1. Introduction

The case of Jackson v. Revenue and Customs ([2018] UKFTT 64 (TC)) addresses significant issues surrounding the imposition and mitigation of penalties for the late submission of Non-Resident Capital Gains Tax (NRCGT) returns. This comprehensive commentary delves into the background of the case, the key legal issues at stake, the parties involved, and the broader implications of the tribunal's decision on future tax compliance and enforcement.

2. Summary of the Judgment

In this case, the appellant, Alan Leslie Jackson, appealed against penalties totaling £1,400 imposed by Her Majesty's Revenue and Customs (HMRC) for the late submission of two NRCGT returns. Initially, penalties amounted to £3,200, including daily fines of £1,800. HMRC exercised discretion to reduce the daily penalties, leaving the appellant with £1,400 in outstanding penalties.

The First-tier Tribunal (Tax Chamber) examined whether HMRC correctly applied the penalty legislation, whether the appellant had a reasonable excuse for the late submissions, and if special circumstances warranted a reduction of penalties. The tribunal concluded that while the fixed penalties of £100 per late submission were justified, the additional £300 penalties for delays beyond six months and twelve months were improperly levied. Consequently, the tribunal allowed the appeal concerning these additional penalties, reducing the total penalties to £1,400.

3. Analysis

3.1 Precedents Cited

The judgment references several key cases that shaped the tribunal's decision:

• Rowland v HMRC (2006): Established that a reasonable excuse is evaluated based on the totality of circumstances.
• Crabtree v Hinchcliffe (Inspector of Taxes) [1971] and Garnmoss Ltd. trading as Parham Builders [2012] UKFTT 315 (TC): Discussed the nature of special circumstances required for penalty mitigation.
• International Transport Roth GmbH v SSHD [2002]: Clarified that penalties must not be plainly unfair.
• Keith Donaldson v HMRC [2016] EWCA Civ 761 and HMRC v Hok Ltd. [2012]UKUT 363 (TCC): Provided insights into HMRC's discretion in penalty assessments.
• Rachel McGreevy v HMRC [2017] UKFTT 690 (TC) and Robert Clive Welland v HMRC [2017] UKFTT 870 (TC): Recent cases that influenced the tribunal's perspective on reasonable excuses and special circumstances.

These precedents collectively informed the tribunal's approach to evaluating the appellant's situation, especially concerning the reasonableness of excuses and the presence of special circumstances that could warrant penalty reduction.

3.2 Legal Reasoning

The tribunal's legal reasoning centered around the correct application of the Finance Act 2009 (Schedules 55 and 56), Finance Act 2015 (Section 37 and Schedule 7), and the Taxes Management Act 1970 (Sections 8(1) and 12ZB).

Key points in the reasoning include:

• Penalty Calculation Errors: The tribunal identified that HMRC had incorrectly applied paragraphs 1(3) and 17(3) of Schedule 55, which limit the aggregate penalties to 100% of the tax liability. Since the appellant had a nil tax liability, the additional £300 penalties were deemed improperly levied.
• Reasonable Excuse Assessment: The tribunal evaluated whether the appellant's ignorance of the law due to recent legislative changes constituted a reasonable excuse. Referencing cases like Welland, the tribunal concluded that ignorance does not typically provide a reasonable excuse unless accompanied by exceptional factors.
• Special Circumstances Consideration: Drawing from the Welland and McGreevy cases, the tribunal recognized that the appellant faced unusual circumstances by receiving multiple penalties simultaneously, which deprived him of the opportunity to correct his compliance behavior incrementally.

The tribunal balanced HMRC's strict adherence to penalty schedules against the fairness of imposing multiple penalties without allowing the appellant the chance to rectify his compliance stance incrementally.

3.3 Impact

This judgment has several implications for future cases and the broader area of tax law:

• Aggregate Penalty Limitation: Reinforces the application of Schedule 55 paragraphs 1(3) and 17(3), ensuring that taxpayers are not disproportionately penalized beyond their tax liability.
• Clarification on Reasonable Excuses: Further delineates what constitutes a reasonable excuse, emphasizing that mere ignorance of law changes is insufficient unless accompanied by extraordinary circumstances.
• Special Circumstances Recognition: Highlights the tribunal's willingness to consider the context of multiple penalties being levied simultaneously, potentially guiding HMRC in their penalty issuance practices.
• Encouragement for Clear Communication: Underscores the importance of HMRC providing clear and accessible information regarding legislative changes, especially those affecting non-residents.

Overall, the decision promotes fairness in penalty assessments and encourages both taxpayers and HMRC to engage in practices that prevent unwarranted penalties.

4. Complex Concepts Simplified

4.1 Non-Resident Capital Gains Tax (NRCGT)

NRCGT is a tax levied on the disposal of UK residential property by individuals who are not UK residents. Under the Finance Act 2015, non-residents are required to notify HMRC of any property sales within 30 days and include these transactions in their annual tax return.

4.2 Schedule 55 of the Finance Act 2009

Schedule 55 outlines the penalties for late submission of tax returns. It specifies the circumstances under which penalties are imposed and their respective amounts, including fixed penalties and daily fines based on the duration of the delay.

4.3 Reasonable Excuse

A reasonable excuse for late tax submission is a set of circumstances that might prevent a taxpayer from meeting their obligations despite exercising due diligence. The determination of a reasonable excuse is made by considering all relevant facts and the taxpayer's actions.

4.4 Special Circumstances

Special circumstances refer to exceptional situations that justify reducing or waiving penalties. These are assessed on a case-by-case basis and must be unusual or abnormal to be considered valid grounds for penalty mitigation.

5. Conclusion

The Jackson v. Revenue and Customs judgment serves as a pivotal reference point in the realm of tax compliance and penalty enforcement. It underscores the necessity for HMRC to accurately apply penalty legislation, ensuring that taxpayers are not subjected to unjust financial burdens. By addressing the misapplication of penalty provisions and recognizing special circumstances, the tribunal promotes a more equitable approach to tax enforcement. This case reinforces the principle that while compliance with tax laws is imperative, the mechanisms for enforcing penalties must also embody fairness and contextual understanding. As a result, taxpayers can anticipate a more nuanced evaluation of their cases, particularly in scenarios involving recent legislative changes and concurrent penalties.