HMRC Penalties – Luck Of The Draw?

Mark McLaughlin points out that differences of opinion by tax tribunals can arise in taxpayer disputes with HM Revenue and Customs, resulting in confusion and uncertainty for taxpayers.

It is not uncommon for disputes between taxpayers and HM Revenue and Customs (HMRC) to result in taxpayer appeals having to be decided (in the first instance) by the First-tier Tribunal (FTT).

Decisions of the FTT are normally made public; for example, see the Tribunals Judiciary (www.financeandtax.decisions.tribunals.gov.uk/Aspx/default.aspx) or British and Irish Legal Information Institute (www.bailii.org/uk/cases/UKFTT/TC/2018/) websites. This can be helpful if a taxpayer has an ongoing dispute with HMRC (e.g. about penalties for a late tax return) where the tribunal has previously allowed a taxpayer’s appeal in similar circumstances.

However, it is important to note that whilst decisions of the FTT can be persuasive in similar cases, they do not set binding legal precedents. In other words, taxpayers cannot rely on an earlier FTT decision, even if the facts seem almost identical to their own case. This point was highlighted in recent cases where the tribunals made conflicting decisions in similar penalty appeals. 

In McGreevy v Revenue and Customs [2017] UKFTT 0690 (TC), the appellant was late in filing a non-resident capital gains tax (NRCGT) return relating to the disposal of a UK residential property. HMRC issued penalties. The appellant appealed, on the basis that she thought the CGT would be dealt with under self-assessment. 

The FTT allowed the appellant’s appeal on a technical point about the contract date of the property disposal. Nevertheless, the tribunal held that the appellant had a ‘reasonable excuse’ for submitting the return late (under FA 2009, Sch 55, para 23). HMRC had argued that ignorance of the law cannot be a reasonable excuse. However, the tribunal considered that authoritative statements about that principle suggested that its operation is confined to criminal law.

The tribunal also strongly disagreed with HMRC’s apparent suggestion that the appellant should have been knowledgeable about the NRCGT rules. The tribunal did not think it unreasonable for a person who had been making annual self-assessment returns not to realise that they must file an NRCGT return within 30 days of the completion date of the property disposal.

Similarly, in Saunders v Revenue and Customs [2017] UKFTT 765 (TC), the appellant’s appeal against penalties for the late filing of a NRCGT return was allowed on a technical point. The FTT also disagreed with HMRC’s assertion that there was ample publicity about the NRCGT rules. The tribunal held that the appellant had a genuine and honest belief that the disposal could be declared in her self-assessment tax return and, therefore, had a reasonable excuse for the late submission of the NRCGT return.

However, the successful penalty appeals in McGreevy and Saunders were quickly followed by two unsuccessful ones, also in respect of late NRCGT returns.

In Hesketh v Revenue and Customs [2017] UKFTT 871 (TC), the FTT did not think that the Judge in McGreevy was right to say the principal that ignorance of the law is no excuse does not apply in civil penalty cases. Furthermore, the appellants relied on McGreevy as demonstrating that HMRC’s failure to more widely publicise a change in the law regarding NRCGT and the filing requirements can amount to a reasonable excuse. However, the tribunal did not accept that HMRC acted unlawfully in failing to write to the appellants about the changes. The FTT did not consider that McGreevy and Saunders were correctly decided on this point. The appellants’ ignorance of their liability to make NRCGT returns therefore could not amount to a reasonable excuse.

In Welland v Revenue and Customs [2017] UKFTT 870 (TC), the appellant sold three UK properties in the tax year 2015/16. The appellant assumed that he would have to declare the sales in his self-assessment return for 2015/16. He subsequently submitted NRCGT returns when he became aware that he ought to have filed them within 30 days of completion of each sale. The FTT again considered that the decision in McGreevy was wrong and could not be followed. The penalty appeal on the first property sale was dismissed, although the appeal relating to the last two property sales was allowed due to special circumstances.

An appeal against late NRCGT returns was also unsuccessful in Jackson v Revenue and Customs [2018] UKFTT 64 (TC), although the penalties were also reduced in the circumstances. 

The same judge allowed the taxpayers’ appeals in McGreevy and Saunders, whereas another judge found against the taxpayers in both Hesketh and Welland. Taxpayers who are considering an appeal (e.g. against late filing penalties based on ‘reasonable excuse’) might be encouraged by previous FTT cases decided on similar facts in the taxpayer’s favour; but bear in mind that such decisions cannot generally be relied upon. On the other hand, taxpayers should not necessarily allow a previous FTT decision against a taxpayer to deter them if they have a strong enough case. However, watch out for binding court decisions on the same issue.