DECISION
1.
This appeal concerns appeals against fixed and tax-geared penalties for
accounting periods ending 3 August 2005 to 3 August 2009 for late filing of
company tax returns.
2.
HMRC argue penalties are chargeable because the appellant did not submit
the full accounts required by the legislation. By the time sufficient
information had been filed for the returns to be regarded as complete returns,
the returns were late.
3.
The Appellant argues HMRC were wrong to not have accepted the
abbreviated accounts which were sufficient to satisfy the Companies House
filing requirements. It had accepted the returns in those formats for the
accounting period ending 2006 and it should have continued to accept the
returns as complete for the following years.
Evidence
4.
We had before us correspondence between the parties including some of
the appellant’s returns, and print outs from HMRC’s records. In relation to a
contention raised by the appellant we also had copies of a witness statement
and exhibits in relation to a county court enforcement action initiated by HMRC
against the appellant (which we were told was stayed pending the outcome of
this appeal). In addition some of the submissions made by Mr Gregory amounted
to evidence and to that extent HMRC were given the opportunity to ask Mr
Gregory questions on that evidence.
Law
5.
The legislation relating to filing of returns and penalties and appeals
is set out below. The relevant parts of the Companies Act 1985 and Companies
Act 2006 which are referred to in this decision are set out in an annex at the
end of this decision.
6.
Paragraph 3 Schedule 18 Finance Act 1998
3—
(1) an officer of Revenue and Customs may by
notice require a company to deliver a return (a “company tax return”) of such
information, accounts, statements and reports—
(a) relevant to the tax liability of the
company, or
(b) otherwise relevant to the application of the
Corporation Tax Acts to the company,
as may reasonably be required by the notice.
(2) Different information, accounts, statements
and reports may be required from different descriptions of company.
(3) A company tax return must include a
declaration by the person making the return that the return is to the best of
his knowledge correct and complete.
(4) The return must be delivered to the officer
of the Board by whom the notice was issued not later than the filing date.
…
7.
Paragraph 4 Schedule 18 Finance Act 1998
References in this Schedule to the delivery of a
company tax return are to the delivery of all the information, accounts,
statements and reports required to comply with the notice requiring the return.
8.
Paragraph 11 Schedule 18 Finance Act 1998
In the case of a company which—
(a) is required to deliver a company tax return
for a period,
(b) is resident in the United Kingdom throughout that period, and
(c) is required under the Companies Act 2006 [prior
to 6 April 2008 the Companies Act 1985] to prepare accounts for a period
consisting of or including the whole of that period,
the power to require the delivery of accounts as
part of the return is limited to such accounts, containing such information and
having annexed to them such documents, as are required to be prepared under
that Act.
9.
Para 17 Schedule 18 Finance Act 1998
(1) A company which is required to deliver a
company tax return and fails to do so by the filing date is liable to a
flat-rate penalty under this paragraph.
It may also be liable to a tax-related penalty under
paragraph 18.
(2) The penalty is—
(a) £100, if the return is delivered within
three months after the filing date, and
(b) £200, in any other case.
(3) The amounts are increased to £500 and £1000
for a third successive failure, that is, where—
(a) the company is within the charge to
corporation tax for three consecutive accounting periods (and at no time
between the beginning of the first of those periods and the end of the last is it
outside the charge to corporation tax),
(b) a company tax return is required for each of
those accounting periods,
(c) the company was liable to a penalty under
this paragraph in respect of each of the first two of those periods, and
(d) the company is again liable to a penalty
under this paragraph in respect of the third period.
…
10.
Para 18 Schedule 18 Finance Act 1998
(1) A company which is required to deliver a
company tax return for an accounting period and fails to do so—
(a) within 18 months after the end of that
period, or
(b) if the filing date is later than that, by
the filing date,
is liable to a tax-related penalty under this
paragraph.
This is in addition to any flat-rate penalty under
paragraph 17.
(2) The penalty is—
(a) 10% of the unpaid tax, if the return is
delivered within two years after the end of the period for which the return is
required, and
(b) 20% of the unpaid tax, in any other case.
(3) The “unpaid tax” means the amount of tax
payable by the company for the accounting period for which the return was
required which remains unpaid on the date when the liability to the penalty
arises under sub-paragraph (1).
(4)…
11.
Section 117 Finance Act 1998
Company tax returns, assessments and related matters
(1) The provisions of Schedule 18 to this Act
have effect in place of—
(a) the provisions of Parts II and IV of the
Taxes Management Act 1970 (returns, assessment and claims), so far as they
relate to corporation tax,
(b) certain related provisions of Part X of that
Act (penalties), [and]
(c) …
(2) Schedule 18 to this Act, the Taxes
Management Act 1970 and the Tax Acts shall be construed and have effect as if
that Schedule were contained in that Act.
…
12.
Section 100 Taxes Management Act 1970
100 Determination of penalties by officer of
Board
(1) …an officer of the Board authorised by the
Board for the purposes of this section may make a determination imposing a
penalty under any provision of the Taxes Acts and setting it at such amount as,
in his opinion, is correct or appropriate.
(2) …
(3) Notice of a determination of a penalty under
this section shall be served on the person liable to the penalty and shall
state the date on which it is issued and the time within which an appeal
against the determination may be made.
…
13.
Section 100B Taxes Management Act 1970
100B Appeals against penalty determinations
(1) An appeal may be brought against the
determination of a penalty under section 100 above and, subject to …the
following provisions of this section, the provisions of this Act relating to
appeals shall have effect in relation to an appeal against such a determination
as they have effect in relation to an appeal against an assessment to tax
except that references to the tribunal shall be taken to be references to the
First-tier Tribunal.
