Member Since: 2nd Sep 2009
12th Oct 2020
Anne is one of my judicial heros: I learnt a huge amount from her when, as a member of the Tribunal before becoming a judge, I sat with her. As a judge I too would often spend what might seem a disproportionate amount of time and effort on a case that was "trivial" in terms of money, where HMRC should not have brought the case or where their arguments were hopeless, in the hope that they might learn, and in some cases I am glad to say they did, and changed their policy or guidance.
12th Oct 2020
The "statutory review" is not ADR, it is the review under sections 49B to 49F TMA. (ADR is not "statutory".) A review under s 49B to 49F does not claim to be independent, though it is or should be carried out by an officer not involved in the case.
It should be impartial and judging by the number of decisions that are overturned on review, in many cases it is, but from my judicial experience there are still far too many cases where bad decisions are not overturned on review, this being a prime example.
7th Oct 2020
It seems overwhelmingly likely that the employers deducted PAYE using code 0T under reg 37 of the PAYE regs. Where the payments are large this will always undertax the liability, an unfortunate but rare example of the PAYE regs not fulfilling their mandate (see reg 14(1)(g)). So I doubt if Ms Bell had any hope of obtaining any refund or getting the employer to foot the bill under reg 72 or 81 or alternatively of invoking reg 185.
Had there been an underdeduction by the employers then the main remedy would be, as suggested by HMRC, Sch 1AB TMA (not "1A" as reported in the decision). If a taxpayer is confident that the employer had under deducted, then another remedy is to invoke reg 185 and put the amount in the return in the box on the employment pages for tax deducted at source.
And what is the point of referring to s 684A(7A) ITEPA? That has nothing to do with the scenario here and is for things like casuals and students. I am aware that HMRC have tried to misuse it in cases where they consider there to have been disguised remuneration, but that misuse is most likely unlawful - see my casenote on the Higgs and Hoey cases in the last issue of the British Tax Review.
Judge Gillett was wrong to suggest that the PAYE regulation are not justiciable at all before the FTT or that they are only about collection, but that was not relevant in the Bell case.
10th Aug 2020
There are in fact two other people who should not share Paul Crowley's limelight of shame: the Upper Tribunal for a sane and sensible decision and the HMRC case officer for doing their job.
Heather Jones won her appeal outright because of the error of HMRC’s presenting officer in not seeking to justify the discovery assessment before the FTT, something the FTT should have picked up.
Had HMRC sought to justify the assessment they would have been able to, as the appellant omitted the excess over £30,000 of her termination payment from her return.
The Upper Tribunal carefully did not decide whether, had they upheld the validity of the assessment, they would have decided that the credit for PAYE was 40%, not 20%, or instead that Ms Jones would have had to make a claim against the liquidators for the money incorrectly deducted.
In my view, the correct approach to the question: tax deduction or claim from employer? is this. The FTT’s task was to decide whether Ms Jones was overcharged by the assessment, and to reduce it if she was (s 50(6) TMA). The first question with a discovery assessment is: what was the amount of the actual “loss of tax”? In such a case the loss of tax is found by analogy with the provisions concerning a self-assessment in s 9 TMA. One has to find what the tax correctly due would have been if the self-assessment had been correct in respect of the termination payment (the PLR in penalty terms) and deduct from that that the tax shown on the SA.
Section 9(1)(b) TMA requires that a self-assessment takes into account in arriving at the tax payable any “tax deducted at source”. The return form (additional information pages) and the notes for completing it tell people to put the amount of tax deducted by the employer in box 6 on page Ai2. Had Ms Jones completed the return and the Ai pages correctly (eg with the help of a good tax adviser and/or the HMRC Guidance Notes), this would be the 40%. An employee like Ms Jones with no post-cessation “pay slip” but a bank account with details of the payments would have no reason to think that the employer had only accounted for and paid half of the amount apparently deducted, and had done so correctly). HMRC have used the only figure of tax deducted they had, the figure paid over and reported to them on a P14, the 20%, but is there any reason in law why the additional 20% not paid to them is not deductible/creditable?
Normally the only basis on which the tax deducted at source figure in a discovery assessment can be adjusted would be by using regulation 188(3) of the PAYE Regulations. But sub-paragraph (a) does not apply as the employer did not fail to deduct what it should have (20%) nor was the payment a notional payment. Sub-paragraph (b) does not apply because there is no underpayment or overpayment here (which must in my view refer to a one from a different year) and sub-paragraph (c) is clearly irrelevant.
