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Taxpayers challenge daily penalties for late tax returns

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18th Apr 2017
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A taxpayer can rack up penalties of £1,300 for submitting a single late SA tax return. The only get-out is to have a reasonable excuse for the entire period during which the return could have been submitted. 

Legal penalties

The power to apply £10 daily penalties, on top of the flat £100 penalty, where the tax return is filed is more than three months late is given by FA 2009, Sch 55 para 4(1)(b). This power came into effect for tax returns for 2010/11 and later years. Once the return is six months late a further £300 penalty applies, even if no tax is payable in respect of the return. At this stage the taxpayer will have been issued with penalties totalling £1,300 (£100 + 90 days x £10 + £300). 

Keith Donaldson argued that as HMRC had not specifically informed him of the date from which the daily penalties could apply, those penalties could not be enforced. In July 2016 the Court of Appeal decided that the penalty notice given to Donaldson by HMRC was sufficient to bring the daily penalties within the law.  

Reasonable excuses

The large number of appeals which were waiting on the Donaldson judgement have now been heard by the First-tier Tribunal (FTT). As the legality of the daily penalties was no longer in point, the taxpayer in each case had to find other grounds to resist the penalty.

This is a brief summary of those grounds and whether the reasons given were accepted by the tribunal as a reasonable excuse for a late return, and thus whether the FTT could remove the penalty.  

No tax to pay

Krzysztof Kaczmarczyk was a director of several UK companies, so HMRC sent him notices to complete SA tax returns for 2011/12 to 2013/14. He appeared in person to argue that as the companies were dormant for the years in question he had no UK taxable income, and should not be required to complete the tax returns. The judge said HMRC were a little harsh to impose penalties totalling over £3,300, as HMRC had established that the companies were dormant, but nevertheless the penalties were upheld.  

Reliance on another

Colin Stewart claimed that his wife handled all of his financial affairs, and that she intercepted the household mail and telephone calls. This was not accepted as a reasonable excuse for the late return.

Ignorance of law

Jason Hague claimed that he had not been told that the daily penalties and the six-month penalty would be levied if he was late in filing his tax return. As there was no evidence that Hague had not received the standard reminders from HMRC, the penalties were upheld.

Altay Eralp also claimed he was not warned about the late filing penalties, but the judge said that ignorance of the law is not an excuse for failing to file on time. Eralp argued that the penalties were disproportionate, but this was also rejected by the FTT as the size of the penalty had no bearing on whether the taxpayer filed on time or not. 

Dispute with employer

Iftakhar Latif claimed he couldn’t file his tax return as he didn’t have accurate figures of his pay and tax deducted. His employer had not operated PAYE on his pay, on the basis that Latif was self-employed and responsible for his own tax affairs. The FTT ruled that Latif could have including estimated figures of pay on his tax return, so the lack of accurate figures was not an acceptable excuse for late filing.

Aleksander Krunic also had trouble with his employer who did not supply him with a P60 form at the end of the tax year. The same employer did not use the information on a P45 form presented, so an incorrect amount of tax was deducted. This was not accepted as reasonable excuse for late filing or late payment of the tax due.

No paperwork

Lyubov Stending was arrested by the police on 17 July 2010, who took all her paperwork as evidence. She was in prison from 5 May 2011 to 3 November 2011, and eventually submitted her 2010/11 tax return on 18 September 2012. The FTT did not consider that being in prison constituted a reasonable excuse for failing to file a tax return.

Ishat Azam said she didn’t receive her UTR number before the deadline to file her return. However, she had successfully submitted her SA tax returns for 2008/09 and 2009/10, so the FTT did not accept this excuse to be valid.  

Accountants didn’t communicate

Mr Thomas had cashflow difficulties as his chain of pubs was in trouble, so he didn‘t have the money to pay his accountants. There were two different firms of accountants dealing with his affairs; one nominated by the pub company landlord and another firm who dealt with his personal matters.

These firms were not communicating effectively, perhaps because they had not been paid, which delayed submission of the return. The FTT did not accept these circumstances amounted to a reasonable excuse.

Illness and death

The death of the taxpayer’s close relatives can constitute a reasonable excuse for late filing. The FTT accepted that Christina McDonald had suffered some trauma caring for her terminally ill parents who died within six months of each other. Her appeal against the late filing penalties was allowed.  

