[2011] UKFTT 34 (TC)

TC00911

Appeal number: TC 2010/05427

INCOME TAX – Penalty for late return – Appellant submitted a paper return for 2008/09 on 31 January 2010 which was 92 days late – HMRC gave notice of the dates by which returns should be filed – Appellant had no reasonable excuse for filing the return late – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

NICHOLAS PAUL SOUTH & HELEN SOUTH
trading as
	NICK SOUTH CARPENTRY & JOINERY	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	MICHAEL TILDELSEY OBE (TRIBUNAL JUDGE)								
								
The Tribunal determined the appeal on 22 December 2010 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 28 June 2010,  HMRC’s Statement of Case submitted on 28 July 2010, the Appellant’s reply dated 26 August 2010, and the parties’ further submissions in response to Tribunal directions  issued on 15 September 2010.	

© CROWN COPYRIGHT 2010

DECISION

1.	The Appellants appealed against a penalty in the sum of ₤100 dated 16 February 2010 against each of them for the late filing of the partnership return for the year ended 5 April 2009.
2.	The Appellants contended in the alternative that the penalty notice was invalid, and if valid the partners had a reasonable excuse for not filing the tax return on time. 
3.	The Tribunal makes the following findings of fact:
(1)	On 23 March 2009 the Appellants’ accountants sent a letter dated 20 March 2009 informing HMRC that the partnership commenced on 1 November 2008. In addition the accountants requested HMRC to issue a Unique Tax Reference (UTR) as soon as possible and advise them accordingly because a partnership tax return required completion for the year to 5 April 2009.
(2)	Also on the 23 March 2009 the accountants sent separately a form 64-8 authorising the accountants to act as the Appellants’ agent.
(3)	 On 7 April 2009 HMRC set up the partnership on its records and sent a letter direct to the partnership advising it of its new UTR reference. 
(4)	Also on 7 April 2009 HMRC authorised the issue of a tax return for the year ended 5 April 2009 for the partnership because no agent was acting. 
(5)	On 8 April 2009 HMRC updated the agent’s record recording the accountants as the appointed agents for the partnership.
(6)	On 23 April 2009 HMRC sent the tax return containing the UTR to the partnership at its current address. The tax return set out the dates for filing a return by paper and online.
(7)	The date for filing the return for the year ending 5 April 2009 was the 31 October 2009 for a paper return and the 31 January 2010, if filed online.
(8)	On 20 August 2009 the accountants sent another form 64-8, the receipt of which was not recorded on HMRC’s file.
(9)	The accountants expected HMRC to notify them of the UTR for the   partnership so that they could file the tax return online.  The partnership details did not appear on the accountant’s client list. By 30 January 2010 the accountants realised that they would not receive the UTR in time for the statutory filing date for an online return. The accountants decided to submit on their client’s behalf a paper tax return for the year ended 5 April 2009 with a covering letter explaining the circumstances and another completed 64-8 form.
(10)	HMRC received the paper tax return on 31 January 2010.
(11)	The paper tax return was due on 31 October 2009 which meant that the period of default was 92 days.
(12)	On 16 February 2010 penalty notices in the sum of ₤100 were issued against each partner.
Reasons
Invalid Penalty Notice
4.	The Appellants stated that they were not notified of the filing dates for the partnership return because they did not receive the tax return issued by HMRC on 23 April 2009.  According to the Appellants, HMRC was required to give notice of the due filing date for a partnership return by paper (see section 12AA(3) of the Taxes Management Act 1970)  The due filing date being no earlier than a date three months  following the date of the notice to file, but in any event not earlier than 31 October  2009 ( see section 12AA(4D) of  TMA 1970). 
5.	The Appellants argued that HMRC did not give them notice of the filing date for a paper return because they had not received the return dated 23 April 2009. Thus the delivery of the paper partnership tax return on 31 January 2010 was not late with the consequence that the penalty notices issued on 16 February 2010 had no standing in law.
6.	HMRC held a different construction of the statutory requirements of section 12AA(3) of TMA 1970. HMRC contended that the requirement of “given” was met if a notice was posted to the last known address of the tax payer (see section 115 of TMA 1970). In this case HMRC sent by post a 2008/09 tax return setting out the filing dates to the partnership at the address of 1 Jasmine Cottage, Station Road, Eckington, Pershore, WR10 3BB on 23 April 2009. HMRC held no record of the return being undelivered. In those circumstances, HMRC submitted that the notice of the paper  return filing date of 31 October 2009 was duly given in accordance with section 12AA(3) of TMA 1970. Thus the Appellants’ 2008/09 paper return was filed late.
7.	Sections 12AA(3) and 12AA(4) of the TMA 1970 provides that   
(3)   An officer of the Board may by notice given to any partner require the partner [or a successor of his]--
