Factual and Procedural Background
This appeal concerns a penalty of £100 imposed under paragraph 3 Schedule 55 Finance Act 2009 for the late filing of a self-assessment tax return for the year ended 5 April 2013. The taxpayer, hereafter referred to as the Appellant, was issued a notice to file on 13 February 2014 with a filing deadline of 20 May 2014. The Appellant submitted the return late on 24 July 2014. A penalty notice was issued on 27 May 2014.
The Appellant’s accountants, referred to as Company A, stated they sent Form 64 8 (authorising them to act on the Appellant's behalf) and Form SA1 to HMRC on 20 January 2014 but were not notified of the Appellant's Unique Taxpayer Reference (UTR) or that a tax return had been issued. HMRC’s records showed receipt of Form 64 8 only on 8 July 2014, likely referencing a copy sent with Company A’s letter dated 1 July 2014.
HMRC maintained that the notice to file, containing the UTR, was sent to the Appellant on 13 February 2014. The Appellant’s accountants appealed the penalty, arguing HMRC failed to follow normal procedures by not informing them of the tax return issuance or UTR. HMRC reviewed and upheld the penalty, concluding the Appellant had no reasonable excuse for late filing.
The Appellant requested a further review, reiterating the failure of HMRC to notify Company A properly. HMRC’s review officer confirmed the penalty was correctly charged and that reliance on a third party (the accountants) was not a reasonable excuse. The review letter did not address "special circumstances".
Legal Issues Presented
- Whether the Appellant had a reasonable excuse for the late filing of the self-assessment tax return under paragraph 23 Schedule 55 Finance Act 2009.
- Whether HMRC properly considered the existence of "special circumstances" under paragraph 16 Schedule 55 Finance Act 2009 that might justify reducing the penalty.
- Whether the Tribunal could substitute its own decision for HMRC’s on the application of special circumstances, per paragraph 22 Schedule 55 Finance Act 2009.
Arguments of the Parties
Appellant's Arguments
- Company A submitted Form 64 8 and Form SA1 to HMRC on 20 January 2014 but did not receive the Appellant's UTR or notification that a tax return had been issued.
- HMRC failed to follow normal working practices by not adding the Appellant to their online client list or informing the accountants about the tax return requirement.
- The penalty should be appealed on the basis that HMRC’s procedural failures contributed to the late filing.
HMRC's Arguments
- The notice to file was sent to the Appellant’s home address on 13 February 2014, containing the UTR and filing deadline.
- The responsibility to file on time lies with the taxpayer, regardless of whether an agent is used.
- Reliance on a third party is not a reasonable excuse under the legislation.
- HMRC considered the penalty correctly charged and found no reasonable excuse for late filing.
- HMRC stated they considered special circumstances but found none warranting penalty reduction, though no evidence of such consideration was provided.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Crabtree v Hinchcliffe [1971] 3 All ER 967 |
Definition of "special circumstances" as exceptional, abnormal, or unusual |
The court accepted that special circumstances must be out of the ordinary to justify penalty reduction. |
| Clarks of Hove Ltd v Bakers' Union [1979] 1 All ER 152 |
Special circumstances require something out of the ordinary run of events |
Supported the interpretation of special circumstances as exceptional events. |
| Barber White v Revenue & Customs [2012] UKFTT 364 (TC) |
Requirement for evidence supporting HMRC’s claim that special circumstances were considered |
Used to highlight that unsupported assertions by HMRC are insufficient; a proper consideration of special circumstances is required. |
| Algarve Granite v HMRC [2012] UKFTT 463 (TC) |
Failure by HMRC to consider special circumstances constitutes a flawed decision |
Supported the Tribunal’s finding that HMRC’s failure to consider special circumstances was a procedural flaw. |
| Christine Perrin v HMRC [2014] UKFTT 488 (TC) |
Failure to exercise discretion on review regarding special circumstances is flawed |
Reinforced that HMRC must properly exercise discretion on review if special circumstances are potentially relevant. |
Court's Reasoning and Analysis
The Tribunal found that the Appellant was prima facie liable for the penalty as the return was filed late. The burden of proof for reasonable excuse rested on the Appellant, who failed to establish one. The Tribunal emphasized the taxpayer’s personal responsibility to file on time and noted that reliance on an agent is not a reasonable excuse unless reasonable care was taken to avoid failure.
Regarding special circumstances, the Tribunal noted that HMRC’s decision letter and review did not address whether special circumstances existed. The assertion in HMRC’s Statement of Case that no special circumstances applied was unsupported by evidence or explanation, constituting a procedural flaw.
The Tribunal referred to relevant case law establishing that special circumstances must be exceptional or out of the ordinary and that HMRC must properly consider and explain any decision not to reduce penalties on this basis.
The Tribunal concluded that HMRC had failed to consider special circumstances adequately, particularly the failure to process the forms submitted by Company A on 20 January 2014, which contributed to the late filing. Although this failure did not amount to a reasonable excuse, it was sufficient to constitute special circumstances justifying a reduction of the penalty.
Holding and Implications
The Tribunal partially allowed the appeal and reduced the penalty from £100 to £60. This reduction was based on the finding that HMRC’s failure to act on the submitted forms was a special circumstance that warranted mitigation, even though no reasonable excuse was established.
The decision directly affects the parties by reducing the financial penalty payable by the Appellant. No new legal precedent was established, but the case reinforces the requirement for HMRC to properly consider and document the exercise of discretion concerning special circumstances when imposing penalties.