To paraphrase the well-known Rolling Stones’ hit ‘You can’t always get what you want’, which certainly applied in this recent Tribunal case involving a certain Mr Jagger; but Scott Jagger rather than his more famous namesake Mick.
Mr Jagger, a self-employed taxi driver, was over a year late filing his tax returns for 2010/11 and 2012/13, and was charged £1,600 penalties under Finance Act 2009, Sch 55 for each year as follows:
- A fixed penalty of £100
- A three month penalty of £300
- A six month penalty of £900
- A twelve penalty of £300
Liability to Tax: The postman’s to blame!
Jagger claimed that he had, in fact, submitted his returns on time by first class post, but since he had not used recorded delivery he could not prove this. He went on to say that the first he knew of any alleged late filing was when he received a letter from HMRC notifying him of the penalties, upon which he re-submitted his returns (which were, by then, late). He also argued that the penalties were unreasonable as he did not have a tax liability in either year.
The Tribunal noted that, in the absence of proof of postage or any other evidence supporting his claim; it could not accept that he had filed on time. The £100 fixed penalties would definitely have to stand.
Liability to Tax: Moves like Jagger
Jagger had moved house several times: the evidence showed ten different addresses, all within the Barnsley area, between 2003 and 2013. Jagger suggested that HMRC did not keep up with his location, despite his having telephoned them and advised of his new addresses. The implication was that he had failed to receive various notifications from HMRC which might have eliminated or reduced the delay.
A table drawn up by the Tribunal showed that HMRC’s awareness of his current address generally only lagged behind his moves by two or three months. The Tribunal concluded that it was unlikely that all of the notices listed in HMRC’s records as having been issued to Jagger could have been lost in the post (even though, as it slyly noted, HMRC did not use recorded delivery either!).
In any event, HMRC was only required to issue notices to the most recent known address, which in each case they had done. Since no notices were returned as undelivered, the Tribunal concluded that Jagger’s frequent moves neither invalidated any of HMRC’s actions nor provided him with a reasonable excuse for late filing.
Liability to Tax: Get off my Cloud
Paragraph 17 (3) of Schedule 55, FA 2009 says: “where a person is liable for a penalty under more than one paragraph of this Schedule which is determined by reference to a liability to tax, the aggregate of the amounts of those penalties must not exceed [100%] of the liability to tax”.
It is obvious that the £100 fixed penalty is not “determined by reference to a liability to tax”, so it had to stand, as did the three-month penalty as it’s calculated by reference to days (£10 a day up to a maximum of 90 days). But what about the six-month and twelve-month penalties? The formula in both cases is: ‘the greater of, 5% of any liability to tax which would have been shown in the return in question, and £300’.
Liability to Tax: Fool to cry
HMRC’s argument was that, for both years and for both penalties, the penalty imposed was correctly a fixed statutory sum rather than one computed by reference to tax. Once it is clear that the tax-geared figure is below £300, the fixed penalty kicks in.
HMRC argued, “by creating two possibilities of a penalty”, parliament clearly intended that there should be a minimum penalty under each of the two paragraphs regardless of the tax at stake, in order to encourage compliance.
Liability to Tax: Back to zero
The Tribunal was having none of this and commented that the alternative methods of issuing a penalty made no sense, if no tax was actually payable.
Part of the process of arriving at a £300 penalty is the act of calculating whether 5% of the tax is greater or less than that amount. This being the case, it is clear that the penalty has been determined by reference to tax. It therefore follows that as Mr Jagger had a nil tax liability, then both the six-monthly and twelve monthly penalties must be nil.
Liability to Tax: It’s all over now
The initial £100 and three-month £300 penalties were upheld since Jagger had shown no reasonable excuse for missing the deadlines, but the six and twelve month penalties were thrown out.
HMRC’s arguments were weak and clearly misconceived. It did, however, raise one interesting point: if someone has already been charged a six-month penalty for a nil return, they would be better off continuing not to file until a twelve-month penalty was charged – since a liability of £300 would be reduced by paragraph 17 of the Finance Act to one of nil.
If HMRC is upset by the Tribunal’s decision, it is of course in their power to get the legislation changed – just as they have on previous occasions when the absence of any tax actually being due has not stood in the way of them charging a big fat penalty.
If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.
David Jones Tax Accountant