(a)    to make and deliver to the officer in respect of such period as may be specified in the notice, on or before such day as may be so specified, a return containing such information as may reasonably be required in pursuance of the notice, and
(b)   to deliver with the return such accounts and statements as may reasonably be so required;
and a notice may be given to any one partner or separate notices may be given to each partner or to such partners as the officer thinks fit.
(4) In the case of a partnership which includes one or more individuals, a notice under subsection (2) or (3) above may specify different days depending on whether a return in respect of a year of assessment (Year 1) is electronic or non-electronic.
(4A)  The day specified for a non-electronic return must not be earlier than 31st October of Year 2.
(4B)  The day specified for an electronic return must not be earlier than 31st January of Year 2.
(4C)  But subsections (4A) and (4B) are subject to the following two exceptions.
(4D)  Exception 1 is that if the notice is given after 31st July in Year 2 (but on or before 31st October)--
(a)     the day specified for a non-electronic return must be after the end of the period of three months beginning with the date of the notice, and
(b)     the day specified for an electronic return must not be earlier than 31st January.
(4E)    Exception 2 is that if the notice is given after 31st October in Year 2, the day specified for a return (whether or not electronic) must be after the end of the period of three months beginning with the date of the notice.]
8.	Section 115 of the TMA 1970 provides so far as relevant:
(2) Any notice or other document to be given ……. under the Taxes Act may be served by post, and if to be given ….. on any person by the Board, by any officer of the Board or by or on behalf of any body of Commissioners, may be so served addressed to that person –
(a) at his usual or last known place of residence  or his place of business or employment, or
9.	The Tribunal accepts that under sections 12AA(3) and 12AA(4) of  TMA 1970 HMRC must give notice to the tax payer of the date by which a tax return for a specific year should be filed. The Tribunal, however, considers that the meaning of given in sections 12AA(3) of TMA 1970 should be interpreted in the light of the provisions of section 115 TMA 1970. Thus notice is given if it was sent to the tax payer at his last known address. In the Tribunal’s view, the fact that the tax payer may not have received the notice is immaterial as to whether the legal requirement of given is met. The non-receipt of the notice giving the relevant filing dates may be a reasonable excuse for filing a late return but does not render null and void the notice and any subsequent penalty.
10.	The Tribunal finds in this Appeal that on 23 April 2009 HMRC posted the Appellants a 2008/09 tax return with a notice setting out the filing date of the 31 October 2009 for a paper return.   The return was sent to the last known address of the Appellants, which incidentally appeared to be their current address. The Tribunal is satisfied that the Appellants’ were duly given notice to file a paper return for 2008/09 by 31 October 2009. The Tribunal holds that the Appellants’ tax return which was filed by paper on 31 January 2010 was 92 days late. The penalty notices dated 16 February 2010 were, therefore, valid. 
11.	Although not relevant to the meaning of given in sections 12AA(3) of TMA 1970, the Tribunal is not convinced  on the balance of probabilities that the Appellants did not receive the 2008/09 tax return  sent on 23 April 2009. The notice was correctly addressed. HMRC held no record of the return being returned, not collected. Finally the Appellants’ evidence of the vagaries of the postal system was somewhat obscure being based on the accountants’ attempts to have a tax reference issued for the partnership. The Appellants adduced no evidence of specific problems with non-receipt of post addressed to them or of any particular disruptions in postal services at or around the 23 April 2009. 
Reasonable Excuse
12.	The Appellants stated that they had every intention of submitting an online return for the year 2008/09 by the due date of 31 January 2010. The sole reason which prevented them from making an online return by the said date was because their accountants did not have their UTR. Further the accountants had taken steps to secure the UTR prior to the filing date by submitting form 64-8 to HMRC on two separate occasions on 23 March 2009 and 20 August 2009 together with a letter of 20 March 2009 specifically requesting the Appellants’ UTR. In those circumstances the accountants had every expectation that they would receive details of the UTR prior to the filing date. The accountants, however, realised that on the 30 January 2010 the UTR would not be forthcoming in which case they had no alternative but to submit a paper return with a covering letter explaining the situation.