(2) On an appeal against the determination of a
penalty under section 100 above section 50(6) to (8) of this Act shall not
apply but—
(a) in the case of a penalty which is required
to be of a particular amount, the First-tier Tribunal may—
(i) if it appears … that no penalty has been
incurred, set the determination aside,
(ii) if the amount determined appears … to be
correct, confirm the determination, or
(iii) if the amount determined appears … to be
incorrect, increase or reduce it to the correct amount,
…
14.
Section 118 Taxes Management Act 1970
118 Interpretation
(1) …
(2) For the purposes of this Act, a person shall
be deemed not to have failed to do anything required to be done within a
limited time if he did it within such further time, if any, as the Board or the
tribunal or officer concerned may have allowed; and where a person had a
reasonable excuse for not doing anything required to be done he shall be deemed
not to have failed to do it unless the excuse ceased and, after the excuse
ceased, he shall be deemed not to have failed to do it if he did it without
unreasonable delay after the excuse had ceased …
…
Facts
15.
The appellant is a small print business company which was incorporated
on 16 February 1993.
16.
Mr Gregory and his wife are directors of the company. The company has 3
high volume print presses, Mr Gregory attends to the print presses and his wife
does the artwork and answers the telephone. The company does not employ an
accountant.
17.
The accounting periods of the company for corporation tax purposes run
to 3 August of each year. The company is a small company for the purpose of the
Companies Acts 1985 and the Companies Act 2006.
18.
The penalties under appeal are as follows:
|
Accounting period ending (“APE”)
|
Type of penalty under appeal and issue date of
notice
|
Amount under appeal
|
|
3 August 2005
|
Flat rate penalty for late return
Notice issued 28 August 2006 and 21 November 2006
|
£1000
|
|
3 August 2005
|
Tax related penalty for late return
Notice issued 24 January 2008
|
£3.60 (20% of unpaid tax of £18.00)
|
|
3 August 2006
|
Flat rate penalty for late return
Notices issued 29 August 2007 and 20 November 2007
|
£1000
|
|
3 August 2006
|
Tax related penalty for late return
Notice 30 March 2009
|
£22.04 (20% of unpaid tax of £110.20)
|
|
3 August 2007
|
Flat rate penalty for late return
Notice 26 August 2008 and 19 November 2008
|
£1000
|
|
3 August 2007
|
Tax related penalty for late return
Amended penalty notice on receipt of return issued on
19 May 2010
|
£14.20 (10% of unpaid tax of £142.00)
|
|
3 August 2008
|
Flat rate penalty for late return
Notice 26 August 2009 and 19 November 2009
|
£1000
|
|
3 August 2009
|
Flat rate penalty for late return
Notice 26 August 2010
|
£500
|
19.
We consider the issue of whether a return is a complete return for the
purpose of the tax and penalties legislation further below. Where we refer to a
return being sent in this includes documents purporting to be a return and does
not necessarily indicate a finding that those documents amounted to a complete
return for the purposes of the tax and penalties legislation.
20.
We were referred to extensive correspondence between the
appellant and HMRC and also to copies of HMRC records showing when returns were
received.
APE 2005
21.
A standard form Notice to file a return was issued by HMRC to the
appellant on 19 September 2005.
22.
For the accounting period 3 August 2005 the return was due on 3 August
2006.
The appellant sent in a return on 9 July 2007. HMRC did not accept this,
maintaining that it did not comply with the requirements to file a return.
23.
HMRC’s letter of 28 August 2007 indicated the following requirements
which had not been complied with and which meant that a complete return had not
been filed:
(1)
Declaration with an original signature
(2)
Full accounts as required by the Companies Act
(3)
Tax computation to show how chargeable profit has been arrived at from
the profit per the accounts
(4)
Capital Allowances claimed in the computation to be shown in boxes 105 to 114 of the return.
24.
In a letter dated 10 September 2007 the appellant returned the original
form of the return and completed box 105 but took issue with the HMRC’s point
on full accounts being required as in previous years accounts which had been
filed in the same format as for APE 2005 the returns had been accepted. The
appellant also took issue with HMRC’s point on the tax computation.
25.
On 8 January 2008 HMRC indicated that it had accepted the return as
having been filed with a receipt date of 11 September 2007. HMRC’s letter
pointed out that this treatment was incorrect because the identified deficiencies
remained unresolved. The letter did not however press for the return to be
filed again and so to that extent it represented a concession on HMRC’s part.
26.
The two previous returns for accounting periods ending 3 August 2003
and 3 August 2004 were both delivered late. The return for APE 3 August 2003
was due on 3 August 2004 and the return for APE 3 August 2004 was due on 3
August 2005. Neither was received until 14 December 2005. Although there is no
penalty appeal in respect of APE 2003 and APE 2004 before us we make findings
in relation to those prior returns because if a penalty is due in respect of
the return for APE 2005 then whether this is a “third successive failure” (as
set out in Paragraph 17(3) Schedule 18 Finance Act 1998) affects the amount of
the penalty.
APE 2006
27.
A standard form Notice to file a return was issued on 18 September 2006.
28.
No direct evidence was put forward on when the appellant first sent in a
return . But, from an HMRC letter dated 12 February 2008 which refers to the
return having to be sent back to the appellant on 5 September 2007 because it
did not contain full accounts or tax computation, it may be inferred that the
appellant had sought to file a return prior to 5 September 2007 and that as of
12 February 2008 the appellant had not filed a return which HMRC accepted as
complete.
29.
A return dated 6 August 2008 was received by HMRC on 7 August 2008.
30.
On 13 August 2008 HMRC notified the appellant that the Directors’ Report
and computation were missing from the return.
31.
On 4 September 2008 HMRC received a resubmitted return. This contained a
Directors Report but did not contain a computation for capital allowances.
32.
At some point thereafter but before 22 April 2010 the appellant sent in
a return.
33.
