If HMRC’s computer issues a notice to file a tax return, does this satisfy the requirement that the notice must be issued “by an officer of HMRC”? Andy Keates explores a number of tax cases concerning late filing penalties that have addressed this question.
Three decisions concerning this question were issued by judge Nigel Popplewell within the space of a few days. They all hinged on the same pattern of facts and he used exactly the same wording in setting out his judgments. The cases were:
In each case, the taxpayer was issued with a notice to file a tax return (TMA 1970, s 8) but failed to submit a SA return either by the deadline or several months afterwards. Penalties were charged under Finance Act 2009 Schedule 55 as follows:
Fixed £100 penalties under paragraph 3
Daily penalties totalling £900 in accordance with paragraph 4
Six month penalties of £300 by virtue of paragraph 5
Twelve month penalties of £300 under paragraph 6 (in the cases of Smith and Groves).
The taxpayers all appealed against these penalties.
Valid Notice to file?
The validity of the penalties stands or falls on whether the section 8 notice was itself validly made. If it was not, there can be no penalty for failing to comply with it. In addition, it means that any return actually filed becomes a voluntary return, with all the ramifications which I examined in my earlier article.
TMA s 8(1)(a) states that a person “may be required by a notice given to him by an officer of the board… to make and deliver to the officer, a return” (emphasis added by judge Popplewell).
The judge pointed out the difference in wording of the Schedule 55 penalty provisions, where a penalty notice can be issued if HMRC decides to do so. While he was apparently content that such wording would extend to a computerised decision on behalf of the board, he was certainly not prepared to follow that logic for section 8.
Flesh and blood
The legislation requires an action or decision by an officer of the board. As the judge said, “this is a decision by a real ‘flesh and blood’ officer, and not by HMRC as a collective body. Nor is it a computerised decision.”
To make its case, HMRC would need to provide evidence that a named officer had taken the decision to issue the notice. All HMRC was able to produce was a number of extracts from its (computerised) records. These records showed beyond any doubt that a notice was issued, but failed to give any indication of any “flesh and blood” officer on whose initiative it was issued.
Intriguingly, HMRC included copies of letters subsequently issued to the taxpayers, some of which did have officers’ signatures; others, while not signed, included the names of officers in the signature block. The computerised pro-forma letter issuing the section 8 notice didn’t even have a signature block.
Judge Popplewell commented: “I am being asked to speculate by HMRC that a notice to file was given to this appellant by an officer of the board. I am not prepared to so speculate. I cannot draw an inference that this was the case from the evidence that has been presented to me.”
As HMRC was unable to provide sufficient evidence that the notices to file tax returns were themselves valid, the judge had no hesitation in declaring the penalties for failure to comply with the notices were similarly invalid.
We may see more similar cases. Admittedly this is a single judge sitting at the FTT whose decisions bind no one. However, his logic is strong.
Where the legislation requires an officer to take steps, HMRC should be able to provide clear evidence that a real officer has been involved. A computer spitting out paper with no human supervision is – for the moment – simply not good enough.
In the days of paper tax assessments, before self-assessment, a tax assessment could only be issued when a tax Inspector had signed the assessment book in his district. This provided a level of accountability which parliament seems still to desire, given the use of “an officer” in TMA 1970, s 8. Is it this accountability that HMRC fears?
If HMRC cannot, or will not, take the steps necessary to ensure there is an audit trail of responsibility from HMRC Officer to the taxpayer, perhaps the government should amend TMA 1970 to take away all reference to human beings in the process.