13.	The accountants stated that HMRC adopted a new policy for 2008/09 by not accepting tax returns which did not have a UTR. According to the accountants, HMRC acknowledged that this policy change created additional pressures for taxpayers and agents alike, which prompted HMRC to publish an intention to consider the question of reasonable excuse in a more sympathetic light when no UTR was provided. In this respect the accountants referred to guidance dated 13 January 2010 from Valerie Barton of the Agents and Employers Service Improvement Team. Ms Barton informed agents that HMRC was not putting in place a fast track UTR process for 2008/09. Ms Barton further advised that taxpayers without a UTR should register for self assessment rather than filing a return by 31 January 2010. Those taxpayers without a UTR who had taxable income would then liable for a tax geared penalty for failure to notify which could be reduced if they paid the tax due before the 31 January 2010. Finally Ms Barton stated in relation to UTRs for partnerships:
“All partnerships and their members should use the correct UTR when filing partnership – unlike last year, substitute UTRs must not be used. Our website gives more detail including when you might need to use a paper return with a reasonable excuse form”.
14.	 The accountants also relied on to HMRC guidance on reasonable excuse. entitled “Self Assessment Tax Returns for 2008-09 Onwards: Failing to File on Time: Reasonable Excuse for Online Filer. The accountants believed that the guidance supported a more relaxed interpretation of reasonable excuse but queried the arbitrariness of the cut off date of 23 January 2010 for submitting reasonable excuse claims. The guidance stated:
“HMRC does not want to penalise customers who have made a genuine attempt to file online and therefore a reasonable excuse claim without details of the appropriate error message will be considered sympathetically on its merits”. 
As a guideline it will generally be possible to suppress the ₤100 penalty where the claim for reasonable excuse is received by 23 January 2010, but it is important that you submit claims with the paper tax return as soon as the need becomes apparent”.
15.	HMRC disagreed with the Appellants’ grounds for a reasonable excuse. HMRC pointed out that it sent the UTR direct to the Appellants on two separate occasions: 7 April and 23 April 2009. HMRC did not normally acknowledge receipt of form 64-8 unless specifically requested to do so. In this case HMRC did not send the Appellants’ UTR to the accountants because HMRC had already notified the Appellants before it processed the agent’s authorisation on the 8 April 2009. There had been no shift in HMRC policy. HMRC had always insisted on the completion of returns with full details including UTRs. HMRC, however, had permitted returns for 2007/08 only to be submitted without UTRs in exceptional circumstances. On 12 February 2009 HMRC announced that it would not be accepting returns for 2008/09  with missing or substitute UTRs which was also published in the Working Together Issue no 34  (March 2009). HMRC had followed its guidance on reasonable excuse when considering the Appellants’ reasons for not filing their return on time. In short, HMRC considered that the Appellants were ultimately responsible for filing their return by the due date. The Appellants knew their UTR which meant that they had no excuse for their late return. The Appellants were not entitled to rely on the actions of their accountants to avoid the consequences of not filing on time.
16.	The grounds for a reasonable excuse comprise the following statements:
(1)	The Appellants did not receive the correspondence dated 7 April 2009 and the tax return dated 23 April 2009, which contained details of the UTR for the partnership.
(2)	It was reasonable for the Appellants to delegate their responsibility for completing and filing the tax return to their accountants, who were authorised to act as their agents.
(3)	The accountants were prevented from filing the 2008/09 return on time because they did not have the Appellants’ UTR.
(4)	The accountants took reasonable steps to obtain the UTR before the filing date. They sent a letter dated 20 March 2009 requesting details of the UTR, and filed form 64-8 (authority to act as agent) on two separate occasions in March and August 2009.
(5)	The accountants had a reasonable expectation that HMRC would provide them with the UTR. They realised on 30 January 2010 that the details would not be forthcoming, in which case they submitted a paper return in time for the filing date for an online return.
(6)	HMRC did not apply its published policy on reasonable excuse and took no regard to the recent change in practice regarding submitting returns with missing UTRs.
17.	The Tribunal makes the following findings of fact on the above statements:
(1)	In April 2009 the correspondence and the tax return were posted to the correct address for the Appellants. The Appellants adduced no evidence of specific problems with non-receipt of post addressed to them or of any particular disruptions in postal services at or around the April 2009. The Tribunal is satisfied that HMRC gave details of the UTR to the Appellants.  Their accountants asserted that they were in regular contact with the Appellants about whether they had received the UTR. According to the accountants, the Appellants denied that they had been given the UTR. The Appellants supplied no evidence of the form and timing of their communications with their accountants about the UTR. The Tribunal considers the most likely explanation for not passing on the information to their accountants was that the Appellants did not realise that they received the UTR for the partnership.
