Save content
Have you found this content useful? Use the button above to save it to your profile.
An example of text strings AccountingWEB HMRC's confusing evidence spares taxpayer from penalties
istock_text-strings_Maximusnd

HMRC’s confusing evidence spares taxpayer from penalties

by

HMRC used text strings as evidence that late filing penalties had been electronically served but the first tier tribunal found it “difficult to comprehend", allowing the taxpayer to have their penalties cancelled.

3rd Nov 2023
Save content
Have you found this content useful? Use the button above to save it to your profile.

Claire Marie Walker submitted tax returns each year to HMRC. In September 2022, to her surprise, she received a letter from HMRC stating that it had imposed £1,300 of late filing penalties in respect of her 2020/21 return.

Walker called HMRC a week later and was told the return was still outstanding. She dutifully submitted it to HMRC the same day, but argued that she had not been aware this still needed to be done until she had received the letter.

Electronic mail

HMRC’s system showed that Walker had consented to receive paperless correspondence and therefore the previous penalty notices had, HMRC claimed, been sent electronically.

Walker disputed having received any such electronic notices and continued to assert that the paper letter at the end of September was the first time she became aware there was an issue.

After presumably exhausting all other avenues, Walker appealed to the first tier tribunal (FTT) on two grounds:

  1. That the late filing penalties had not been correctly issued
  2. That she regardless had a reasonable excuse

Proof of electronic delivery

Finance Act 2009 Sch 55 para 18 requires that for a penalty notice to be valid, HMRC must, amongst other things, notify the taxpayer. The onus was therefore on HMRC to prove that it had actually notified Walker of the penalties.

As the notifications in question were electronic, the FTT considered various parts within the Income and Corporation Taxes (Electronic Communications) Regulations 2003. These set out when an electronic communication is treated as having been delivered and how such delivery can be substantiated.

In brief:

Regulation 6 states that a document certified by an officer of the Board to be a printed version of an electric communication counts as evidence of delivery of said document and its contents.

Regulation 9 states that information is to be assumed to have been delivered if it can be shown to have been recorded on an official computer system.

Therefore if HMRC could produce a certified printout of the electronic penalty notice, or could demonstrate that it had been recorded on their system, it would be for Walker to disprove that evidence.

Notices properly served?

The FTT noted that regulation 6 gave HMRC a relatively straightforward means to discharge its burden of proof. It was therefore particularly noteworthy that HMRC chose not to rely on regulation 6, nor did it explicitly rely on regulation 9, though the FTT chose to assume this was its intention.

HMRC submitted as evidence a document (the contents of which are at paragraph 29 of the case), and drew particular attention to several text strings within it, which it claimed confirmed the issue of the initial £100 penalty.

The FTT found this document “difficult to comprehend” and was not satisfied that it could accept HMRC’s contentions as to the meaning of the text strings. It noted that had HMRC also provided both a witness to comment on how the data had been extracted and an expert witness to interpret the computer jargon, this may have been acceptable evidence.

However in the absence of such witnesses, no weight could be attached to the evidence. Nor could it be demonstrated that the strings of text proved the notice(s) had been recorded on an official computer system under regulation 9.

While such witnesses may have been disproportionately expensive, given the tax at stake, this just made it all the more peculiar to the FTT that HMRC had not opted to instead rely on regulation 6.

The appeal was therefore allowed and the penalties cancelled.

Reasonable excuse

For completeness, and in case it was later shown that the FTT had reached the wrong conclusion regarding the first issue, the reasonable excuse point was also considered.

 

Walker had relied on her husband to submit her return, as he apparently did each year and he was “adamant” he had done for the 2020/21 return. However as he did not attend the hearing to give evidence, the FTT attached little weight to his adamance.

This was largely moot regardless, as HMRC referred to Sch 55 paragraph 23(2)(b) which states that reliance on another person does not constitute a reasonable excuse, unless the taxpayer took reasonable care to avoid the failure. Walker admitted she had not ‘monitored the position closely’ and so the FTT found that her reliance on her husband did not constitute a reasonable excuse.

However as the FTT had already found in her favour, this did not affect the outcome of the appeal.

This was a rare win for a taxpayer representing themselves. Although why HMRC did not (or could not) make use of regulation 6 will apparently remain a riddle for the ages…

Replies (24)

Please login or register to join the discussion.

Tornado
By Tornado
03rd Nov 2023 15:40

I don't think many of my clients receive a Notice to Submit a Tax Return as very few of them pass the Notice on to me. It seems possible that some might receive a Notice through a Personal Tax Account but few people have these and those that do, don't look at them very often and some never.

The only way that I know that a Return has been issued is by checking my Agent Online Services Accounts, but I think most of my clients are unaware that a Return has even been 'issued'.

It should be law that a Notice to submit a Tax Return must always be posted to the registered address of the Taxpayer.