Ms Ward did not receive such a sympathetic hearing at the FTT. Although she was caring for her mother who had Alzheimer’s disease, Ms Ward continued to work six days a week. She appointed a firm of accountants to complete her return, but did not provide the necessary information until some six months after the tax return should have been submitted. The FTT concluded this was not a reasonable excuse for late filing.

When Andrew Edwards’ bookkeeper died in 2011 he couldn’t find a suitable replacement. His wife was also hospitalised in 2010. As the exact dates of these events were not presented to the FTT it could not consider those circumstances as making up a reasonable excuse for late submission of the 2010/11 tax return.    

Lost return

The Englefield Carpenters Partnership submitted its partnership tax returns on paper, after they were prepared by a firm of accountants. Copies of the returns, bearing the firm’s stamp, were produced at the tribunal and the FTT concluded that the returns were submitted on time although HMRC’s systems did not accurately record their receipt. The penalties for late filing were removed.

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Replies (17)

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accountant in london
By Accountant in London
21st Apr 2017 10:31

Reasonable excuse has been accepted especially for non-filling where a taxpayer has relied on his accountant and has provided his accountant will all the information and he reasonably believed that the accountant will take care of the filling.
handy article on this:
http://www.taxadvisermagazine.com/article/steptoe-so

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7om
By Tom 7000
21st Apr 2017 10:54

Best excuse is...
It wasnt due....

That works...well as long as it wasnt!

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By AmandaElliott
21st Apr 2017 11:37

It seems to me that too much energy is spent on arguing about penalties in cases which are weak to say the least and not nearly enough time has been spent trying to reform the ridiculous regime as it applies to cases where no tax is due including partnerships.
£1300 for the late filing of a no tax return and remember on the case of a partnership this is per partner, smacks to me of undue enrichment for HMRC.

Thanks (4)
Replying to AmandaElliott:
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By taxdogs
21st Apr 2017 14:57

AmandaElliott wrote:

It seems to me that too much energy is spent on arguing about penalties in cases which are weak to say the least and not nearly enough time has been spent trying to reform the ridiculous regime as it applies to cases where no tax is due including partnerships.
£1300 for the late filing of a no tax return and remember on the case of a partnership this is per partner, smacks to me of undue enrichment for HMRC.

Amanda Elliott is spot on with her conclusion that the system needs reform. It seems to me that such a reform is the "just cause" that all MP's in the upcoming election would be prepared to put their names to. Nil liability should mean Nil Penalty.
The enactment also needs to be retrospective, back to the start of the current regime, since Parliament could not have intended to be unjust in the first place.
AccountingWEB should start a campaign now!

Thanks (4)
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By [email protected]
21st Apr 2017 16:17

We are in the process of trying to help a young woman who has been clobbered for three years of penalties for failing to submit returns. Her only income was PAYE and the net liability was about £170!

£3,900 for £170 of tax: and the officer seems to think that is fair.
The only reason the Revenue issued the returns was because her income is so low that they couldn't recover the tax through her coding and this was the HMRC route to making the debt enforceable.
When HMRC spits out a dummy it can go a long way.
So far HMRC have rejected the appeals against the penalties and now we have requested a review.

Thanks (2)
Replying to [email protected]:
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By sheila t
21st Apr 2017 16:55

Robert
Keep arguing and also put in a complaint against HMRC, I have seen them respond, cancel the penalites and also write off the tax due in a similar case.

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Replying to [email protected]:
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By AmandaElliott
22nd Apr 2017 08:59

Surely she doesn't meet the criteria for SA?? no return due means no penalty.

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Replying to [email protected]:
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By bosclibby
01st May 2017 17:18

robert-AT-freestone-co.co.uk wrote:

We are in the process of trying to help a young woman who has been clobbered for three years of penalties for failing to submit returns. Her only income was PAYE and the net liability was about £170!

£3,900 for £170 of tax: and the officer seems to think that is fair.
The only reason the Revenue issued the returns was because her income is so low that they couldn't recover the tax through her coding and this was the HMRC route to making the debt enforceable.
When HMRC spits out a dummy it can go a long way.
So far HMRC have rejected the appeals against the penalties and now we have requested a review.