On 22 April 2010 HMRC wrote to the appellant to ask that page 3 of the
return be attached as it was missing. Page 3 of the return precedes the page
dealing with overpayments and repayments and the declaration, and deals with
variously tax calculation, reconciliation, capital allowances and balancing
charges and losses deficits and excess amounts.
34.
HMRC records show the return was received on 29 April 2010.
APE 2007
35.
A standard form Notice to file a return was issued on 24 September
2007.
36.
At some point prior to 18 May 2010 the appellant submitted a return
given that on 18 May 2010 HMRC wrote to the appellant to say that page 3 of the
return was missing and should be submitted.
37.
HMRC records show it received the return on 29 April 2010.
APE 2008
38.
A standard form Notice to file a return was issued on 22 September 2008.
39.
At some point prior to 22 April 2010 the appellant submitted a return
given that on 22 April 2010 HMRC wrote to the appellant to say that the return
which had been submitted needed to be resubmitted with a director’s report.
40.
HMRC records show it received the return on 29 April 2010.
APE 2009
41.
A standard form Notice to file a return was issued on 3 August 2009.
42.
HMRC records show the date the return was received on 30 June 2011.
43.
No evidence was put forward suggesting a return incomplete or otherwise
was put forward before that date.
44.
The amounts of unpaid tax as at 18 months after the end of the APE were
not in dispute and are as stated in the final column of the table at [18] above
in so far as they are relevant to the tax-geared penalties under appeal.
Appellant’s arguments
45.
HMRC’s treatment of the submitted returns does not take into account the
original submission date for each return.
46.
Submission of accounts which were accepted by Companies House should be
sufficient for the purposes of the appellant’s tax return. It should have
therefore been sufficient to send in abbreviated accounts and not to send a director’s
report. It was not clear to the appellant what difference a director’s report which
was only one line long should make to HMRC or why it was necessary at all given
Mr Gregory and his wife are both directors and members of the appellant company.
47.
HMRC treatment is inconsistent in that they have accepted returns
without the Director’s report before.
48.
There are discrepancies with an HMRC witness statement filed in county court
proceedings with HMRC’s case as set out in these proceedings. In the former
the witness statement states the penalty for APE 2008 was reduced to nil. If
that is the case the appellant argues the penalties should be reduced for all
years upon payment of tax due or receipt of accepted return.
49.
HMRC had cashed cheques which the appellant had sent in under cover of a
letter which stated that encashment would be taken as acceptance of the
appellant’s offer for a settlement.
50.
HMRC now have online filing requirements which are not as stringent as
previously. The returns in this appeal which were rejected would have been
accepted under the new regime.
51.
HMRC should have tackled any issue they had with the returns before
letting the amounts build up to the amount they had.
Respondents’ arguments
52.
Even taking account of the earliest dates the returns had been submitted
those returns were still late.
53.
Abbreviated accounts are not sufficient for the purposes of the
company’s tax return. The legislation requires the filing of accounts prepared
under the Companies Act not those which are delivered to the company
registrar.
54.
To the extent any concessions were given in relation to previous periods
it was made clear that these would not continue for the years under appeal.
55.
The appellant does not have a reasonable excuse for not filing the
returns on time. If the appellant was not able to do it itself it should have sought
advice / obtained appropriate assistance elsewhere.
56.
Even if the director’s report is brief, the legislation requires it to
be provided with the return. Given it is brief there was even less of an excuse
for it not being filed on time.
57.
The subsequent regime for on-line filing does not affect the
requirements that were in place in relation to the paper-based regime during
the relevant period.
Discussion
Submission dates
58.
In order to determine whether the appellant is liable for fixed and tax
geared penalties in this matter the Tribunal must consider whether the
appellant has failed to deliver its company tax return to HMRC according to the
deadline imposed by the legislation and also the date when the return was delivered,
that date being relevant to the amount of the penalty. In reaching
determinations on the delivery dates the Tribunal must also consider whether
documents the appellant sent in constituted a “company tax return”. To the
extent there has been a failure to deliver the return we consider below whether
the appellant may be deemed not to have failed to deliver the return by virtue
of the reasonable excuse provisions in s118 TMA 1970.
59.
It is apparent to us that for some but not all of the years in dispute,
(namely the returns for APE 2005 and APE 2009), the appellant was late in
delivering its returns whatever view is taken of whether the documents sent in
by the appellant constituted a “company tax return”.
APE 2005
60.
Irrespective of the nature of the documents which were filed by the
appellant on 9 July 2007 with HMRC there was no evidence before us which would
enable us to find that a company tax return was filed with HMRC before that
date. On this basis subject to any argument on reasonable excuse this means the
appellant failed to deliver a return by the due date of 3 August 2006 and did
not deliver a return within 3 months of that date. It was therefore liable to a
flat-rate penalty of £1000, the failure being longer than 3 months from the due
date, and the failure being the appellant’s “third successive failure” for the
purposes of the paragraph 17 of Schedule 18 Finance Act 1998.
61.
Having failed to file within 18 months after the end of the accounting
period, (3 February 2007) the appellant is also liable for a tax geared penalty
under paragraph 18 Schedule 18 Finance Act 1998. Whether the documents filed on
9 July 2007 constituted a “company tax return” is relevant to the amount of the
tax geared penalty. If it did file a ‘proper’ company tax return on 9 July
2007, the penalty would be 10% of the unpaid tax, whereas if it was later than
3 August 2007 then the penalty would be 20% of the unpaid tax.
62.
We did not receive direct evidence on whether documents containing the
deficiencies identified by HMRC had been sent in. But, taking account of HMRC’s
letter of 28 August 2007 on the balance of probabilities we find that the
appellant did send documents in and that those documents did not include a tax
computation to show how chargeable profit has been arrived at from the profit
per the accounts, and did not set out the Capital Allowances claimed in the
computation in boxes 105 to 114 of the return. It was not clear to us from
HMRC’s letter in what respect the accounts did not meet the relevant Companies
Act requirements so we do not think we are in a position to consider that
deficiency for this accounting period.