Thanks (6)
Replying to Tornado:
avatar
By Geoff56
04th Nov 2023 12:33

A lot of my clients do still receive a paper Notice to Submit, by post. However, I do exhaustively check all my SA clients through my Agent Online Services, with the occasional surprising result.

Thanks (1)
Replying to Geoff56:
avatar
By Self-Employed and Happy
06th Nov 2023 09:51

That seems a ludicrous waste of time, some simple Tax Return software paid on a per license basis could save you heaps of time without being costly, easy to check who you'd done last year that hasn't been done this at the click of a button you have a list!

Thanks (1)
Replying to Self-Employed and Happy:
avatar
By Geoff56
06th Nov 2023 10:32

A bit harsh. I know exactly who I completed a return for last year and exactly for whom I expect to complete one this year. However, I do occasionally find that HMRC has not issued a Notice to Submit in some cases where they had not previously issued the 'no more tax returns' letter. Anyway, as I have been gradually winding down my practice, it doesn't take an inordinate amount of time to check everyone.

Thanks (0)
Replying to Tornado:
By SteveHa
06th Nov 2023 10:13

I read the judgement last week or so, and I'm pretty sure that HMRC have to notify the taxpayer by email that something had been posted to their PTA. Something else that they were unable to demonstratehaving done.

Thanks (1)
By ireallyshouldknowthisbut
03rd Nov 2023 17:24

A fairer system would ensure such a notice would only be valid if the tax payer can be proven to have logged in and seen it.............

The presumption of having logged into a personal tax account you may or may not have opened up several years ago and no doubt forgotten about and seen the notice seems to be deeply flawed.

If HMRC were serious about getting returns filed rather than collecting penalties, they ought to send a letter in the post if you are overdue by more than 30 days as a matter of basic courtesy.

Thanks (5)
Replying to ireallyshouldknowthisbut:
avatar
By Not Anonymous
03rd Nov 2023 19:58

ireallyshouldknowthisbut wrote:

A fairer system would ensure such a notice would only be valid if the tax payer can be proven to have logged in and seen it.............

The presumption of having logged into a personal tax account you may or may not have opened up several years ago and no doubt forgotten about and seen the notice seems to be deeply flawed.

If HMRC were serious about getting returns filed rather than collecting penalties, they ought to send a letter in the post if you are overdue by more than 30 days as a matter of basic courtesy.

But they would have got an email advising them there was a message (the actual notice to file) to view within their tax account.

Whether they choose to look at the message is another matter but I always get these emails telling me there is a message.

Thanks (1)
the sea otter
By memyself-eye
03rd Nov 2023 18:03

All this for a disputed tax return and a £1,300 penalty.....

(Sledge) Hammer to crack a nut?

Thanks (0)
avatar
By mhkay
06th Nov 2023 10:00

Pretty extraordinary that they can send email which goes straight into your spam folder and still claim it was legally delivered. Email has become a thoroughly unreliable means of communication and there should be a much stronger test for proof of delivery. The message headers that they submitted are perfectly good evidence that the message was sent (if they had only bothered to explain them to a layperson) but provide no evidence at all that the message was received.

Thanks (2)
Replying to mhkay:
avatar
By johnjenkins
06th Nov 2023 10:17

It's not e-mail that is unreliable, it is the jargon with which some try to communicate with others that is the problem.
The higher the tech the more obtuse the jargon.

Thanks (0)
Replying to mhkay:
Tornado
By Tornado
06th Nov 2023 10:47

I submitted a CT600 last week and wondered where the confirmation email was.

I found it today in the ISP junk folder which indicates to me that there must be something seriously wrong with the formatting if it gets junked at the first hurdle.

Thanks (1)
Replying to Tornado:
avatar
By johnjenkins
06th Nov 2023 10:53

Or perhaps something in the formatting that is not understood. As I keep on saying, the higher the tech, the more problems it will produce.
We need to consolidate on everything before we keep going into infinity.

Thanks (0)
Replying to johnjenkins:
Tornado
By Tornado
06th Nov 2023 11:08

Yes, we do have to be careful about the hype and you are correct, the more the tech, the more likely it is to not work properly.

Take self-drive cars ............... by now we should all be able to sit in our cars and let the car take us anywhere by itself. The slight problem is that self-drive cars rely on road markings to decide where they are and the state of our road markings in the UK is abysmal and getting worse, so a major flaw there in the concept. Some roads do not have markings at all.

OK, GPS will be become fast enough to react to real time road conditions eventually, but it is too slow at the moment to be of any practical use and I think it may still be many, many years before a car can reliably and safely drive itself anywhere.

Thanks (0)
avatar
By JustAnotherUser
06th Nov 2023 10:07

It was not HMRC's confusing evidence that caused this, it was the lack of supplying an expert witness, who could translate and testify what the string meant in a human understandable manner that caused it.
This should be very simple standard practice with anything even remotely technical and HMRC should be dragged across the coals for wasting everyone's time on the matter.
how is this not standard practice for these things is awful.