Thus a self assessment completed in accordance with the HMRC guidance notes for page Ai2 would have shown the excess of the termination payment over £30,000 and tax of 40% as deducted. Thus it could be argued that the tax lost is nil, being the tax charged on the excess at 40% less the tax deducted at 40%.
The counter-argument would have to be that tax incorrectly over-deducted by the employer is not “tax deducted at source” within s 9(1)(b) TMA. “Tax deducted at source” is defined for the purposes of s 9 by s 8(5) TMA:
“any reference to income tax deducted at source is a reference to income tax deducted or treated as deducted from any income or treated as paid on any income.”
which does not take us much further. But is the additional 20% “tax” that was deducted? Under regulation 37(2):
The person making the payment must deduct tax at the basic rate in force for the tax year in which the payment is made.
There is therefore no scope for treating anything above that rate as “tax”. There was therefore a loss of tax.
Had the discovery assessment not been invalid, then the UT should in my view have upheld the assessment. It seems highly likely that the s 29(5) TMA condition was met, as the return omitted both the payment and the tax deducted, so no hypothetical inspector could be expected from the return alone to be aware of a loss of tax. They might from the P14 have been able to work about that there was a post-cessation payment from which BR had been correctly deducted and accounted for, but that is not relevant.
A more difficult question is whether if the payment and tax at 40% had been returned, s 29(5) could still have applied. Can there really be a loss of tax where a return had been completed in accordance with HMRC’s guidance?
I have said HMRC were not at fault in this case, by which I mean the officer who made the discovery assessment. That is because the tax return and the HMRC systems do not cater for the possibility that the tax deducted by the employer is not, or not all, paid over to HMRC or indeed is not tax at all and should not be paid over. Ms Jones is very lucky that she has not had to resort to claiming the extra 20% incorrectly deducted from her employer.
7th Aug 2020
As the judge in the Ice Rinks FTT case it is not appropriate for me to comment on the article, but I would like to correct one misapprehension. The FTT decided in Europcar that there were two supplies, so one could be reduced-rated. The FTT in Ice Rinks also decided that there were two supplies so that one could be zero-rated. The Upper Tribunal decided that in arriving at that decision the FTT approached the issue incorrectly and so it found that the decision could not stand: but it did not, as it could have, remake the decision to say that there was only one supply. Instead it remitted it back to the FTT to find further facts and to make its decision anew on the basis of the facts so found.
So as the decisions currently stand they both go the same way, but either or both may change, depending on whether HMRC appeal Europcar and what the FTT decides after the remitted hearing in Ice Rinks (a decision which will of course also be potentially appealable). No Court or Tribunal has given a differing view.
17th Apr 2020
This decision simply reinforces my view that the standard of investigation in HMRC gets worse and worse. This case also shows the possible illegality of HMRC's conduct. Para 9 of the decision says that the case was reviewed no doubt under ss49A to 49I TMA and that the "initial" decision of the reviewing officer was (quite rightly) to uphold the appeals. But it seems that the then case officer, Mrs J Acreman, somehow persuaded the reviewing officer to uphold the assessments.
If the initial decision of the reviewing officer had been communicated to the appellant then that ends the matter as s 49F TMA provides that that communication is deemed to constitute a s 54 TMA agreement. There is no ground whatever for going back on that agreement.
If it had not been communicated to the appellant then I still cannot see on what basis Mrs Acreman intervened. Nothing in the HMRC Manual ARTG suggests that the case worker is given any role in the matter beyond being consulted in appropriate circumstances. It flies in the face of everything HMRC says about reviews being "independent" if the case worker is allowed to reverse the initial decision before it is communicated to the appellant.
And why did no one in HMRC recognise that however suspicious the background, an assessment on a person to the effect that they have made profits from trading requires HMRC to show some evidence of what this trade was. They didn't (para 15). They didn't resort either to the busted flush (sorry!) of a "miscellaneous income" assessment.
Where is the quality assurance or just simple management? Missing. Why did no one in the Solicitor's Office stop this case going further?
