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Late returns: HMRC can’t always get what it wants

29th Nov 2018
Tax writer
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The Rolling Stones Private Jet

Since 2009 taxpayers have had to pay a penalty for the late submission of a tax return, even if it shows no tax payable. This rule was questioned by the first tier tribunal in Scott Jagger (TC06774), and it came to a surprising conclusion.

Taxi driver

Mr Jagger, a self-employed taxi driver, was over a year late filing his tax returns for 2010/11 and 2012/13, and was charged penalties under FA 2009, Sch 55 for each year as follows:

  • A fixed penalty of £100 – paragraph 3;
  • A three-month penalty of £900 – paragraph 4;
  • A six-month penalty of £300 – paragraph 5; and
  • A twelve-month penalty of £300 – paragraph 6.

Blame the postman

Jagger claimed that he had, in fact, submitted his returns on time by first class post, but since he had not used recorded delivery he could not prove this. He went on to say that the first he knew of any alleged late filing was when he received a letter from HMRC notifying him of the penalties, upon which he re-submitted his returns (which were, by then, late).

The first tier tribunal (FTT) noted that, in the absence of proof of postage or any other evidence supporting the claim, it could not accept that he had filed on time. The £100 fixed penalties would definitely have to stand.

Moves like Jagger

He had moved house several times: the evidence showed ten different addresses, all within the Barnsley area, between 2003 and 2013. Jagger suggested that HMRC did not keep up with his location, despite his having telephoned them and advised of his new addresses. The implication was that he had failed to receive various notifications from HMRC which might have eliminated or reduced the delay.

A table drawn up by the FTT showed that HMRC’s awareness of his current address generally only lagged behind his moves by two or three months.

The FTT did not consider it likely that all of the notices listed in HMRC’s records as having been issued to Jagger could have been lost in the post (even though, as it slyly noted, HMRC did not use recorded delivery either!).

In any event, HMRC was only required to issue notices to the most recent known address, which in each case they had done. Since no notices were returned as undelivered, the FTT was able to conclude that Jagger’s frequent relocations neither invalidated any of HMRC’s actions nor provided him with a reasonable excuse for late filing.

Liability to tax

Paragraph 17 (3) of Schedule 55, FA 2009 says: “where a person is liable for a penalty under more than one paragraph of this Schedule which is determined by reference to a liability to tax, the aggregate of the amounts of those penalties must not exceed [100%] of the liability to tax”.

It is obvious that the £100 fixed penalty (FA 2009, Sch 55, para 3) is not “determined by reference to a liability to tax”, so it won’t be affected. Similarly, the three-month penalty in Sch 55, para 4 is calculated by reference to days (£10 a day up to a maximum of 90 days), so it too is unaffected by the tax liability.

But what about the six-month and twelve-month penalties (FA 2009, Sch 55 paras 5 and 6)? The formula in both cases is:

“the greater of –

(a) 5% of any liability to tax which would have been shown in the return in question, and

(b) £300”.

Fool to cry

HMRC’s argument was that, for both years and for both penalties, the penalty was imposed by sub-paragraph (b) of FA 2009, Sch 55, para 5 or 6 as opposed to sub-paragraph (a) and is, therefore, a fixed statutory sum rather than one computed by reference to tax. Once it is clear that the tax-geared figure is below £300, the fixed penalty kicks in; therefore Sch 55 paragraph 17 does not apply.

In the view of HMRC, “by creating two possibilities of a penalty”, parliament clearly intended that there should be a minimum penalty under each of the two paragraphs regardless of the tax at stake, in order to encourage compliance.

Back to zero

The FTT was having none of this. The notion that it comes down to an alternative between issuing a penalty under FA 2009 Sch 55, para 5(2)(a) or issuing one under FA 2009 Sch 55, para 5(2)(b) makes no sense. The penalty is issued under Sch 55 para 5(1), and sub-paras (2)(a) and (2)(b) are merely the mechanism for computing that penalty. The same goes for Sch 55, para 6.

Part of the process of arriving at a £300 penalty is the act of calculating whether 5% of the tax is greater or less than that amount. This being the case, it is clear that the penalty has been determined by reference to tax. “It is… not possible to impose a £300 penalty without first having referred to the liability to tax”.

Given that both the six-monthly and twelve monthly penalties are calculated in this manner, Sch 55 paragraph 17 must apply. The aggregate penalties under paragraphs 5 and 6 must be limited to the tax at stake, which is nil.

The initial £100 and three-month £900 penalties were upheld since Jagger had shown no reasonable excuse for missing the deadlines. The six-month and twelve-month penalties were reduced to nil based on the fact that no tax was due for either year.

It’s all over now

HMRC’s arguments on the paragraph 17 point were weak and clearly misconceived. It did, however, raise one interesting point: if someone has already been charged a six-month penalty for a nil return, they would be better off continuing not to file until a twelve-month penalty was charged – since a liability of £300 would be reduced by paragraph 17 to one of nil.

While this does seem bizarre, and arguably a defect in the legislation, it seems to be precisely what the law requires.

If HMRC is upset by this, it is of course in their power to get it changed – just as they have on previous occasions when the absence of any tax due has stood in the way of charging a nice fat penalty.

Replies (11)

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By Justin Bryant
05th Dec 2018 10:42

The above case link seems not to work and can be found in the link below with other similar cases:

HMRC are of course notorious bad losers and are likely to appeal before changing legislation.

I see Taxation Magazine are in agreement here:

Thanks (1)
By MattG
30th Nov 2018 12:53

I guess maybe it depends on the HMRC officer you get, but recently I've appealed a large number of penalties for a couple of clients, for late filing (and in some cases late payment) for multiple years.