(2)	The Tribunal accepts that it is reasonable for the Appellants to engage an authorised agent to complete and file their tax return. The Appellants, however, retained the responsibility to pass on all relevant information to their agent and ensured that the agent took all reasonable steps to comply with filing dates. Ultimately it was the Appellants’ responsibility to file the return on the time. The Appellants were not entitled to avoid the legal consequences of late filing by the mere fact that they had engaged an agent to do the necessary work. 
(3)	The Tribunal accepts that the accountants did not have the Appellants’ UTR, which prevented them from making an online tax return by the due date.
(4)	The Tribunal acknowledges that the accountants took some steps to obtain the UTR for the partnership from HMRC.
(5)	The Tribunal accepts that in a letter dated 20 March 2009 the accountants requested HMRC to provide them with details of the Appellants’ UTR. Equally HMRC have given a satisfactory explanation for not meeting this specific request. The details had been supplied direct to the Appellants, which was prior to the processing of the form 64-8 dated 23 March 2009. The Tribunal questions the adequacy of the subsequent attempts by the accountants to obtain details of the UTR. The accountants submitted form 64-8 on one further occasion in August 2009 without a specific request for the Appellants’ UTR. The accountants mentioned submitting another form 64-8 on 21 January 2010 but this was not accepted because it did not have a UTR for the partnership.  The Tribunal considers that the accountants should have been aware of the problem well before the 30 January 2010 when they decided to submit a paper return. In the Tribunal’s view the accountants should have taken action sooner which may have given them time to obtain the details of the UTR and submit an online return by 31 January 2010. The actions might have included another specific request for the UTR or submitting a paper return with a letter of explanation in sufficient time to obtain a response prior to the 31 January 2010.
(6)	The Tribunal does not accept that HMRC changed its policy with respect to the inclusion of UTRs in tax returns.  HMRC permitted for 2007/08 only the use of a dummy UTR for  a UK resident partner  where his  UTR was not known provided reasons were given. HMRC advice for 2007/08, however, stated that a partnership return required a declaration of the name, residence and tax reference for each partner. Moreover, HMRC emphasised in this advice that filing a Partnership return late because a UTR for one or more partners was unavailable was not accepted as a reasonable excuse for filing a return late. Further, on 12 February 2009 HMRC announced that it would not be accepting returns for 2008/09 with missing or substitute UTRs. The announcement was deliberately scheduled before the issue of returns and notices to file in 2009, and gave taxpayers adequate time to resolve any difficulties regarding missing UTRs. The email dated 13 January 2010 from Ms Barton and HMRC’s guidance on reasonable excuse did not in the Tribunal’s view alter HMRC’s stance on returns submitted without a UTR.
18.	The term reasonable excuse is not defined by statute The Tribunal considers that the term reasonable excuse has restricted application and is not the same as mitigation. The Tribunal assesses whether the Appellants had a reasonable excuse from the perspective of a prudent tax payer exercising reasonable foresight and due diligence with a proper regard for his responsibilities under the Taxes Acts.   
19.	The Tribunal finds that the Appellants’ actions were not those of a prudent tax payer. On the facts found the Tribunal is satisfied that the Appellants knew their UTR, and for some reason failed to communicate the UTR to their accountants. In those circumstances the Appellants had no valid reason for not filing a 2008/09 tax return on time. The Tribunal would add that if the Appellants had not received details of the UTR they did not act with due diligence. They should have made additional enquiries of HMRC after August 2009 to obtain their UTR, and taken earlier action to deal with the problem rather than waiting until 30 January 2010. The Tribunal, therefore, finds that the Appellants did not have a reasonable excuse for filing the 2008/09 partnership tax return late.
Decision
20.	The Tribunal finds for the reasons given above that
(1)	The Appellants’ were duly given notice to file a paper return for 2008/09 by 31 October 2009. 
(2)	The Appellants’ filed a paper tax return on 31 January 2010 which was 92 days late. 
(3)	The penalty notices dated 16 February 2010 were valid. 
(4)	The Appellants had no reasonable excuse for filing the 2008/09 return late.
21.	The Tribunal, therefore, dismisses the Appeal and confirms the penalty of ₤100 against each Appellant. The Tribunal makes no order for costs. 

 
22.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 04 JANUARY 2011