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HMRC tribunal loss creates serious MTD headache

7th Sep 2018
Tax writer
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A case where the taxpayer successfully appealed against tax penalties issued electronically could have serious implications for MTD, unless the law is changed very quickly.

Hannah Armstrong (TC06606) was charged penalties totalling £1300 under FA 2009 Schedule 55 for late submission of her 2015/16 tax return.  

She had ceased self employment in January 2016 on becoming an employee, and didn’t realise she needed to notify HMRC of a nil liability. She had been unaware that there were important electronic messages in her secure mailbox set up by HMRC, and said she was only informed when the penalties reached £1200.  She made a late appeal against the penalties, which was referred to the first-tier tribunal (FTT).

In the judge’s opinion, Armstrong’s delay in appealing was serious and significant, but “not at the upper end of such delays”. The taxpayer’s explanation for the delay was plausible – it was also a reason for the appeal itself, so there would be prejudice in refusing to hear the appeal merely because of the delay.

Electronic Notices

The use of electronic communications by HMRC to serve statutory notices is governed by the Income and Corporation Taxes (Electronic Communications) Regulations (SI 2003/282), in particular by Regulation 5.

This allows statutory notices to be sent to a secure inbox. As long as some conditions are satisfied, they will be treated as if they had been validly delivered by post.  Those conditions are:

  • The taxpayer has consented to receive the information via the self assessment online service;

  • HMRC has sent an email to their last known email address (or a text to their contact number) informing them that information has been delivered to their secure inbox; and

  • The despatch of that email has been recorded by HMRC, and that record shows that the email was not “bounced”.

Reading the T&Cs

It was clear that Armstrong had signed up to the SA online service, but to what exactly had she agreed to in the terms and conditions? Neither side had produced any documentary evidence of what the terms and conditions said at the time she signed up, but the judge examined the T&Cs in force at the time of the hearing.

“In my view,” commented the judge, someone “would realise from reading those terms and conditions that they would get a notice to file a return sent to their secure mailbox, replacing the paper notices to file, that they would get reminders that returns and payments of tax are becoming due and that they would get statements of their tax position from time to time, that is things that they have been getting hitherto, and if they are experienced filers of returns, things they may already know well.”

What they would not necessarily realise was that notices charging penalties would be sent to their secure inbox, or that the emails pointing out that this had been done would be quite so “bland and uninformative”. In fact, all those emails said was: “you have a new message from HMRC about Self Assessment”, giving no indication whatsoever that they referred to anything so important and urgent as a statutory penalty.

His conclusion was that – if consent is taken to mean informed consent – Armstrong had not consented to receive penalty notices electronically (but she had consented to receive notices to file tax returns).

The judge, therefore, found that the issue of penalty notices to Armstrong’s inbox was not valid.

No evidence trail

In case the judge was proven wrong on this, he looked at the question of whether either a notice to file a 2015/16 tax return or a penalty notice had been properly issued. Remember, a penalty for late filing can only be upheld if HMRC can show that the notice to file had itself been valid.

HMRC was able to provide sufficient evidence that the filing notice had been sent to the secure inbox, but it failed to show that this was the case for the penalty notices.

HMRC did produce a screenshot of a “view/cancel penalties record” screen (in the name of Mrs H C Vanson – presumably Armstrong’s marital title), but all this does is to show that a penalty was raised, not that notice was given (or how it was given).

We have seen a trend in recent FTT cases of judges holding HMRC’s feet to the fire on keeping and producing a satisfactory evidence trail. As a result, the judge in this case ruled that – regardless of the consent issue – the penalties should be cancelled.


It does seem that the execution of paperless self assessment is something of a dog’s breakfast. The fact that there are holes in HMRC’s terms and conditions broad enough for an inquisitive judge to poke around in, should be a cause for alarm at HMRC board level.

While FTT judgments are not binding on anyone (even future FTT tribunal panels), the logic pursued here – if agreed by higher courts – could be persuasive enough to undermine whole chunks of the MTD framework. I am not aware whether HMRC intends to appeal this decision; in my opinion it would be a misplaced effort to do so.

It would be better by far to address the inadequacies in the current legislation to make it fit for an electronic future. This may involve a more radical reworking of the Taxes Management Act (rather than merely adding some deeming provisions in a statutory instrument). That was what it took to bring in self assessment; one can only assume that HMRC sees MTD as being equally important.

It is surely not beyond the wit of man to design an electronic tax compliance system that actually works!

