UT holds that s8 Notices to file issued by computer are valid - The Commissioners for HM Revenue and Customs v. Nigel Rogers and Craig Shaw [2019] UKUT 0406 (TC)
The Proceedings
This was an appeal by HMRC against a FTT decision on the papers (a default paper case) in relation to late filing penalties. HMRC had four grounds of appeal:
- Whether the First-tier Tribunal (Tax Chamber) (“the FTT”) had jurisdiction to consider whether a valid Notice to File pursuant to s8 Taxes Management Act 1970 (“TMA”) had been issued to them for the purposes of a Schedule 55 Penalty;
- Whether the FTT wrongly applied a literal interpretation of s8 of the TMA by concluding that it required an officer to be identified when a s8 Notice to File was issued;
- Whether the FTT was wrong to conclude that s8(1) of the TMA required a s8 Notice to File to be issued by a “flesh and blood” officer rather than a computer; and
- Whether the FTT had denied the Revenue procedural fairness in arriving at its decision.
Statutory Background
The obligation to submit a s8 Return arises when a s8 Notice is issued by HMRC. The failure to submit a s8 Return by the specified date results in a late filing penalty under paras 1 and 3 Schedule 55 Finance Act 2009. It is well established that in penalty matters HMRC have the onus of showing that the relevant failure has arisen such that the penalties are due. The onus is then on the taxpayer to demonstrate that there is a reasonable excuse or that there are special circumstances that warrant a reduction in the penalty.
UT Decision on the four grounds of appeal
The First Issue – Jurisdiction and validity of the Notice to File
Shortly before the UT heard the Appeal, a differently constituted UT heard HMRC -v- Goldsmith [2019] UKUT 325 (TCC) (“Goldsmith”) which dealt with the issue of validity. The UT noted that:
“In that case [Goldsmith], the taxpayer wished to argue that a notice HMRC had given did not meet the requirements of s8 because it was not given “for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax for a year of assessment”. Therefore, the taxpayer argued, he could not be liable to a penalty under Schedule 55 for a failure to comply with that notice. “
HMRC argued that on the jurisdiction issue Goldsmith should not to be followed. The UT was not persuaded and dismissed this ground of appeal noting:
“24. Indeed, we find this to be an even clearer case than Goldsmith. In this appeal, the taxpayers are arguing that there is a fundamental problem with the s8 notice itself (namely that it was not given by an officer of HMRC). There is no question of any public law element in that question; it simply involves the question whether the notice was “given… by an officer of the Board” in the requisite statutory sense. We consider it to be clear that the FTT has power (for the reasons given in Goldsmith) to consider that alleged defect as part of its determination whether the taxpayers should be penalised for failing to comply with the requirements of that notice.”
The Second and Third Issues – An identifiable, “flesh and blood” officer
The UT went on to deal with grounds 2 and 3 together. It was argued that the FTT’s conclusions that for a s8 Notice to File to be given “by an officer of the Board”, a named officer either had to sign the s8 Notice to File or had to be made clear in some other way that a particular named officer was “giving” that s8 Notice to File was plainly wrong.
The UT agreed with HMRC’s submissions in respect of grounds 2 and 3. It noted:
“32. In our judgment, properly construed, s8 does not impose a requirement that an officer of the Board is identified in the notice as the giver of the notice. Rather, it imposes a substantive requirement that the giving of a notice must have been under the authority of an officer of HMRC. Therefore, if a police constable, for example, purported to require a taxpayer to submit a tax return that would not be a lawful request under s8 (unless the police constable happened also to be an officer of HMRC). Instead, the requirement is that whoever requires the notice to be given, whether identified or not, has the status of an HMRC officer.
…
34. Against that background, s8 cannot be construed as requiring an identified officer to give a notice requiring a return to be given to that very officer.
The Fourth Issue – Procedural Fairness
The UT spent considerable time dealing with the FTT’s approach to deciding an issue against HMRC without first giving them an opportunity to comment. It was observed that the taxpayers had not formally sought to amend their Notices of Appeal. In respect of Mr Rogers’ appeal to the FTT, the UT observed:
“42. It is, however, the case that Mr Rogers did not have the FTT’s permission to amend his reply. Nevertheless, having received a copy of his email of 28 February 2018, there is no suggestion that HMRC applied to the FTT to submit that the email should be disregarded because it was late. In the circumstances, we have concluded that, by conduct, all parties acknowledged that the contents of that email were before the FTT. There was a degree of informality in that approach that would not have been appropriate in a more complicated case. However, the FTT’s overriding objective in Rule 2 of the FTT Rules enjoins the avoiding of “unnecessary formality” and, in the context of a default paper case involving modest penalties, we would regard that approach as appropriate.”
Importantly the UT stated:
“44. … We acknowledge that Mr Rogers was not professionally represented. However, any litigant, whether professionally represented or not, should expect to make their case clearly. That will not necessarily involve the use of technical or legal language but whatever language is used, it should be sufficient to identify the precise point that is made so that the other party can respond to it as necessary and the FTT can determine it. There is a material difference between an argument that a penalty assessment is invalid and an argument that the original notice triggering the requirement to deliver a return was invalid.
45. It follows, therefore, that in determining that any notice under s8 of TMA was not valid, the FTT was deciding the appeals on a basis for which neither taxpayer had argued and against which HMRC had been given no opportunity to respond (or to provide evidence).”
The taxpayers’ submission that HMRC as a body were aware of the FTT decision that Mr Rogers relied on and accordingly, that they should have pre-empted the argument that was raised was rejected by the UT:
“46. The taxpayers argue the FTT’s conduct was not procedurally unfair as HMRC (as an institution) were aware of decisions of the FTT such as Khan Properties calling into question the validity of HMRC notices and assessments that were “issued by computer”. They go as far as arguing that, being aware of such decisions, HMRC had a positive duty, in appeals by litigants in person, to draw them to the attention of the FTT and that, having failed to do so, they could scarcely complain when the FTT identified the point itself. No authority was given for such a broad proposition. Indeed in Barton v Wright Hassall LLP [2018] 1 WLR 1119, the Supreme Court noted that, while a court might make allowances for litigants in person in case management decisions or during hearings, such litigants are not subject to a lower standard of compliance with rules. The Supreme Court’s decision is inconsistent with HMRC having a positive duty to assist litigants in person to make their own case against HMRC decisions.
47. Nor do we accept the taxpayers’ submission that, since HMRC were aware of FTT decisions in which it was held that documents issued by HMRC “by computer” were invalid, they must have known that the validity of the s8 issues [sic] was a live issue in the appeals of Mr Rogers and Mr Shaw. If correct, that would mean that HMRC have a duty to assume that any point that could conceivably be taken by a litigant in person is actually taken. That proposition is just as broad, and no more supported by authority, than the one we set out at [46] above and we reject it for similar reasons.”
As part of the UT’s consideration of this ground, it revisited its earlier decisions of Barry Edwards -v- HMRC [2019] UKUT 131 (TCC) and Christine Perrin -v- HMRC [2018] UKUT 156 (TCC). The UT held at [50] – [52] that if the Revenue give some evidence of a s8 Notice to File being issued, then it will be matter for the FTT to determine whether that evidence is sufficiently strong to discharge HMRC’s burden of proof and that such an assessment should take account of the extent to which the taxpayer disputes receiving the s8 Notice to File.
Aparna Nathan QC of Devereux Chambers and Joshua Carey of 2 Hare Court appeared for the successful party, HMRC.
For a full copy of the judgment click here.
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