Tribunal slaps down HMRC for cutting corners
HMRC attempted to extend a statutory time limit by issuing a new information notice that copied the wording of an out-of-time notice, then it issued a penalty for non-compliance with the later notice.
HMRC officers issued Sadiq Ahmed with three information notices:
- In October 2017, officer O’Kane issued the first information notice, which requested bank statements, purchase and sale documentation relating to a Bromley property, and invoices for allowable costs incurred on that property, among other items.
- In July 2018, officer Rafferty issued the second notice, requesting supporting evidence for rental statements for 2011 to 2013, and supporting information relating to a capital gain arising in 2014/15.
- In January 2019, officer Rafferty issued a third notice, which combined the text of the first two information notices word for word.
Information had been provided
The third information notice was issued despite the fact that, in September 2018, Ahmed’s accountants (MHC Accountants) provided “all the documents” covered by the second information notice, with the exception that, as some documents had been lost during a house move, the figures for repairs and maintenance had been estimated.
HMRC deemed that this information was not sufficient to verify the figures on the tax returns, and also stressed the importance of receiving the bank statements, which had not been provided.
In February 2019, MHC told HMRC that historic bank statements from 2010 to 2015 had been ordered, but they would take some time to arrive (between end of March / early April 2019).
Less than a week later, a third HMRC officer, Hughes, took over the case, and wrote to the taxpayer, once again repeating the information list from the third notice, noting that bank statements had not been provided, and stating that she would not grant a further extension to comply with the notice.
HMRC argument disingenuous
One of the grounds of appeal was that the third information notice was simply a repeat of the first and second notices. HMRC’s response to that submission in their statement of case was that the third notice was “not identical” to the second notice.
The FTT called this out for what it was: disingenuous, as the third notice also included the text from the first notice. In effect, the third notice just repeated the requirements of the first two notices. As the FTT commented, “it added nothing and it subtracted nothing”.
This meant that the FTT considered the appeal by reference to the statutory deadlines for penalties arising from the first and second information notices.
HMRC out of time for first information notice
Under FA 2008, Sch 36 paragraph 46(2), where a person is liable to a penalty, HMRC is required to assess the penalty within 12 months of that liability, unless the person has appealed the information notice. Ahmed had appealed the penalty, not the notice.
HMRC issued the first information notice on 11 October 2017, with a deadline for compliance of 20 November 2017. Ahmed did not comply on time, and so was liable to a penalty from 21 November 2017.
Therefore, HMRC could only have issued a penalty by 20 November 2018. As the statutory deadline had passed, HMRC had no legal power to issue the £300 penalty in March 2019 for failing to comply with the third notice (in respect of the information requested in the first notice).
Further, the FTT found that HMRC did not have the power to extend the 12 month statutory time limit by issuing a new notice that repeated the text of the out-of-time notice, as “it would entirely defeat the purpose of the statutory provision”.
This meant, although the bank statements had not been provided, as they had been requested in the first notice, HMRC was out of time to apply a penalty in that regard.
No proof of non-compliance
Turning to the second information notice, which was within the 12 month time limit for HMRC to issue a penalty for non-compliance, the FTT noted that HMRC carried the burden of proof in penalty cases, and so it had to show that there had been a failure to comply.
HMRC did not provide the FTT with the documents MHC had submitted in September 2018. Neither did HMRC provide witness evidence from relevant case officers explaining why they felt the documents did not constitute compliance with the notice, especially given that there can be no failure to comply if the requested document is not in a person’s “possession or power” (FA 2008, Sch 36 para 18).
MHC had told HMRC that it had sent all the documents necessary to satisfy the second notice, barring those documents lost in a house move, which were no longer in the taxpayer’s possession or power.
The FTT therefore allowed the appeal on the basis HMRC had failed to prove that Ahmed had not met the remaining requirements in the third notice (ie the requirements of the second notice).
This case is best summarised by Ahmed’s accountant in his appeal letter: frustrating.
This is even more apparent when you consider HMRC originally issued the taxpayer a penalty notice for non-compliance with the first notice in December 2017. However, as HMRC sent it to the wrong address, the penalty was cancelled and so was not considered further in the appeal.