Replies (12)

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By Tornado
07th Sep 2018 15:37

"It is surely not beyond the wit of man to design an electronic tax compliance system that actually works!"

I think you will find that it is.

Thanks for the article. This information could prove to be very useful.

Thanks (10)
My photo
By Matrix
08th Sep 2018 06:34

Yes this is really interesting.

My experience is that, however much time people spend on their phones, they just aren't interested in having HMRC accounts and checking them. None of my clients have digital tax accounts.

HMRC have made certain assumptions about their customers' appetite to do everything online which don't hold up.

Thanks (9)
Chris M
By mr. mischief
08th Sep 2018 18:48

Overall HMRC's e-mail service is rubbish, so in my view this judgement was a really good one.

Let's look at my most common e-mail from HMRC, which is notification of a new tax code for an employee of one of the 102 limited companies I am the accountant for.

Does this e-mail have the company name on it? NO!!!

Should it? YES!!

Do I think that an e-mail notifying me of a P6 change with no mention of the company concerned or indeed any tax reference whatsoever has been validly served on me?


So if I then go to my inbox and see 20 of these as possibles - some of which I will have already dealt with, some of which I've not - I just ignore it. I refuse to be forced to click on all 20 just because HMRC are so rubbish. If there are just 2 or 3 to choose from, then I will click on all 3 to identify the one I need to alter.

Thanks (8)
Replying to mr. mischief:
By Tornado
08th Sep 2018 22:55

At one end of the scale we have the chaotic procedures that you describe and at the other end we have such oddities as additional assessments for VAT having an issue date stamped on them with a rubber stamp. They then forget to stamp their own copy and consequently have no idea about the date of issue. In addition, they send these assessments by post TO THE WRONG ADDRESS and then fail to send replacements to the right address, even after several months. In effect, these assessments have not actually been issued.

The biggest problem facing HMRC with MTD, will be the lack of competence by their own staff.

Thanks (5)
Replying to mr. mischief:
By steve.oldham
10th Sep 2018 10:01

Not to mention those notification emails which are received, only when you log in there is no message there, and the message doesn't actually appear in your secure mailbox for 24-48 hours...

Thanks (5)
Replying to mr. mischief:
By Homeworker
10th Sep 2018 17:27

By mr. mischief 08th Sep 2018 18:48
"Let's look at my most common e-mail from HMRC, which is notification of a new tax code for an employee of one of the 102 limited companies I am the accountant for."

..and this assumes that the purported coding notice can actually be found. I have on numerous occasions received emails telling me that a new tax code has been issued but can find nothing when I look for it - and we only have around 15 payrolls.

Thanks (1)
By k743snx
10th Sep 2018 11:12

MTD - an absolute disaster waiting to happen.

Thanks (4)
Replying to k743snx:
10th Sep 2018 11:39


Thanks (3)
By taxinfo
10th Sep 2018 11:25

A little experience ....I have a Personal Tax Account, as do some of our clients, but in the last few weeks, I have frequently been unable to log in to it.

HMRC systems kick me out with the usual "username and/or password not recognised" and, of course I AM using the right credentials. Some days it allows me in, some days it blocks me. Very flakey.

How am I supposed to see my any messages etc when their own unstable systems won't let me in???

Thanks (3)
By supremetwo
10th Sep 2018 11:26

Digital is wide open to phishing.

And if this applies regarding tax refunds, it should be the same for penalties.
Treasury Minister Mel Stride MP, the Financial Secretary to the Treasury, said:

HMRC only informs you about tax refunds through the post or through your pay via your employer. All emails, text messages, or voicemail messages saying you have a tax refund are a scam. Do not click on any links in these messages, and forward them to HMRC’s phishing email address and phone number.

Thanks (1)
10th Sep 2018 12:13

"The taxpayer’s explanation for the delay was plausible – it was also a reason for the appeal itself, so there would be prejudice in refusing to hear the appeal merely because of the delay."

So, my question is, if a freelance contractor were challenged over IR35 for a contract that had been in force some years previously, as these challenges tend to be, and that the Tax Commissioners had declared that the contract was "caught", would the ET then allow a claim for employment rights to be heard, which would by then be outside the normal limit of 6? months for such appeals?

Thanks (1)
Replying to IANTO:
rebecca cave
By Rebecca Cave
10th Sep 2018 14:22

Watch this space for an article on when a late appeal will be accepted.

Thanks (6)