This is not the first time, either. I have myself given two (at least) decisions in cases where no trading could be identified which readers here as well as HMRC might find helpful:
1. Chadwick (as trustee in bankruptcy of Oduneye-Braniffe) v The National Crime Agency  UKFTT 656 (TC) (30 August 2017)
2. Ashraf v Revenue and Customs  UKFTT 97 (TC).
10th Apr 2020
I assume it wasn't really a reminder or you wouldn't have used quotation marks. More likely it was another letter of the same type you have been receiving "forever" ie a statutory notice to file under s 8 TMA. Unless you have signed up for digital communication then HMRC are obliged to send you the notice by post if they want to charge you penalties for failing to deliver it on time.
What strikes me about the announcement is that no one making a paper return in future will be doing so other than voluntarily, as they will not receive a return addressed to them which contains the notice to file, as actual paper returns did.
Any return printed off the internet and sent to HMRC will be a voluntary return treated as a real one by s 12D TMA.
Now might be the time for HMRC to acknowledge reality and declare that the UK no longer has a self-assessment system (except for the very small minority of paper filers who file late).
If you file online then HMRC does the calculation of liability within s 9(1) TMA using the tax calculation software embedded in the online return. If you file by paper and do so by 31 October then a self-assessment (Form SA110) is unnecessary as HMRC will do it. Only if you are late do HMRC have a discretion to do it if you do not.
30th Mar 2020
By regulation 40(2) of the Value Added Tax Regulations 1995 (SI 1995/2518) VAT in respect of a period to which a return relates (ie the quarter in most cases) is payable to HMRC not later than the last day on which the trader is required to make the return.
By regulation 25(1) ibid. a return is required to made to HMRC not later than the last day of the month next following the end of the return period, ie 30 June 2020 in the case of a quarter ended 31 May 2020.
30 June 2020 is therefore the date on which the VAT for the quarter is payable, but this is subject to the provisions of regulation 25A(20). This provides that additional time is allowed to make a return in two circumstances:
1. where payment related to the return is made electronically (whether or not the return is made electronically or on paper)
2. where the return is made electronically (so not paper) and no payment is required to be made.
But this additional time to make the return (and hence to pay) only applies where HMRC (or its predecessor) have so directed. The most recent copy of the directions I have provides:
“Additional time may be available for the return and payment to reach us if payment is made by an approved electronic method. To qualify:
• Payment by BACS, Bank Giro Credit Transfer or CHAPS must be in our bank account by the seventh calendar day after the standard due date.
• DD payments will not be collected for a further three working days after the extended due date for receipt of the VAT Online return.
• [HMRC] must receive paper VAT returns by the date the payment is due. Electronic returns must be received by the seventh calendar day after the standard due date.
These incentives apply only if there is a payment to be made of VAT declared on the VAT return.
They do not apply to:
• ‘nil’ or repayment returns
• returns under the annual accounting scheme
• returns made by businesses required to make payments on account.”
It is wholly unclear to me from the HMRC website which quarters they intended to be included in the deferral scheme. It would seem odd and unfair if those with February quarter ends got another quarter of deferral (the May quarter) while those with March and April quarter ends got only one. The reference in the direction to nil returns not qualifying suggests that it is HMRC’s view that a return which shows or should show an excess of output tax over input tax (if any) will qualify for additional time to make the return, because it is not a “nil” return) and so the May quarter end cases are not within the deferral scheme. But that of course is HMRC’s statement of the cases that will not qualify. It is not necessarily exhaustive as the direction must be construed to be consistent with the regulations.
Those with May quarter ends who wish to defer payment will find themselves in the odd position of having to argue that they are not entitled to the additional 7 days to make a return. I do not think that they can argue that no payment is “required” to be made (item 2. above), as regulation 40 requires a person to account for the VAT for which he is accountable and to pay it.
They might argue that where the payment of VAT has been deferred (eg by cancelling the direct debit and not making any other payment), no payment “is made”, so that they are not entitled to the additional time to make the return.
Anyone taking that view would be well advised to make their return by 30 June or they might get a surcharge liability notice or surcharge. What a judge of the FTT would make of the argument should HMRC issue a surcharge in July I would not like to say.
14th Nov 2019
Scheithauer is an odd case. I say straight away that if I had been hearing this case faced with the information given by HMRC as reported I would have concluded, like Michael Connell and John Wilson, that the appellant had been careless in the completion of his return.
This is certainly the case with the omission of benefits: the appellant does not seek to say that he had not got a P11D or to explain why he did not return the amounts.