63.
Certainly though, in relation to points raised on computation and
capital allowances we think that such omissions and deficiencies would mean
that the return filed on 9 July 2007 was not a complete one for the purposes of
the legislation. We were shown a copy of the standard form “Notice to deliver a
return”. This very clearly states the completed return must be accompanied by
computations showing how the entries on the Return have been calculated from
the relevant figures in the accounts.
64.
On the evidence before us the return which was accepted as a “company
tax return” was not received until 11 September 2007. This was after the 2 year
deadline set in paragraph 18 of Schedule 18 Finance Act 1998 and means that the
appellant is liable for a penalty amount of 20%.
APE 2009
65.
Except for HMRC records which show the date the return was received was
30 June 2011 we had no evidence before us that any documents capable of
constituting a company tax return were filed and if so when they were filed.
66.
On the balance of probabilities and in view of there being no evidence
to the contrary we find that the return was filed on 30 June 2011. Subject to
any arguments on reasonable excuse the appellant was therefore liable for the
£500 flat rate penalty under appeal in these proceedings given the return was
not filed by the due date of 3 August 2010.
APE 2006, 2007 and 2008: Were documents sent in “company tax returns”?
67.
For each of the above periods, while there is evidence in the form of
HMRC letters sending the appellant’s documents back on dates which fall after
the due dates for the relevant years we had insufficient evidence before us as
to the date the appellant actually submitted those documents. We therefore
cannot find that the appellant was liable for penalties simply on the basis
that no return was filed by the relevant dates. The issue of whether the
documents, were in any event not capable of constituting “company tax returns”
is relevant though because if the documents were not so capable there would be
no company tax return filed whatever the date on which the documents were sent.
68.
On the balance of probabilities we find from the letters HMRC sent to
the appellant returning the appellant’s documents that those documents lacked the
various matters as set out in the HMRC letters.
APE 2006
69.
In relation to APE 2006 the documents filed at some point before 5
September 2007 were lacking full accounts and the tax computation. As discussed
above the lack of tax computation would we think render the return invalid as a
“company tax return”.
70.
To the extent any reliance is placed on the return dated 6 August 2008 we
note that the return lacked a director’s report (the significance of which is
considered below) and a computation. Even if this return were to be regarded
as a valid return (which would go against our conclusions on the significance
of tax computations and inclusion of the director’s report), the return would
still result in liability for flat rate and tax geared penalties in the amount
assessed, it having been delivered more than 2 years from the end of APE 2006
(3 August 2008).
APE 2007
71.
The documents which were filed at some point before 18 May 2010 lacked
page 3 of the return. Page 3 of the return precedes the page dealing with
overpayments and repayments and the declaration, and deals with variously tax
calculation, reconciliation, capital allowances and balancing charges and
losses deficits and excess amounts. A return which missed this page would not
be a complete return so we cannot find that a valid return was filed by the due
date or by dates 3 months following the due date, or 18 months or 2 years after
3 August 2007 such that the filing of the return would affect the liability to
further flat rate or tax geared penalties.
72.
In the absence of evidence to the contrary we find that a return was
filed on the date stated by the HMRC records namely 29 April 2010.
APE 2008
73.
The documents which were filed at some point before 22 April 2010 lacked
the appellant’s director’s report. The issue of whether the lack of a director’s
report means the return is incomplete is also potentially relevant to APE 2006
. We consider the requirements as set out in the Companies Act 1985 and also
the corresponding provisions of Companies Act 2006.
Companies house requirements vs. Tax legislation requirements
74.
Prior to 6 April 2008 paragraph 11 Schedule 18 FA 1998 required “such
accounts, containing such information and having annexed such documents as are
required to be prepared under the Companies Act 1985”. With effect from 6 April
2008 the reference to Companies Act 1985 (“CA 1985”) was replaced by a
reference to the Companies Act 2006. The following paragraphs refer to the
Companies Act 1985 provisions. The corresponding Companies Act 2006 provisions
are set out in the annex to this decision.
75.
Section 226(1) CA 1985 requires directors to prepare a balance sheet and
a profit and loss account.
76.
Section 234 CA 1985 requires a director’s report be prepared.
77.
Section 246(3) CA 1985 permits abbreviated accounts to be prepared for
small or medium sized company.
78.
Section 246(5) exempts a small or medium sized company from having to
include either a profit or loss account or a director’s report in the accounts
it must deliver to the Registrar.
Was inclusion of the director’s report necessary for the return to be a
valid one?
79.
Paragraph 3 of Schedule 18 Finance Act 1998 enables HMRC by notice to require
a company to deliver a return of such “information, accounts, statements and
reports - a) relevant to the tax liability of the company, or b) otherwise
relevant to the application of the Corporation Tax Acts to the company, as may
reasonably be required by the notice.
80.
Paragraph 4 provides that references to the delivery of the company tax
return are to the delivery of all the information, accounts, statements and
reports required to company with the notice requiring the return.
81.
Paragraph 11 of the schedule then limits the power to deliver accounts
to accounts containing such information and having annexed to them such
documents, as are required to be prepared under the Companies Act 1985 (as from
6 April 2008 the Companies Act 2006).
82.
The Notice to file the return states the completed return must be accompanied
by “ a copy of the accounts of the company” for the period covered by the
Return. Further down the notice it is explained that :
“ ‘Accounts’ required are:
-
for companies resident in the UK throughout the period covered by the
Return and required by company law to prepare accounts covering that period,
those accounts including a copy of any directors and auditors report similarly
required…”.
83.
General notes to the notice to file include the following:
“accounts required are for companies resident in the
UK throughout the period covered by the return and required by the law of the
territory in which they are established…to prepare covering that period, those
accounts including a copy of any director’s and auditor’s report similar
required. These are the accounts that a company is required to prepare under
company law for its members and not the abbreviated accounts it may be
permitted to file with the Registrar of Companies.”
