ATED: Daily penalties disputedby
HMRC’s practice of applying retrospective penalties of £10 per day for late filing of ATED returns has been challenged in three similar cases, but with different outcomes.
ATED applies to UK residential property owned by non-natural persons, for example LLPs with a corporate member, companies and collective investment schemes. The tax is compliance heavy as returns are required even if a taxpayer is claiming a full exemption from the charge.
ATED returns and payment are due within 30 days of the acquisition of a qualifying property. Returns and payments for existing properties are due by 30 April within the chargeable year that runs 1 April to 31 March. ATED is rather unusual as it is levied in advance, for example the 2021/22 tax return was due for submission and the ATED charge was due for payment by 30 April 2021.
Penalties for late payment and late submission of ATED returns are charged on the same basis as for late SA tax returns. If a return is submitted late but the charge is fully exempted by a relief, the maximum annual penalties can still be £1,300. The aim is to deter non-compliance and promote the timely filing of returns.
Key penalty cases
Three key cases have addressed a legal issue as to whether HMRC’s notices for charging daily penalties of £10 per day up to 90 days (maximum £900) for ATED returns over three months late are valid.
The point of law under dispute is whether a notice under FA 2009, Sch 55, para 4(1)(c) has been validly issued as HMRC issued the notices retrospectively.
Advantage Business Finance Limited (ABF)
ABF (TC6926) purchased a residential property in Fulham in January 2016. The property qualified for full relief from the ATED charge. ABF submitted the 2016/17 ATED return more than six months after the filing deadline.
HMRC issued the fixed penalty notice of £100 in October 2017 and a notice of the daily penalties in December 2017.
The £100 penalty notice was issued a year after the penalty period, Judge Poon discharged the £900 daily penalties as ABF were not given notice ahead of the penalty period, hence HMRC fell foul of FA 2009, Schedule 55.
Heacham Holidays Limited (Heacham)
Heacham (TC7883) is a family run business which acquired a cottage on July 2017 with the intention of renting it as a furnished holiday let. As the property was intended to be used for a qualifying use it applied for full relief from the ATED charge.
Heacham’s submitted its 2017/18 and 2018/19 returns on 29 January 2019. The first return was more than one year overdue and the second return was submitted more than six months after the filing deadline.
HMRC informed Heacham of the daily penalties in September 2019, more than 14 months after the deadline. In line with ABF the £900 daily penalties were cancelled as HMRC fell foul of FA 2009, Schedule 55 as notice was not given to the taxpayer of the daily penalties.
Heachams went further to appeal the fixed penalties on the basis of reasonable excuse as the business contended that its advisers should have informed them about its ATED responsibilities. This argument was denied and is in line with HMRC’s guidance that it does not consider an agent’s failure to fulfil the expectations of a client amount to a reasonable excuse.
Heachams tried another common viewpoint in that the penalties were disproportionate as no tax was due, however, this was denied on the basis the tribunal does not have the jurisdiction to determine proportionality.
Priory London Limited (Priory)
In Priory (TC 8225) interestingly Judge Chapman disagreed with the findings in ABF and Heacham’s regarding daily penalties although the facts were similar. This is not the first time the first tier tax tribunal judges have disagreed with one another but it does not give taxpayers confidence as to whether daily penalties can be appealed.
Judge Chapman held that HMRC could issue penalty notices retrospectively and that the daily penalties were due.
What does this mean?
It is surprising that the tribunal in Priory declined to follow the same reasoning as ABF and Heacham as many cases have since followed in their footsteps.
Given the drastically different outcome in the cases, I am pleased to hear that this point of the law will be shortly heard by the upper tier tax tribunal in order to resolve it once and for all.
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Natasha Heron is a Tax Manager specialising in property taxes at accountants Hillier Hopkins. She can be reached by email: [email protected].
Hillier Hopkins is a firm of chartered accountants and tax advisers. The firm provides tax advisory and accountancy services to...