In the recent joined tribunal cases of Morgan v HMRC and Donaldson v HMRC (TC 9096 and 8431) the procedure which lay behind issuing £10 daily late filing penalties was challenged.
Background and Legislation
Schedule 55 of FA 2009 allows HMRC to levy penalties of £10 per day if a self-assessment tax return has not been filed within 3 months of the filing date. These penalties can be issued for up to 90 days, meaning that the maximum daily penalties issued totals £900.
In order for the daily penalties to be valid the legislation requires that HMRC “decides” whether to impose the penalties and then notifies the taxpayer of the decision.
The taxpayers argued that the SA returns and subsequent reminders issued did not satisfy the above conditions and consequently that the penalties were not valid.
The questions for the tribunal were:
- Did the fact that daily penalties were automatically issued by an HMRC computer constitute a decision?
- Did the SA return and/or the reminders constitute a notice of the liability to the daily penalties?
The tribunal found that it had been decided at a very senior level, and as a matter of general policy, to impose daily penalties where there is a default, and accordingly the HMRC computers were programmed to do this. To do otherwise would have meant up to a million individual decisions – a completely impractical exercise for HMRC to undertake. The tribunal, by the chairman’s casting vote, therefore found that there had been a HMRC decision which met the requirements of schedule 55.
With regards to the notice of a penalty HMRC relied on the SA returns and reminders which stated:
“If we still haven’t received your online tax return by 30 April (31 January if you’re filing a paper one) a £10 daily penalty will be charged every day it remains outstanding. Daily penalties can be charged for a maximum of 90 days, starting from 1 February for paper tax returns or 1 May for online tax returns.”
The tribunal found that the statutory requirement was not met as the documents were ambiguous. This was because of the use of ‘will’ in the first sentenced followed by ‘can’ in the second.
The tribunal found that the text merely indicated that HMRC could impose daily penalties. They felt that even applying a construction based on the underlying purpose of the legislation the terms of neither document were clear enough to impose a penalty from a particular date.
The fact that two dates were mentioned was not the point; the vagueness of the documents was their downfall. Accordingly the appeal on the daily penalties was allowed.
Impact of The Case
Presumably HMRC will update the text of their SA returns and reminder notices accordingly to make sure a ‘notice’ is given.
However, given the decision it will be interesting to see whether other taxpayers challenge daily penalties previously issued and if HMRC will appeal the case.
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