84.
The Companies Act 1985 legislation requires the directors of the company
to prepare accounts (s226 CA 1985) and specifies that those accounts must
include a balance sheet and a profit and loss account.
85.
The requirement to prepare a director’s report is set out separately in
s234 CA 1985, subsection 1 of which requires a report comply with the general
requirements of s234ZZA CA 1985 and the business review specified in s234ZZB CA
1985.
86.
Section 246(4) CA 1985 sets out various provisions which relieve small
companies from disclosing certain contents of the directors report requirements
but not all of them. Directors of the small company still have to prepare a
director’s report albeit in relation to a smaller subset of information than
would otherwise be required.
87.
Section 246(5) CA 1985 provides that notwithstanding the obligation to
file documents with the registrar the directors of the company do not need to
deliver various items. In particular they do not need to deliver a copy of the
company’s profit and loss account or a copy of the director’s report.
88.
The appellant’s argument is that given the companies registrar is
satisfied with not receiving the director’s report, this should also be
sufficient for company tax return purposes. HMRC say the Companies Act legislation
draws a distinction between what must be prepared for Companies Act purposes
and what must be delivered to the registrar.
89.
Having considered the legislation it is clear to us that HMRC’s
contention is correct. It seems clear to us that a small company is not
absolved from having to prepare a director’s report even if it does not have to
file a copy of this with the registrar.
90.
It is also clear that for the purposes of the corporation tax return
that HMRC’s notice is able to fasten on information and documents “as are
required to be prepared under the Companies Act”. We think that the reference
to “prepared” is intended to dovetail with those documents which must be
prepared under the Companies Act as opposed to those documents, copies of which
must be filed with the Registrar.
91.
Given the scope of the return is framed by what is in the notice (which
is itself curtailed by certain legislative requirements) we also considered
whether the Notice to file does in its terms make it clear that the Companies
Act director’s report is to included with the return. We consider that it does
precisely that.
92.
We also considered whether the requirement for the director’s report
met the terms of paragraph 3 Schedule 18 FA 1998 namely whether it was a report
which was a) relevant to the tax liability of the company, or b) otherwise
relevant to the application of the Corporation Tax Acts to the company, as may
reasonably be required by the notice. Although we did not receive specific
submissions on the point the appellant did indirectly touch upon the issue in
his argument that given his director’s report had been a small paragraph it was
difficult to understand why it had in HMRC’s view rendered his return
incomplete.
93.
Noting that a director’s report, which even for small companies
would have to contain for instance a statement of the principal activities of
the company in the course of the year and therefore of relevance to the tax
liability of the company, or the application of the Corporation Tax Act to it,
and that the report was something that the directors were obliged to prepare
for the purposes of the Companies Act legislation we were not persuaded that
the information failed the requirements of paragraph 3. Further we did not
think the appellant’s submission to the effect the report was of no consequence
because the directors and members of the company were one and the same took the
matter any further. In particular we were not taken to anything which suggested
that the statutory responsibilities of the directors were to be relieved
because they were also members.
94.
To the extent the provisions of the Companies Act 1985 are relevant we
have also considered the corresponding provisions of the Companies Act 2006.
While those provisions are worded differently, for the purposes of the matter we
consider the 2006 Act provisions are materially the same as the 1985 Act
provisions and the analysis above is equally valid.
95.
From HMRC’s letter of 18 May 2010 telling the appellant the return which
had been filed needed to be resubmitted because it did not contain a director’s
report we infer that although a return was submitted prior to that date no
complete return containing such a report was sent before that date. The HMRC
records show a return was not received until 29 April 2010 and in the absence
of any evidence of a complete return being filed before then or at some other
point in time we find that the return was received by HMRC on 29 April 2010.
Effect of concessions given in relation to returns for previous years
96.
As mentioned above at [25] a receipt date of 11 September 2007 appears
to have been accepted by HMRC in respect of APE 2005 even though the return did
not meet with the necessary requirements. Leaving aside any issue as to whether
HMRC have discretion to make such a concession, and having considered the
statements HMRC made in correspondence, we do not see how the appellant can
reasonably have considered that whatever concessionary practice had been
applied for past years would continue.
97.
Even if we were able to find that the appellant could have reasonably
thought the concession would continue for future years we do not consider that
would permit us to depart from analysing whether complete returns were filed as
a matter of objective fact, although that issue if it were established might be
relevant in the context of whether the appellant had a reasonable excuse for
any failure to comply (as to which see below.)
Reasonable excuse
98.
On the face of it the appellant failed to comply with the obligations to
file returns by the relevant deadlines. We must consider whether the appellant had
a reasonable excuse through the duration of the period between that date when
returns were due through to the date when they were filed such that it can be
deemed not to have failed under s118(2) TMA 1970.
99.
Having considered the Notices to file and the comprehensive general
notes accompanying the notice we are not persuaded that any of the deficiencies
in the returns, (whether that be the failure to submit a directors report, all
of the pages of the return, the required computations and completed boxes) were
ones which the appellant could not reasonably have addressed in order to get
the return filed on time.
100. To the extent
the appellant had doubts as to what to send in, despite the clear notices and
general notes, it was open to it to seek further advice. We did not have any
evidence before us which suggested that the appellant had done so. Indeed Mr
Gregory was candid in telling us that as the owner of the appellant which was a
small business, his priorities lay in running the business of the company and not
sorting out its tax returns.
101. The
correspondence we have seen indicates that the appellant has repeatedly had
deficiencies in the returns drawn to his attention by HMRC. He has stuck to his
guns in disputing the reasons put to him as to why his returns were incomplete
and in particular has disregarded the explanations put to him as to the
distinction between accounts which are apt to satisfy Companies house filing
requirements and those which are required for the purposes of a company tax
return.