Total penalties were several thousand each. Frankly I thought the excuses we had were rather weak - not being aware that a return was due (in this case only requested as they were earning over £100k) and in one instance a house move (which the taxpayer may or may not have informed HMRC in a timely fashion).

I wasn't very hopeful, but it was worth a go for the price of a stamp and a few minutes form filling and much to my surprise both cases were accepted and the penalties reversed.

I wonder if the difference in my cases was that these were PAYE based employees, who had no reason to suspect they ought to file returns (even though one of them may have received some notifications!)

I've had other clients over recent years where I've only acted in a limited capacity and they appealed their own penalties for certain activities and they were also apparently successful on rather shaky grounds for appeal. So although HMRC do seem to like to dig their heels sometimes, it does seem to be worth a go at an initial appeal in most cases.

Thanks (2)
Replying to MattG:
By Justin Bryant
30th Nov 2018 14:19

Worse than that, you will see from my above link that it depends what tribunal judge you get (which is why HMRC are likely to appeal).

Thanks (0)
By SteveHa
01st Dec 2018 11:46

I have to admit that I find the tribunal's findings out of kilter with the current vogue being to determine "the will of Parliament". I don't believe for a minute that Parliament intended the deminimis penalty of £300 to be anything other than that, and certainly not able to be circumvented.

I'd be surprised if a higher judiciary were to support the FTT view.

Thanks (1)
Replying to SteveHa:
By dgilmour51
03rd Dec 2018 11:44


I don't believe for a minute that Parliament intended the deminimis penalty of £300 to be anything other than that, and certainly not able to be circumvented.

I'm sorry, I disagree.
'Parliament' has ample opportunity to lay down what it wants or otherwise, and this is indicated to 'us scum' by what is written.
Only a fool would opt to elect for the most disadvantageous interpretation of inept and idle drafting and scrutiny - and this will depend entirely on the viewpoint.
It is NOT for us to make any assumptions about 'the will of Parliament' - that is a luxury afforded only to the courts.

Thanks (0)
Replying to dgilmour51:
By rbw
03rd Dec 2018 12:31

It is the FTT's job to seek Parliament's intention if there is ambiguity. So either (a) the FTT think Parliament intended that there should be no penalty if no tax was due but a penalty of £300 if even just £1 of tax was due or (b) the FTT think there is no ambiguity in the Act. Both seem to me bizarre.

Thanks (1)
Replying to rbw:
By Andy Keates
06th Dec 2018 12:42

It may be bizarre, but nowhere near as bizarre as you seem to think.

As long as we are within para 17: if just £1 of tax was due, the FTT's reading of the law would mean a penalty of £1; if tax of £299 was due, the penalty would be £299.

Where it gets bizarre is that parliament has in plain words stated that a single penalty (i.e. six months delay) has to be £300 or more but a set of two penalties (i.e. six months and 12 months) can be less.

Why on earth would they enact a paragraph which limits multiple penalties if they didn't mean for there to be an actual restriction? My view remains that it was a defect in the legislation. One role of FTT and the superior courts is to find these and highlight them, so that parliament can get its act together and write legislation that actually makes sense.

Thanks (1)
By trecar
03rd Dec 2018 13:20

Has The Office for Tax Simplification any comment to make, given that not even the experts appear to be able to arrive at a consensus so far? Pity the poor taxpayer who is expected to make sense of what should be a very basic understanding of the position. Perhaps a little understanding of taxpayer behaviour under stress might go some way to improve the behaviour of those who come up with such convoluted systems and rules. Or is it now part of government policy to inflict excess punishment in order to swell treasury coffers. Which ever way, the idea that penalties once incurred can be counter productive to compliance seems to have disappeared from the radar. Why is excessive punishment now seen as an acceptable way to bring miscreants back into the fold?

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By Michael C Feltham
03rd Dec 2018 14:00

On an important and indeed, critical corollary to this case, is the basic assumptions concerning Royal Mail post.

Those of us who suffer the dire misfortune to employ Royal Mail Postal Services to deliver and receive important correspondence, accept that the service "Aint what it used to be!".

Lost letters are a growing fact and reality.

At my village local a number of years back, I used to blow the froth off a good English pint of real beer, with a young man who had worked for a postman Royal Mail and then been promoted to become part of the team rolling out the wondrous (not) new state-of-the-art automatic mail sorting machines, in the main new sorting office. Now, this system relied upon the then new embryo OCR (Optical Character Recognition) technology.

Hah bloody Hah!

A critical problem was the machine's appetite for letters: it used to chew 'em up like bandits. Additionally, as we know, many postmen (And women) used to dump rafts of mail in ditches, skips, wherever, when they couldn't be bothered to deliver it.

Yet despite all the indisputable evidence of the frailty of postal services, today, UK commercial law (Contracts, Mem and Arts, Taxes Management Act et al) STILL cite "Delivery by First Class Post shall be deemed as Good Delivery."

As I have pointed out many times to Government, Companies House, HMRC etc, this archaic and flawed assumption urgently requires correction.

Thanks (3)
By chasmeehan
03rd Dec 2018 21:25

Nice bit of interpretation by Judge Peter Shephard in these two cases (Jagger and Henderson) - presumably if he is wrong on this point of law the Upper Tier will correct him. On the other hand, common sense would suggest that a taxpayer whose earnings cannot breach their personal allowance is not fertile ground for investing resources as any penalties may well not be collectible - I note that both of these cases were taken at tribunal by lay representatives, which may be significant

Thanks (1)
By Mr J Andrews
04th Dec 2018 12:21

Good to see Jagger getting Satisfaction, at long last.

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