In relation to the understated tax on pay (about one-third of the total of the PLRs) I would have explored with the presenting officer (who is one of the best) some of the review officer’s statements in the letter of 6 April 2018.
On page 4 lines 40/42 of the decision the review officer says:
“However, it is your responsibility to include all of your income in your tax return. You must have known what your income was. It was easy to calculate by adding up the figures on the payslips.”
The declaration on page TR8 of the 2017 SA 100 is that:
“the information I have given on this tax return and any supplementary pages is correct and complete to the best of my knowledge and belief.”
The SA102 for 2017 is quite emphatic about returning pay from employments. The rubric for Box 1, the relevant box, says:
“Pay from this employment – the total from your P45 or P60 – before tax was taken off”
The SA102 Notes say:
“Box 1 Pay from this employment
Use the figures from your P45 or P60 to fill in box 1.”
Nothing is said about returning income not shown on a P60 or P45, or for that matter in relation to box 2 about tax which should have been deducted but was not (which is creditable under regulation 185 of the PAYE Regulations in certain circumstances).
It does seem to me to be too far fetched (ignoring national stereotypes) to say that Herr Scheithauer did what he was asked to do by the SA 102 which he must have completed, and that his behaviour was not careless, especially as the declaration I quoted seems to have complied with in relation to pay, if not to benefits. The information he gave on the tax return was what he was asked to give.
As an alternative I might have considered whether I could make a special reduction given the special circumstances here.
What is more surprising is that there is no hint in the decision that the officer informed the appellant that the penalty was not suspended as required by CH83120. The Penalty Explanation Schedule may have shown that the penalty was not suspended but I cannot recall if that explains the officer’s reasoning. The alternatives are these: either the appellant was explicitly told that the penalty was not suspended and did not appeal that decision or, contrary to the HMRC Compliance Handbook (CH83133 etc) the matter was not actually considered at all by HMRC.
Where I would take issue with the decision is the last sentence of §36. It is unfortunately a misquotation of an extract from the decision in Garnmoss Ltd v HMRC  UKFTT 315 (TC) which does not use the word “honest”. But even that has been held by subsequent Tribunals to be somewhat over-simplistic, and by itself not to be helpful. The point is that there are two types of mistake in completion a tax return, dishonest ones and honest ones. Dishonest ones may be penalised by penalties for deliberate conduct or by prosecution. Honest ones are further divided: those that are honest but careless (penalised by lower penalties) and those that are honest and not careless. The law does not indeed provide shelter for the honest but careless mistakes, unless a reasonable excuses is given for the carelessness or special circumstances are present. And of course ignorance of the law may, but very often will not, constitute or form part of a reasonable excuse (Perrin v HMRC  UKUT 156 (TCC) at §82).
But it does provide shelter for honest mistakes that are not careless.
1st Nov 2019
The difficulty I have with HMRC's statement that "this is not a new policy" (TN 2.4) is that it is not true. None of HMRC, IR nor CCE have ever introduced legislation to say that a decision which the law entrusts to the Commissioners or to any officer of theirs to make may be made "automatically" ie by a computer. If they had done so the description of the legislation they intend to introduce would not be necessary.
In Khan Properties Ltd v HMRC  UKFTT 830 (TC) (Khan) at §§43-47 I pointed out that s 2 Social Security Act 1998 (SSA) did allow an automatic or computer-made decision in relation to social security benefits (and at that time NICs). What is described in TN 2.2 is s 2 SSA 1998 with necessary modifications. So it is by no means a new policy for government departments but that is not I suspect what HMRC meant by saying what they did in 2.4.
Khan at §47 also points out that s 113(1B) and (1D) TMA (and its equivalents in other taxes) does not affect the matter. In the case to which that legislation responded (Burford v Durkin) there was a decision to assess by an officer.
Like Justin Bryant I do not think that in these circumstances there is anything reprehensible about seeking to make the new legislation retrospective: it is quite likely that if HMRC were to lose Craig Shaw et al in the UT they would be faced with tens of thousands of calls for late filing and other s 100 TMA penalties to be cancelled by those who accepted the penalties at the time they were issued without appealing.
That is not to say that HMRC are right to wait until now and not to have acted earlier (say in 2017 when they decided not to appeal Khan, but did nothing to overturn it).
Whether those who did appeal and whose cases were stayed behind Shaw & Rogers or are still in the appeals process should be treated in the same way is a different matter.