102. In relation to
previous concessions given by HMRC, it may be that in some cases this might
enable an appellant to argue that given such representations the appellant had
a reason to act or not act as he did, but this is not such a case. Here the
appellant has seized upon a concession offered by HMRC in order to argue that
the concession should continue. We consider that those concessions were given with
a view to enabling the appellant to draw a line under past breaches and we do
not think they provide the appellant with a reasonable excuse which under the
legislation deems its compliance failures not to have happened.
103. In relation to
the argument that the regime for online filing is less strict, we do not see
that the content and application of a subsequent regime is of relevance. We
must make our determination on the basis of the regime which applied during the
periods under appeal.
104. The appellant’s
argument that tax had been paid does not assist him either given the regime is
quite clearly directed towards non compliance with taxpayers’ obligations to
file returns on time. Paying the tax does not remove the obligation to file the
return. If the return which is regarded as complete is not submitted by the
statutory deadlines then the legislation provides for late filing penalties.
Relevance of witness statements in county court proceedings stating that
one of the penalties reduced to nil
105. We were shown a
copy of a witness statement of Karen Robinson, an HMRC Officer dated 4 July
2011 made for the purposes of collection proceedings by HMRC against the
appellant in the Ashford County Court.
106. In a table
headed “Penalties for late submission of returns” it states in respect of APE
3 August 2008 “penalty reduced to nil after return received”
107. The statement is
at odds with a letter in the exhibit KR4(2) to the statement in which it is
confirmed by HMRC in a letter dated 8 September 2010 that the penalty
determination remained in place.
108. It was later
clarified in letter dated 12 September 2011 from HMRC to the appellant that
there were typing errors in the witness statement and that the collection
proceedings in the county court are stayed pending the outcome of this appeal.
109. The appellant
says it would be reasonable to assume that something which someone has signed a
statement of truth would be correct. We of course agree with that. It is
unsatisfactory that such errors were made but we have difficulty seeing how
such errors assist the appellant’s case.
110. Effectively an
erroneous statement has been made in collection proceedings. Those proceedings
are stayed pending the outcome of these appeals because it must first be
established whether the appellant is liable for penalties and the amount of any
penalties. HMRC have made it clear the statements were made in error and have
apologised. The context of the statement the appellant relies on suggests to us
it should not be interpreted as effecting a withdrawal of the penalty or further
that, as the appellant suggests, it should mean that the penalties for other
years should be removed.
Relevance of cheques sent in by appellant to these proceedings
111. In a letter
dated 13 June 2011 and included in the bundle of papers before the Tribunal the
appellant had written to HMRC on a letter headed “Corporation tax £4482.62”. In
the letter the appellant enclosed a cheque of £500. Two further cheques for
£500 each were sent in. The letter referred to a “ full and final settlement
offer of £1500” being made and went on to state that “Encashment will be taken
as acceptance of the offer to your CT Operations in Croydon”. We understand the
cheques were cashed by HMRC.
112. The appellant
has in his subsequent correspondence copied to the Tribunal referred to the Rule
in Clayton’s Case (Devaynes v Noble [1816] 1 Mer 572).
113. We understand
the purpose of the appellant referring to the rule (which deals with allocation
of sums against debts in relation to the order the debts were incurred) was to
dispute the way in which the cheques which had been cashed by HMRC were applied
to sums said to be due by the appellant to HMRC.
114. It is not clear
to us how the application of the cheques is relevant to the proceedings before
us. The proceedings before this Tribunal relate to the appellant’s liability to
penalties for late submission of returns. The treatment of the above cheques is
not relevant to whether the appellant is liable for such penalties.
Further it can be of no relevance to the amount of tax upon which tax geared
penalties have been calculated given the date the cheques were sent and the
dates of the tax geared penalties in issue.
115. For the sake of
completeness we have also considered whether the encashment of the cheques
could be regarded as having settling any of the appeals before us under s54 TMA
1970 thereby depriving the Tribunal of jurisdiction to consider such appeals.
Reviewing the correspondence between HMRC and the appellant in relation to the
cheques there was however nothing which indicated to us that there was any kind
of agreement as between HMRC and the appellant in relation to the appeals before
us being settled. HMRC’s letter of 12 September 2011 and subsequent
correspondence clearly indicate to us that HMRC was not accepting the offer. To
the extent the cashing of the cheques sent in with the appellant’s offer letter
gave rise to a rebuttable presumption of acceptance of the appellant’s offer
(see Inland Revenue Commissioners v Fry [2001] STC 1715) we find that any
such presumption is rebutted and no agreement to settle the appeals was reached.
Conclusion
116. The penalties
under appeal are determined correctly and in the correct amount. We therefore
confirm the penalty determinations. The appellant’s appeals are accordingly
dismissed.
117. 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.
SWAMI RAGHAVAN
TRIBUNAL JUDGE
RELEASE DATE: 1 October 2012
Annex – Companies Act legislation
Companies Act 1985
226 Duty to prepare individual accounts
(1) The directors of every company shall prepare
accounts for the company for each of its financial years.
Those accounts are referred to in this Part as the
company's 'individual accounts'.
(2) A company's individual accounts may be
prepared—
(a) in accordance with section 226A ('Companies
Act individual accounts'), or
(b) in accordance with international accounting
standards ('IAS individual accounts').
This subsection is subject to the following
provisions of this section and section 227C (consistency of accounts).
(3) The individual accounts of a company that is
a charity must be Companies Act individual accounts.
(4) After the first financial year in which the
directors of a company prepare IAS individual accounts ('the first IAS year'),
all subsequent individual accounts of the company must be prepared in
accordance with international accounting standards unless there is a relevant
change of circumstance.