"It noted that had HMRC also provided both a witness to comment on how the data had been extracted and an expert witness to interpret the computer jargon, this may have been acceptable evidence."

Thanks (0)
By Duggimon
06th Nov 2023 10:16

Can I point out that this really should be redacted as it contains the appellant's UTR.

Thanks (0)
Replying to Duggimon:
avatar
By Mikolaj
06th Nov 2023 10:38

Wholly correct, well spotted.

Diligence?

Thanks (0)
Replying to Mikolaj:
avatar
By JustAnotherUser
06th Nov 2023 10:57

editorial oversight mildly acceptable ... the fact that the UTR is also in the refenced link and tribunal notes, unacceptable.

Thanks (0)
Replying to JustAnotherUser:
avatar
By Justin Bryant
06th Nov 2023 11:07

Yes; very poor indeed from this FTT judge.

Thanks (0)
Replying to Duggimon:
Richard Hattersley
By Richard Hattersley
06th Nov 2023 11:46

Hi Duggimon. Thank you for highlighting that the UTR was in the tribunal notes. The article has been updated to reflect this and to ensure it's not visible on the site.

Thanks (1)
avatar
By Roland195
06th Nov 2023 11:52

Going by all the similar cases, HMRC seem unable to prove to any real satisfaction that a document has been sent to their own mail room, let alone actually posted and received. The idea that the fact a letter is not returned to HMRC as non-deliverable seems dangerously out of date.

You would think it would be easier with the on-line services but they have made their usual arrogant assumption that any rubbish printed from their system will be accepted by the Tribunal.

Thanks (1)
Replying to Roland195:
By SteveHa
06th Nov 2023 15:20

Roland195 wrote:

The idea that the fact a letter is not returned to HMRC as non-deliverable seems dangerously out of date.

To be fair, that isn't HMRC, but is reliance on IA78 S7.

Thanks (0)
Pile of Stones
By Beach Accountancy
06th Nov 2023 16:18

Email from HMRC to taxpayer: Penalty
Email from taxpayer to HMRC: "HMRC don't do emails"

Thanks (3)
Pile of Stones
By Beach Accountancy
06th Nov 2023 16:19

Email from HMRC to taxpayer: Penalty
Email from taxpayer to HMRC: "HMRC don't do emails"

Thanks (0)
avatar
By richard thomas
07th Nov 2023 09:51

While I think that the Tribunal came to the right answer there are statements made about which I am dubious.

I do agree that the Tribunal should not have published the UTR, and HMRC should at least have warned the Tribunal that it contained the appellant’s UTR. I imagine though they did not think the gobbledegook would be published.

Where I part company from the Tribunal is about regulation 6. That is not a short cut to setting up a presumption of good service or of receipt: if it were it would hardly be necessary to have regulation 9. What regulation 6 is about is avoiding HMRC having to prove what the electronic communication said. The certificate proves only that it was “that” information, ie the information on the certificate that was delivered and that that was all the information.

Regulation 9 it is that establishes proof of delivery, and like s 7 Interpretation Act 1978, puts the burden on the presumed recipient to prove that it was not validly served. Until recently most authorised electronic communication was from taxpayer to HMRC, eg delivering returns of various sorts and making payments, and indeed unauthorised electronic communication such as the 60-day CGT return. It is equally difficult for the taxpayer there if not more so as regulation 9 provides in such cases:

(1) The use of an authorised method of electronic communications shall be presumed, unless the contrary is proved, to have resulted in the …delivery of information
(a) in the case of information falling to be delivered … to the [Commissioners for Her Majesty’s Revenue and Customs – NOT HMRC], if the … the delivery of the information has been recorded on an official computer system.

The regulations allow the electronic delivery of eg tax assessments and closure notices, but so far as I know the only matters delivered by the Commissioners electronically are notices to file and non-discretionary penalty assessments and some PAYE matters.

This can only be done if the taxpayer has consented to receiving such communications – regulation 3(1)(a). Consent must be “informed” (see [46] to [54] in Pendergate Ltd t/a Ridgecrest Cleaning Services [2016] UKFTT 778 (TC).

In my decision in Hannah Armstrong v HMRC [2018] UKFTT 404 (TC) I considered the effect of Pendergate and the Regulations in some depth as they relate to a case where there is a secure mailbox. This considered what amounts to informed consent to be sent penalty assessment notices. I also considered regulation 5 and its associated directive which are of importance here although not mentioned in this case.

The main message from the case is that, as with paper notices, it is only if the taxpayer specifically argues that there was no valid service that HMRC have the obligation to produce appropriate evidence (see Upper Tribunal in Rogers & Shaw). They find this very annoying when it happens and don’t seem very well include up about what is needed.

Thanks (1)