Hicharms (UK) Ltd v Revenue & Customs

Factual and Procedural Background

The appellant, Company A, was alleged by HM Revenue & Customs (HMRC) to have failed to file its employer's end of year returns by the statutory deadline of 19 May 2010. HMRC initially imposed a penalty of £400 for late filing, calculated at £100 per month, which was subsequently reduced to £266. Company A disputed the penalty, asserting that the filing had been made on time at 22:17 hours on 3 May 2010, supported by evidence from commercial software including a correlation ID and a computer screen showing the submission status as "complete". HMRC rejected the appeal on the basis that there was no reasonable excuse for late filing, not addressing the appellant's assertion of timely filing. Consequently, Company A appealed to the First-tier Tribunal (Tax Chamber), which determined the appeal without a hearing based on written submissions.

Legal Issues Presented

1. Whether HMRC had discharged the burden of proof to establish that the appellant failed to file the employer's end of year returns by the deadline of 19 May 2010.
2. Whether the burden of proof in penalty cases for late filing rests with HMRC or the taxpayer, particularly in light of Article 6 of the European Convention on Human Rights (ECHR) as interpreted in Jussila v Finland.
3. Whether the appellant's alleged timely filing, supported by electronic evidence, negates the imposition of the penalty.

Arguments of the Parties

Appellant's Arguments

• The appellant contended that the employer's end of year return was filed on time, specifically at 22:17 hours on 3 May 2010.
• They provided documentary evidence from commercial software, including a correlation ID and a computer screen status indicating the filing was complete.
• The appeal was based on the assertion that no late filing occurred, thus no penalty should be imposed.

Respondent's Arguments

• HMRC argued that the appellant did not have a reasonable excuse for late filing.
• HMRC rejected the appellant's claim of timely submission but did not produce evidence to prove the filing was late.
• HMRC maintained the penalty was justified due to the alleged failure to file by the deadline.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal began by clarifying the legal position regarding the burden of proof in penalty cases, referencing established case law and statutory provisions. It emphasized that HMRC, as the party alleging a default, must prove on the balance of probabilities that the appellant failed to file the required documents by the deadline. The Tribunal rejected the notion of a reverse burden of proof in penalty cases, particularly in light of Article 6 ECHR as interpreted in Jussila v Finland, which recognizes penalties as criminal in nature and thus requiring fair burden allocation.

Factually, the Tribunal accepted the appellant’s evidence that the filing was made on time, noting the reliability of the commercial software evidence and the presence of a correlation ID. It expressed skepticism about the infallibility of HMRC’s computer systems, especially given public admissions of system problems. HMRC failed to provide any evidence to counter the appellant’s claim or to prove the filing was late.

Even if the filing had not been made on time, the Tribunal found that the appellant genuinely believed it had complied, constituting a reasonable excuse up until notification to the contrary, provided any late filing thereafter was prompt.

Holding and Implications

The Tribunal allowed the appeal and cancelled the penalty of £266 imposed for late filing.

The direct effect is that the appellant is relieved of the penalty charge, with no penalty upheld. The decision clarifies that HMRC must prove the default to justify penalties and that electronic evidence of timely filing can be accepted. No new precedent was established beyond the application of existing principles to the facts of this case.