I have a case ongoing now with virtually the exact same circumstances. Have asked HMRC to withdraw the notice to file tax returns (and thereby cancel penalties) because the liabilities are all agreed based on computations issued - Returns only issued after and should surely not be necessary. HMRC's attitude to this young "girl" is, to say the least, heavy handed. Be interested to hear how your case ends up if ours isn't settled suitably!
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joe
By Smokoe Joe
21st Apr 2017 16:33

Penalties should be cancelled if submitted return shows either nil tax or a refund due.

May be like VAT if the second year is late then the £100 sticks in these circumstances, the daily penalties for third year.

Whatever, the penalty should be restricted to 200% of tax due. I have always said the penalties for non submission can be more than those for incorrect ones, even if willfully so, that is not right, just or equitable!

Thanks (2)
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By Caber Feidh
21st Apr 2017 22:20

I submitted an appeal that began:

"I have submitted this appeal because defects in the Government website prevented me from signing in before the deadline to submit the tax data that I had prepared for my tax return.

I tried to login to the Government website at about 00:30 on 31 January 2017, using the same username and password as last year. I then discovered that the website had instituted additional identification procedures, which malfunctioned, and I was left locked out for 24 hours. This is confirmed by my first attachment - a copy of the screenshot that I took at the time."

The screenshot had the calendar and clock superimposed on it so that there could be no doubt that it had been taken before the deadline. My appeal then continued with details of further difficulties in contacting the HMRC helpline and then in using the "Verify" system.

My appeal was accepted and the £100 penalty was cancelled.

HMRC's calculation based on my SA return showed that they owed me £0.15 - much the same as happens every year. I would add that I had completed a spreadsheet of my data as it had come in during the FY so all that should have been required was half an hour of transcription.

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Replying to Caber Feidh:
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By mikewhit
09th May 2017 10:06

... but make your deadline the weekend before, next time !!

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By Les Smith
24th Apr 2017 15:50

Amanda Elliot is right in claiming unjust enrichment on the part of HMRC, but the reason they are able to carry out this theft is thanks to their lies to Parliament.
MPs were informed nasty people owing £000s were deliberately not submitting returns in order to deprive the Treasury of said £000s. The result, construction industry workers due repayments ending up having £1300 stolen from them. A freedom of information request would reveal that the total of the penalties far outweigh the amount of tax brought in by this policy.

Thanks (1)
By Nick Graves
08th May 2017 11:05

Four large in penalties for £170 tax is clearly "unjust and onerous".

Use of that term in a politely-worded appeal is usually sufficient for HMRC to cancel them.

I usually find that HMRC is reasonable on that point. Credit where credit's due cuts both ways...

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accountant in london
By Accountant in London
09th May 2017 10:17

We filed NRCGT return late because the client didnt know that they had to.
HMRC is charging £1000 in late filling penalties for zero CGT payable.

Anyone come across this situation?

Thanks

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By [email protected]
09th May 2017 16:34

We have one running at the moment. Thankfully the return wasn't that late but the appeal has gone in. We didn't know they had sold, neither the lawyers or the estate agents had heard of the return so didn't raise it with the vendor. The only person who had even heard of the return was me...and nobody told me about the sale.
I suspect that there might be a bit of a backlog in the appeals dept.

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accountant in london
By Accountant in London
09th May 2017 16:49

Property was sold in Jan 2016. NRCGT return was submitted in Aug 2016. We sent appeal in Sept 2016, it was returned to us because there was no NI or UTR on the letter. However, this was appeal for non-resident company who never had a UTR. We included NRCGT Case ID. I then spoke to one of their specialists and they said that the letter should not have been returned. We sent it back in October 2016. We only heard back in March 2017. They rejected the appeal. We have now sent for independent review of the appeal .... nothing from them since 1st March 2017....

May I ask what reasonable excuse you claimed? And what was the wording of your letter.

Many thanks

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By AndrewV12
15th Jun 2017 11:55

Keith Donaldson argued that as HMRC had not specifically informed him of the date from which the daily penalties could apply.

Nice try Keith, ludicrous excuse with nil or very little chance of success. HMRC are very reasonable if you send in a reasonable excuse, try to make your excuse reasonable to your circumstances, ill health ect. I get the feeling HMRC have heard and read most excuse all before.

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