(5) There is a relevant change of circumstance
if, at any time during or after the first IAS year—
(a) the company becomes a subsidiary undertaking
of another undertaking that does not prepare IAS individual accounts,
(b) the company ceases to be a company with
securities admitted to trading on a regulated market, or
(c) a parent undertaking of the company ceases
to be an undertaking with securities admitted to trading on a regulated market.
In this subsection 'regulated market' has the same
meaning as it has in Directive 2004/39/EC of the European Parliament and of the
Council of 21 April 2004 on markets in financial instruments.
(6) If, having changed to preparing Companies
Act individual accounts following a relevant change of circumstance, the
directors again prepare IAS individual accounts for the company, subsections
(4) and (5) apply again as if the first financial year for which such accounts
are again prepared were the first IAS year.
226A Companies Act individual accounts
(1) Companies Act individual accounts must
comprise—
(a) a balance sheet as at the last day of the
financial year, and
(b) a profit and loss account.
(2) The balance sheet must give a true and fair
view of the state of affairs of the company as at the end of the financial
year; and the profit and loss account must give a true and fair view of the
profit or loss of the company for the financial year.
(3) Companies Act individual accounts must
comply with the provisions of Schedule 4 as to the form and content of the
balance sheet and profit and loss account and additional information to be
provided by way of notes to the accounts.
(4) Where compliance with the provisions of that
Schedule, and the other provisions of this Act as to the matters to be included
in a company's individual accounts or in notes to those accounts, would not be
sufficient to give a true and fair view, the necessary additional information
must be given in the accounts or in a note to them.
(5) If in special circumstances compliance with
any of those provisions is inconsistent with the requirement to give a true and
fair view, the directors must depart from that provision to the extent
necessary to give a true and fair view.
(6) Particulars of any such departure, the
reasons for it and its effect must be given in a note to the accounts.
234 Duty to prepare directors' report
(1) The directors of a company shall for each
financial year prepare a report (a 'directors' report') complying with the
general requirements of section 234ZZA and containing—
(a) the business review specified in section 234ZZB,
and
(b) if section 234ZA applies to the report, the
statement as to disclosure of information to auditors required by that section.
(2) For a financial year in which—
(a) the company is a parent company, and
(b) the directors of the company prepare group
accounts,
the directors' report must be a consolidated report
(a 'group directors' report') relating, to the extent specified in the
following provisions of this Part, to the company and its subsidiary
undertakings included in the consolidation.
(3) A group directors' report may, where
appropriate, give greater emphasis to the matters that are significant to the
company and its subsidiary undertakings included in the consolidation, taken as
a whole.
(4) …
(5) If a directors' report does not comply with
the provisions of this Part relating to the preparation and contents of the
report, every director of the company who—
(a) knew that it did not comply or was reckless
as to whether it complied, and
(b) failed to take all reasonable steps to
secure compliance with the provision in question,
is guilty of an offence and liable to a fine.
234ZZA Directors' report: general requirements
(1) The directors' report for a financial year
must state—
(a) the names of the persons who, at any time
during the financial year, were directors of the company,
(b) the principal activities of the company in
the course of the year, and
(c) the amount (if any) that the directors
recommend should be paid by way of dividend.
(2) In relation to a group directors' report
subsection (1)(b) has effect as if the reference to the company was a reference
to the company and its subsidiary undertakings included in the consolidation.
(3) The report must also comply with Schedule 7
as regards the disclosure of the matters mentioned there.
(4) In Schedule 7—
Part 1 relates to matters of a general nature,
including changes in asset values, directors' shareholdings and other interests
and contributions for political and charitable purposes;
Part 2 relates to the acquisition by a company of
its own shares or a charge on them;
Part 3 relates to the employment, training and
advancement of disabled persons;
Part 5 relates to the involvement of employees in
the affairs, policy and performance of the company;
Part 6 relates to the company's policy and practice
on the payment of creditors.
Part 7 specifies information to be disclosed by
certain publicly-traded companies.
(5) A directors' report shall also contain any
necessary explanatory material with regard to information that is required to
be included in the report by Part 7 of Schedule 7.
234ZZB Directors' report: business review
(1) The directors' report for a financial year
must contain—
(a) a fair review of the business of the
company, and
(b) a description of the principal risks and
uncertainties facing the company.
(2) The review required is a balanced and
comprehensive analysis of—
(a) the development and performance of the
business of the company during the financial year, and
(b) the position of the company at the end of
that year, consistent with the size and complexity of the business.
(3) The review must, to the extent necessary for
an understanding of the development, performance or position of the business of
the company, include—
(a) analysis using financial key performance
indicators, and
(b) where appropriate, analysis using other key
performance indicators, including information relating to environmental matters
and employee matters.
(4) The review must, where appropriate, include
references to, and additional explanations of, amounts included in the annual
accounts of the company.
(5) In this section, 'key performance
indicators' means factors by reference to which the development, performance or
position of the business of the company can be measured effectively.
(6) In relation to a group directors' report
this section has effect as if the references to the company were references to
the company and its subsidiary undertakings included in the consolidation.
246 Special provisions for small companies
(1) Subject to section 247A, this section
applies where a company qualifies as a small company in relation to a financial
year.
(2) If the company's individual accounts for the
year are Companies Act individual accounts and—
(a) comply with the provisions of Schedule 8,
or
(b) fail to comply with those provisions only in
so far as they comply instead with one or more corresponding provisions of
Schedule 4,
they need not comply with the provisions or, as the
case may be, the remaining provisions of Schedule 4; and where advantage is
taken of this subsection, references in section 226A to compliance with the
provisions of Schedule 4 shall be construed accordingly.
