Edwards v HM Revenue & Customs [2019] UKUT 131
- Summary
- Citing
- Cited By
Edwards v HM Revenue & Customs [2019] UKUT 131 (TCC) was an appeal by Mr Barry Edwards before the Upper Tribunal (Tax and Chancery Chamber) heard by the Hon. Mr Justice Nugee and Judge Timothy Herrington, in which the Tribunal dismissed Mr Edwards’s appeal against the decision of the First-tier Tribunal upholding late filing penalties and rejected his contentions that HMRC had not proved notices to file were sent and that the penalties were disproportionate.
Mr Edwards had been assessed to late filing penalties under Schedule 55 of the Finance Act 2009 totalling £1,300 for the 2010/11 tax year, £1,600 for 2012/13 and £980 for 2013/14. The penalties comprised the automatic £100 penalty, daily penalties of £10 for up to 90 days, and further penalties at six and twelve months. HMRC’s tax calculations showed that no income tax was actually due from Mr Edwards for any of the years in question.
The First-tier Tribunal had dismissed Mr Edwards’s appeal on the grounds that the question of whether a taxpayer should be required to file a return is entirely a matter for HMRC, that HMRC had issued the necessary notices to file, and that the FTT had no general power to reduce a penalty on grounds of disproportionality. Mr Edwards initially sought permission to appeal only on the proportionality point, but Judge Herrington granted permission on that ground while refusing it on the question of whether he should have been within self-assessment in the first place. Subsequently Mr Edwards, having secured pro bono representation, applied to add a further ground: that the FTT had erred in finding that notices to file had been sent.
HMRC objected to the application to amend, arguing that the notice-to-file issue had not been raised in the notice of appeal and that there was no arguable case that the FTT’s conclusion was perverse. The Upper Tribunal noted that although Mr Edwards’s statement of case accompanying his notice of appeal had not expressly contended he had not received notices to file, the FTT had recorded at paragraph 3 of its decision that Mr Edwards contended he had no recollection of receiving any notices to file. The Tribunal accepted that the issue had been raised at the hearing without objection from HMRC and that the FTT had dealt with it, albeit informally, which was consistent with the manner in which basic cases are conducted in the FTT. The Tribunal emphasised that in penalty appeals, which are treated as criminal for Article 6 ECHR purposes, HMRC bear the burden of proving the facts justifying the penalties, including that a notice to file was sent. Furthermore, HMRC had included in the hearing bundle documents relating to the notice-to-file issue, including computer records and SA Notes. The Upper Tribunal held that the point involved a short question of law concerning whether the FTT’s finding was open to it on the evidence, that no further evidence was required, and that Mr Edwards had an arguable case. Permission to argue the additional ground was therefore granted.
On the substantive notice-to-file issue, Mr Ripley for Mr Edwards submitted that HMRC needed to demonstrate that valid notices answering the statutory description in section 8 of the Taxes Management Act 1970 had been properly addressed and sent. He contended that HMRC had produced no copies of the notices nor any witness evidence explaining their issue, and that the computer records and SA Notes did not demonstrate that notices were sent or, if they were, to the correct address. Mr Ripley relied on Qureshi v HMRC [2018] UKFTT 0115 (TC), where the FTT had declined to accept similar evidence as sufficient and had stated that assertions from an advocate carry no evidential weight and that evidence of system must be sufficiently detailed and cogent to discharge the burden of proof. The Tribunal accepted that the material provided by HMRC on its own would not have enabled the FTT properly to infer that notices were sent. However, there was other evidence available, namely Mr Edwards’s oral evidence at the hearing and the entries in HMRC’s records. The FTT had recorded at paragraph 9 that Mr Edwards acknowledged that if he had received a notice to file he would probably have thrown it away, that he did not recall filing returns, and that according to HMRC returns were eventually filed for all three years. The FTT found as a fact at paragraph 11, on the balance of probabilities, that HMRC did issue notices to file and serve the necessary notices for daily penalties to be valid. In its decision refusing permission to appeal, the FTT had cast further light on this, noting that Mr Edwards’s memory was inaccurate in that he denied filing returns yet all three were in fact filed, albeit late. The Upper Tribunal held that the FTT must have had the SA Notes and other material in mind when reaching its conclusion. Although the Tribunal found deficiencies in the manner in which the FTT had reasoned its decision, it could not say that those deficiencies amounted to a material error of law. There was sufficient evidence from which the FTT could properly have drawn an inference, on the balance of probabilities, that notices to file were sent to Mr Edwards. The Tribunal could not say that the evidence contradicted the FTT’s findings or that the only reasonable conclusion was that no notices were sent. The notice-to-file issue was therefore determined in favour of HMRC.
