lack of resources ??

Some of the other appeals make amusing reading.

 

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12th Mar 2012 12:14

Don't forget though...

That the cases are public.  Some clients may not like that and prefer to cough up for the sake of privacy.

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12th Mar 2012 15:04

Tribunal Appeal

I think that HMRC avoid taking cases that they think they can't win, which is why the majority of penalty cases are decided in their favour.

It is worth preparing well, so that you can highlight the main issues. The Tribunal needs to know what the main issue(s) is. I have sat on a number of Tax Tribunal Appeals concerning penalties, and many taxpayers do not make clear why they think the penalty should be reduced or withdrawn.

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By pjlevi
12th Mar 2012 17:48

Penalty Notices, check for errors, reduction of penalties

 

When multiple penalty notices are issued for several years at the same time there is a high risk of error on the Notices and a lack of clarity as to the precise information required or documents and the years for which it is required.

 

I was involved in 2004 in a case which I took to the Special Commissioners and succeeded in having two penalty notices rejected for errors and lack of clarity and two reduced by 50% each as the penalties were considered excessive and disproportionate to the client's income for the years concerned.  The latter reason is often overlooked as a ground of appeal and if daily penalties are material then it may well be worth considering.  My client's case was Austin v HM Inspector of Taxes (Price) 2004 STC (SCD) 487, and the Decision, which raises a number of interesting issues some of which may be relevant to others, can be found at:

 

http://www.bailii.org/uk/cases/UKSPC/2004/SPC00426.html

 

The figures may well not justify having legal representation, but I would certainly pursue a case to the First Tier Tribunal provided you are prepared to devote some time to preparing your arguments carefully in advance, providing copies to the other parties, and as a previous respondent has suggested, there is always a possibility that HMRC may not consider it worth the cost and risk of taking it to appeal.  

 

My client's hearing only took about 2 hours and my personal opinion is that a personal hearing is preferable to one which relies entirely on written submissions as you do have the opportunity to respond orally to matters raised by the other side.  I took the view that I had everything to gain and nothing to lose as HMRCs costs could not be awarded against my client and the whole judicial experience was valuable to me from a professional point of view.  As it happens I was pleased with the outcome, I felt the Special Commissioner was very helpful and fair in his dealings with me as a non-lawyer and I would not hesitate to take a similar case to a First Tier Tribunal should the opportunity arise and provided there was a reasonable chance of at least some reduction or cancellation of penalties.  Obviously a Reasonable Excuse is helpful if one is available in your case, but the other legal grounds are worthy of consideration before throwing in the towel at this stage.

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By Branski
14th Mar 2012 17:50

Thanks for all comments but

is it possible to make a written plea so as to avoid attendance?

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By pjlevi
14th Mar 2012 19:43

Why would you not want to attend?

Yes of course you can appeal, submit evidence in writing and not attend and the case will be determined based on the evidence submitted.  However, if you wish to do the best for your client, and I can see no point in appealing if you do not believe you can win the case, then surely you need to show that you care sufficiently to make the minimal extra effort, and for that matter to show courtesy to the tribunal, to appear in person.  The Tribunal needs to be able to ascertain all the facts and hear all the arguments from both sides, not just from one side.  If one side is not represented then the Tribunal are unable to hear their responses to arguments presented by the other side and, critically, you lose the opportunity to cross-examine HMRC evidence or to clarify points raised by the Tribunal.  In my opinion if you can't be bothered to attend then you should not appeal.  Your absence would certainly be a negative factor which would seriously count against your client.  Of course your client does not need to attend except possibly to verbally verify evidence of facts or events, it is quite in order for you to represent your client, particularly where the evidence is mainly of a technical nature and/or evidenced by documents or legal precedents.

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14th Mar 2012 20:31

One point you might want to investigate in a situation where there was reliance on an agent was what steps your client took to verify what was happening - along the lines of what would a reasonable person who had engaged an agent to carry out a task do just to check that they appeared to be doing what they said.

So if for example your client was getting letters from HMRC alerting them to shortcomings but took no steps to ask the agent what was going on that would not help their case - but if they could show they did ask and were fobbed off that would be good.

You would stand a better chance all round if both you and the client go to Tribunal. It is hard to anticipate every single issue that might occur to the judge and only your client has the full knowledge to answer questions - especially if the line I suggest above is explored. 

Good luck.

 

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By Branski
15th Mar 2012 14:58

Thanks for the further helpful comments which are duly noted..

Looks as though it's client's call now, ie incur some professional costs and perhaps have penalties cancelled/reduced or accept!

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