(3) The company's individual accounts for the
year—
(a) may give the total of the aggregates
required by paragraphs (a), (c) and (d) of paragraph 1(1) of Schedule 6
(emoluments and other benefits etc of directors) instead of giving those
aggregates individually; and
(b) need not give the information required by—
(i) paragraph 4 of Schedule 5 (financial years
of subsidiary undertakings);
(ii) paragraph 1(2)(b) of Schedule 6 (numbers of
directors exercising share options and receiving shares under long term
incentive schemes);
(iii) paragraph 2 of Schedule 6 (details of
highest paid director's emoluments etc); or
(iv) paragraph 7 of Schedule 6 (excess
retirement benefits of directors and past directors).
(4) The directors' report for the year need not
give the information required by—
(a) section 234ZZA(1)(c) (directors' report:
amount to be paid as dividend) and 234ZZB (directors' report: business
review);
(b) paragraph 1(2) of Schedule 7 (statement of
market value of fixed assets where substantially different from balance sheet
amount);
(ba) paragraph 5A of Schedule 7 (disclosure
relating to the use of financial instruments);
(c) paragraph 6 of Schedule 7 (miscellaneous
disclosures); or
(d) paragraph 11 of Schedule 7 (employee
involvement).
(5) Notwithstanding anything in section 242(1),
the directors of the company need not deliver to the registrar any of the
following, namely—
(a) a copy of the company's profit and loss
account for the year;
(b) a copy of the directors' report for the
year; and
(c) if they prepare Companies Act individual
accounts and they deliver a copy of a balance sheet drawn up as at the last day
of the year which complies with the requirements of Schedule 8A, a copy of the
company's balance sheet drawn up as at that day.
(6) Neither a copy of the company's accounts for
the year delivered to the registrar under section 242(1), nor a copy of a
balance sheet delivered to the registrar under subsection (5)(c), need give the
information required by—
(a) paragraph 4 of Schedule 5 (financial years
of subsidiary undertakings);
(b) paragraph 6 of Schedule 5 (shares of company
held by subsidiary undertakings);
(c) Part I of Schedule 6 (directors' and
chairman's emoluments, pensions and compensation for loss of office); or
(d) section 390A(3) (amount of auditors'
remuneration).
(7) The provisions of section 233 as to the
signing of the copy of the balance sheet delivered to the registrar apply to a
copy of a balance sheet delivered under subsection (5)(c).
(8) Subject to subsection (9), each of the
following, namely—
(a) accounts prepared in accordance with
subsection (2) or (3),
(b) a report prepared in accordance with
subsection (4), and
(c) a copy of accounts delivered to the
registrar in accordance with subsection (5) or (6),
shall contain a statement in a prominent position on
the balance sheet, in the report or, as the case may be, on the copy of the
balance sheet, above the signature required by section 233, 234A or subsection
(7), that they are prepared in accordance with the special provisions of this
Part relating to small companies.
(9) Subsection (8) does not apply where the
directors of the company have taken advantage of the exemption from audit
conferred by section 249AA (dormant companies).
Companies Act 2006 provisions
394 Duty to prepare individual accounts
The directors of every company must prepare accounts
for the company for each of its financial years.
Those accounts are referred to as the company's
“individual accounts”.
396 Companies Act individual accounts
(1) Companies Act individual accounts must
comprise—
(a) a balance sheet as at the last day of the
financial year, and
(b) a profit and loss account.
415 Duty to prepare directors' report
(1) The directors of a company must prepare a
directors' report for each financial year of the company.
416 Contents of directors' report: general
(1) The directors' report for a financial year
must state—
(a) the names of the persons who, at any time
during the financial year, were directors of the company, and
(b) the principal activities of the company in
the course of the year.
(2) In relation to a group directors' report
subsection (1)(b) has effect as if the reference to the company was to the
undertakings included in the consolidation.
(3) Except in the case of a company [entitled to
the small companies exemption], the report must state the amount (if any) that
the directors recommend should be paid by way of dividend.
(4) The Secretary of State may make provision by
regulations as to other matters that must be disclosed in a directors' report.
Without prejudice to the generality of this power,
the regulations may make any such provision as was formerly made by Schedule 7
to the Companies Act 1985.
415A Directors' report: small companies
exemption
(1) A company is entitled to small companies
exemption in relation to the directors' report for a financial year if—
(a) it is entitled to prepare accounts for the
year in accordance with the small companies regime, or
(b) it would be so entitled but for being or
having been a member of an ineligible group.
(2) The exemption is relevant to—
section 416(3) (contents of report: statement of
amount recommended by way of dividend),
section 417 (contents of report: business review),
and
sections 444 to 446 (filing obligations of different
descriptions of company).
417 Contents of directors' report: business
review
(1) Unless the company is entitled to the small
companies exemption], the directors' report must contain a business review.
444 Filing obligations of companies subject to
small companies regime
(1) The directors of a company subject to the
small companies regime—
(a) must deliver to the registrar for each
financial year a copy of a balance sheet drawn up as at the last day of that
year, and
(b) may also deliver to the registrar—
(i) a copy of the company's profit and loss
account for that year, and
(ii) a copy of the directors' report for that
year.
(2) The directors must also deliver to the
registrar a copy of the auditor's report on the accounts (and any directors'
report) that it delivers.
This does not apply if the company is exempt from
audit and the directors have taken advantage of that exemption.
(3) The copies of accounts and reports delivered
to the registrar must be copies of the company's annual accounts and reports,
except that where the company prepares Companies Act accounts—
(a) the directors may deliver to the registrar a
copy of a balance sheet drawn up in accordance with regulations made by the
Secretary of State, and
(b) there may be omitted from the copy profit
and loss account delivered to the registrar such items as may be specified by
the regulations.
These are referred to in this Part as “abbreviated
accounts”.
444A Filing obligations of companies entitled to
small companies exemption in relation to directors' report
(1) The directors of a company that is entitled
to small companies exemption in relation to the directors' report for a
financial year—
(a) must deliver to the registrar a copy of the
company's annual accounts for that year, and
(b) may also deliver to the registrar a copy of
the directors' report.