On the proportionality issue, Mr Ripley submitted that HMRC’s letter of 1 March 2017 showed that HMRC had only considered the reasons for not filing on time and had not considered whether the level of penalty in light of the tax due was a relevant circumstance. He further submitted that neither HMRC nor the FTT appeared to have considered whether a special reduction might be appropriate, and that the FTT had erred in relying on Bosher v HMRC [2013] UKUT 01479 (TCC) in holding that it had no power to reduce penalties on grounds of disproportionality. The Upper Tribunal agreed that the reasoning in Bosher was not applicable to penalties under Schedule 55 to the Finance Act 2009. Bosher concerned penalties under section 98A of the TMA 1970 in respect of the construction industry scheme, which were subject to a specific mitigation power in section 102 TMA 1970 with no provision for appeal against mitigation decisions. The Upper Tribunal in Bosher had held that the FTT had no jurisdiction to consider disproportionality because Parliament had given the mitigation power to HMRC alone. By contrast, under paragraph 16 of Schedule 55 FA 2009 the FTT has been given a limited power to consider whether special circumstances justify a reduction in penalty. The FTT had therefore erred in determining that it had no general power to reduce a penalty on grounds of disproportionality based on the reasoning in Bosher.
The Tribunal then turned to whether the amount of penalty imposed for failure to file in circumstances where no tax is payable constitutes a special circumstance. The Tribunal considered the meaning of “special circumstances” in paragraph 16 of Schedule 55 FA 2009, referring to various First-tier Tribunal authorities including Warren v HMRC [2012] UKFTT 57, Welland v HMRC [2017] UKFTT 0870, Collis v HMRC [2011] UKFTT 588 and Advanced Scaffolding (Bristol) Limited v HMRC [2018] UKFTT 0744 (TC). The Tribunal agreed with the approach in Advanced Scaffolding that there is no reason to restrict the wording of paragraph 16 by adding a judicial gloss, and that what matters is whether HMRC or, where appropriate, the Tribunal consider that the circumstances are sufficiently special that it is right to reduce the penalty. The key question is whether the circumstance is relevant to the issue under consideration.
Mr Ripley contended that the penalties were disproportionate and infringed Mr Edwards’s right to protection of property under Article 1 of the First Protocol to the ECHR. He submitted that the purpose of issuing a notice to file under section 8 TMA 1970 is to establish the amounts chargeable and payable, and that in Mr Edwards’s case the returns did not alter his tax position; the only consequence of issuing notices was to expose him to penalties, which was not the purpose for which Parliament permitted taxpayers to be required to complete returns. The Tribunal considered the principles identified in HMRC v Total Technology (Engineering) Limited [2012] UKUT 418 (TCC), which had applied the test stated by Simon Brown LJ in International Transport Roth GmbH v Home Secretary [2003] QB 728: whether the scheme is not merely harsh but plainly unfair so that it simply cannot be permitted. The Tribunal noted that it is necessary to determine the aim of the penalty regime, whether that aim is legitimate, and whether there is a reasonable relationship of proportionality between the means employed and the aim sought to be realised, striking a fair balance between the public interest and the protection of fundamental rights.
The Tribunal held that the aim behind the Schedule 55 penalty regime, as made clear in HMRC guidance, is to penalise taxpayers who fail to comply with their obligations once a notice to file is issued and to incentivise compliance with future notifications. A penalty regime seeking to incentivise compliance is a legitimate aim regardless of whether tax is subsequently found to be due. The purpose of requiring completion of a return is so that HMRC can ascertain whether tax is due; if the taxpayer does not comply, HMRC cannot easily ascertain that. A taxpayer who does not think he should be within self-assessment should enter into dialogue with HMRC rather than take no action. There is a reasonable relationship of proportionality between this legitimate aim and the penalty regime; the levels of penalty are fixed by Parliament with an upper limit, and the regime establishes a fair balance between the public interest in ensuring timely filing and the financial burden on a non-complying taxpayer. A penalty imposed in accordance with Schedule 55 FA 2009 cannot be regarded as disproportionate in circumstances where no tax is ultimately due. It follows that such a circumstance cannot constitute a special circumstance for the purposes of paragraph 16, and is not a relevant matter that HMRC must take into account. Therefore HMRC’s decision as regards special circumstances was not flawed. Since that was the only basis on which Mr Edwards contended there were special circumstances, the proportionality issue was determined in favour of HMRC.
In short, the Upper Tribunal dismissed the appeal, holding that the FTT was entitled to find on the evidence that notices to file had been sent and that the fact that no tax was due could not constitute a special circumstance justifying reduction of penalties imposed under the statutory scheme.
HMRC v Bosher [2013] UKUT 01479
Manduca v HMRC [2015] UKUT 262
Perrin v HM Revenue & Customs [2018] UKUT 156
Edwards v Bairstow [1956] AC 14
Qureshi v HMRC [2018] UKFTT 0115
Warren v HMRC [2012] UKFTT 57
Welland v HMRC [2017] UKFTT 0870
Collis v HMRC [2011] UKFTT 588
Limited v HMRC [2018] UKFTT 0744
International Transport Roth GMBH & Ors v Secretary of State for the Home Department [2002] EWCA Civ 158, [2003] QB 728, [2002] 3 WLR 344, [2002] 1 CMLR 52, [2002] Eu LR 74, [2002] HRLR 31, [2002] ACD 57
R (Daly) v SoS for the Home Department [2001] 2 AC 532