Introduction

Lennon v. Revenue and Customs ([2018] UKFTT 220 (TC)) is a pivotal case heard by the First-tier Tribunal (Tax Chamber) on April 17, 2018. The appellant, Barry Lennon, contested penalties imposed by HMRC for the late filing of his individual tax return for the 2014-2015 tax year. The key issues revolved around the validity of the notices to file and whether HMRC had appropriately engaged the penalty regime under Schedule 55 of the Finance Act 2009.

Summary of the Judgment

The Tribunal concluded that HMRC had improperly issued a notice to file under section 8 of the Taxes Management Act 1970 (TMA 1970) when they should have utilized the assessment mechanism under section 29 of the same Act. As a result, the penalties imposed on Mr. Lennon were deemed invalid, leading to the allowance of his appeal. The Tribunal emphasized that HMRC had full knowledge of the tax underpayment through prior communications (P800 and voluntary payment letters) and thus did not need to serve a notice to file to establish chargeability.

Analysis

Precedents Cited

The judgment extensively referenced several key cases to support its reasoning:

• Goldsmith and Wandsworth v Winder: Established that taxpayers can challenge the validity of notices under penalty proceedings.
• Clean Car Co Ltd v C&E Commissioners: Provided the objective test for determining a reasonable excuse.
• Wandsworth London Borough Council v. Winder: Confirmed that challenging a public authority's decision in defense of proceedings is permissible and not an abuse of process.
• Wednesbury Principles: Outlined the standard for reviewing administrative decisions for reasonableness.

These precedents collectively reinforced the Tribunal’s authority to scrutinize HMRC’s issuance of notices and the manner in which penalties are applied.

Legal Reasoning

The Tribunal applied a meticulous legal analysis to determine whether HMRC had the jurisdiction and followed the correct procedures in imposing the penalties. Central to this was whether the notice to file was valid under section 8 TMA 1970. Since HMRC had already identified the tax underpayment and attempted to collect it through voluntary means (P800 and payment letters), the Tribunal found that issuing a notice to file a return was unnecessary and inappropriate.

Furthermore, the Tribunal examined whether Mr. Lennon had a reasonable excuse for the late filing and the consideration of special circumstances. It concluded that Mr. Lennon did not provide sufficient justification to exempt him from penalties and that HMRC’s assessment of special circumstances was flawed.

Impact

This judgment underscores the necessity for HMRC to adhere strictly to procedural requirements when issuing notices for late filings and imposing penalties. It establishes that penalties cannot be enforced if the foundational notice to file is flawed or improperly issued. Consequently, taxpayers have a reinforced avenue to challenge penalties on the basis of procedural errors, promoting fairness and accountability within tax administration.

Complex Concepts Simplified

Section 8 vs. Section 29 TMA 1970

Under the Taxes Management Act 1970, section 8 allows HMRC to issue a notice requiring a taxpayer to file a tax return when HMRC does not already know the amount owed. Section 29, on the other hand, permits HMRC to directly assess additional tax liabilities when they have sufficient information, such as from PAYE underdeductions, without needing the taxpayer to file a return.

Reasonable Excuse

A reasonable excuse refers to acceptable reasons that would exempt a taxpayer from penalties due to late filing. The test for this is objective, assessing whether a typical responsible person in the taxpayer’s situation would have considered their actions reasonable.

Special Circumstances

Special circumstances are exceptional or unusual conditions that might justify reducing or waiving penalties. They are not limited to financial inability but can encompass a range of atypical situations.

Conclusion

The Lennon v. Revenue and Customs judgement serves as a critical reference point for both taxpayers and HMRC. It clarifies the boundaries within which HMRC must operate when enforcing penalties, particularly emphasizing the importance of issuing valid notices. The Tribunal’s decision reinforces the protection of taxpayers against procedural missteps by tax authorities and upholds the principles of fairness and proper administration in tax law enforcement.