Moving to online communication proved very costly for one taxpayer recently when he discovered that ignoring an HMRC electronic notice to file landed him with £1,300 in late filing penalties.
As part of its broader strategy, the tax department has been encouraging taxpayers to switch to paperless communication via their online personal tax account. This was recently highlighted in a tribunal decision concerning Ben Farr, who got into a tangle after consenting to paperless filing in June 2016.
In April 2017, HMRC posted a notice for him to file a tax return in his online account and sent him an email notifying him about the new message.
Unexpected notice to file a tax return
Ben Farr had operated a one-person service company up until December 2014, when he took up a full-time job as an employee of a large company. Not unnaturally, he thought that as a simple PAYE employee, with no other income, he no longer had to complete tax returns.
In his testimony before the tribunal convened to hear his reasonable excuse appeal, Farr said he understood from a conversation with HMRC’s helpline on 12th April 2016 that he would not need to file a tax return for 2016-17, so he assumed the email message he received on 6th April 2017 was spam, and deleted it.
Subsequent HMRC reminders were automatically categorised as spam and automatically deleted. Farr was blissfully unaware of the fact that HMRC were continuing to send emails until he received a letter through the post from the tax office, informing him that he owed penalties totalling £1,300 for his late 2016-17 tax return.
Accountant still in the loop
When he was the sole director of his own personal service company, Smith had authorised Fenn & Co to prepare his tax returns. HMRC sent a letter to the accountants in October 2018 about Smith’s £900 late penalties for the 2016-17 return, but Fenn & Co stated that they had previously notified HMRC that they were no longer acting for the taxpayer. Fenn & Co also stated that they’d never had a penalties letter from HMRC.
Fenn & co produced their postal log to the tribunal, also stating that they scrupulously recorded every document sent or received by post and that they had no record of ever receiving the letter allegedly sent by HMRC. HMRC did not contest this evidence.
Unfortunately for Farr, the tribunal judges concluded that HMRC had acted in accordance with his previous & extant instructions and that it was his responsibility to ensure that Fenn & Co were removed as his agents.
Was a notice to file legally served?
The taxpayer’s argument was based on the principle that posting a notice within HMRC’s computer system, alerting him about it electronically did not meet the definition of notice being “served” in section 8 of the Taxes Management Act 1970.
He also argued that HMRC “offered no evidence of any terms of agreement for paperless communication”, saying during the hearing that he had no recollection of agreeing that he would have to go into his online account in order to find out what HMRC wanted to communicate. He added that he’d received a number of phishing emails purporting to be from HMRC in the past and had deleted them.
The judges didn’t accept this argument and reminded him of the terms and conditions(T&C’s) to which he agreed by ticking the consent box in his personal tax account. Given the T&Cs he had agreed to, and the content of HMRC’s emails which specifically stated that, unlike most spam emails, “For security reasons, we have not included a link with this email,” the tribunal turned down his reasonable excuse appeal.
What is expected of a reasonable taxpayer?
A reasonable taxpayer who consented to paperless communication would expect to receive some emails from HMRC, the judges decided, and would read more than the first lines of an email from the tax office on their phone rather than deleting it and would be expected to check their online account.
The tribunal chair said, “Even if he was unsure about the spam/not spam status of the email, the reasonable person would know he could safely check his online account using the access codes previously provided. We find that Mr Farr did not act reasonably in deleting the email which alerted him to the Notice to File without reading it. As a result, we find that he does not have a reasonable excuse for failing to file his return by the due date.”
Tax Accountant’s view
I have a lot of sympathy for Ben Farr for three reasons:
- Firstly, the tribunal completely ignored the fact that his accountant had specifically told HMRC that he had ceased in business and that they were no longer acting for him. Apparently, the tribunal consider this to be somehow his fault, despite HMRC failing to take any action on the letter from Fenn & Co and also not contesting that they may not have written to them.
- Secondly, despite Fenn & Co producing their mail log as proof that they had written to HMRC and also that they had not been contacted by them (not contested by HMRC!). This was also ignored by the tribunal.
- Thirdly, I have very little doubt that Mr Farr did indeed call the helpline in 2016; but unfortunately for him, from February that year HMRC’s call adviser no longer routinely gave out reference numbers for calls, it was therefore impossible for Mr Farr to prove he’d actually telephoned.
I will finish by reminding everyone of the clear message from the tribunal judges, that ignoring emails for whatever reason is essentially the same as letting those ominous brown envelopes pile up on your door-mat, foolhardy and potentially very costly.