[2010] UKFTT 94 (TC)

TC00405

Appeal number TC/2009/12832

Income tax – late submission of partnership return – fixed penalty – whether capped at zero as a result of nil tax liability – no – whether reasonable excuse because HMRC had remitted such penalties for another taxpayer in similar circumstances – no – whether late issue of penalty to co-partner vitiates penalty – no – whether late-discovered requirement to acquire extra software at some expense in order to achieve online filing amounts to reasonable excuse for late paper filing – no – whether appeal should be allowed as a result of late filing of HMRC’s statement of case – no – whether Appellant’s or her co-partner’s medical condition gave rise to a reasonable excuse – on the evidence provided – no.

FIRST-TIER TRIBUNAL

TAX 

SUSAN M FLEMING (REPRESENTATIVE PARTNER OF PAUL KINGSTON FURNITURE)	Appellant	

	- and –

THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS (INCOME TAX)	Respondents	

				TRIBUNAL:	Kevin Poole (Tribunal Judge)
						Mohammed Farooq

The Tribunal determined the appeal without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009.

© CROWN COPYRIGHT 2010

DECISION

Introduction 

1.	This case arose from an appeal against a fixed £100 penalty imposed by the Respondents (“HMRC”) on the Appellant in respect of the late filing of the partnership tax return of the partnership known as Paul Kingston Furniture (“the Partnership”).
2.	After the appeal had been commenced, HMRC imposed a similar additional £100 fixed penalty on the other partner in the Partnership, Mr P T Kingston.
3.	No request for an oral hearing having been made, the appeal was allocated by the Tribunal to the default paper category.  Following a consideration of the papers provided by both parties, a decision notice dismissing the appeal and containing a summary of the Tribunal’s findings of fact and reasons for the decision was released on 14 December 2009.  
4.	The Appellant made an application for permission to appeal against the Tribunal’s decision on 29 December 2009 (received on 30 December 2009 at the Tribunal).  
5.	Under Rule 35(4) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (“the Rules”), it is made clear that if a Tribunal decision provides only summary findings and reasons, a party wishing to appeal must apply for full written findings and reasons for the decision before seeking permission to do so.  Accordingly on 27 January 2010 the Tribunal informed the Appellant that it would treat the Appellant’s application as a request for full written findings of fact and reasons for the decision.
6.	This decision is therefore provided in accordance with Rule 35, in order to enable the Appellant to decide whether to apply for permission to appeal against the decision of the Tribunal and to assist her in formulating any such appeal.
Evidence

7.	The evidence before us in reaching our decision was that contained in the following documents: 
(1)	the notice of appeal dated 4 August 2009; 
(2)	HMRC’s undated document headed “Paper Hearing Submission” sent to the Tribunal with its letter dated 23 September 2009, which constitutes its statement of case for the purposes of the Rules; 
(3)	the documents attached to the same (marked Folios 1 to 7), namely:
(a)	HMRC’s letter dated 24 June 2009 confirming its original decision following a review (Folio 1);
(b)	HMRC’s letter dated 20 July 2009 upholding the decision contained in its letter dated 24 June 2009 (Folio 2);
(c)	Letter dated 5 March 2009 from C. Biggs (Appellant’s Accountant) to HMRC containing the Appellant’s original appeal against the penalty (Folio 3);
(d)	Letter dated 30 June 2009 from C. Biggs to HMRC requesting review of HMRC’s initial decision of 24 June 2009 to refuse appeal (Folio 4);
(e)	A further copy of the Appellant’s notice of appeal dated 4 August 2009 (Folio 5);
(f)	A copy of the first page of a blank partnership tax return for the year ended 5 April 2008 and of pages 1 and 2 of the Partnership Return Guide for the year ended 5 April 2008 (Folio 6); and
(g)	A copy of an extract from HMRC’s website entitled “Completing your tax return (partners and partnerships)”.
(4)	Letter dated 15 October 2009 from C. Biggs to HMRC headed “Re:  Mr P.T. Kingston.” in response to a penalty notice issued to Mr Kingston (the other partner in the Partnership) on 29 September 2009 (and received on 12 October 2009) in respect of the late filing of the partnership tax return for the year ended 5 April 2008, giving grounds of appeal in relation to that penalty;
(5)	Letter dated 16 October 2009 from C. Biggs to the Tribunal with annexed “Comments on the Revenue’s Case” in response to HMRC’s Paper Hearing Submission at (2) above, attaching:
(a)	a copy of a letter dated 16 February 2009 from HMRC to Mr C. Biggs headed “Mr & Mrs A O’Sullivan Partnership” including a statement that “I have amended our records to ensure that no penalties are charged to the partners due to the late receipt of the 2008 partnership tax return”;
(b)	a copy of a “Certificate of Taxable Incapacity Benefit Paid and Income Tax” issued by Jobcentre Plus to the Appellant on 26 April 2008, covering the year ended 5 April 2008 and showing taxable Incapacity Benefit paid to her during the year;
(c)	a copy of a penalty notice dated 29 September 2009 addressed to C Biggs, giving notice of a penalty of £100 imposed on Mr P T Kingston due to the late filing of the partnership tax return of the Partnership for the year ended 5 April 2008;
(6)	Letter dated 5 November 2009 from HMRC to C Biggs concerning the appeal against the penalty imposed on Mr P T Kingston;
(7)	Letter dated 11 November 2009 from C Biggs to HMRC concerning the penalty imposed on Mr P T Kingston;
(8)	Letter dated 20 November 2009 from HMRC to C Biggs in reply;
(9)	Letter dated 1 December from C Biggs in reply.
We have also considered copy correspondence in the file of the Tribunal relating to the sending of the notice of appeal to HMRC by the Tribunal and the delivery by HMRC of their statement of case.
Facts
8.	From these documents, we find the following facts.
9.	The Appellant is and at all material times has been the “representative partner” of the Partnership for the purposes of s 93A Taxes Management Act 1970 (“TMA”).  At all material times there was one other partner, Mr P T Kingston.
10.	On 6 April 2008 the Appellant was issued with a partnership tax return for the Partnership for the year ended 5 April 2008.  The deadline for filing this return was 31 October 2008 (if filed in paper form) or 31 January 2009 (if filed online).  This twin deadline was stated on the first page of the tax return itself and (prominently) on the first page of the accompanying tax return guide.  The first page of the tax return itself contained (amongst other things) the following instruction:
“Give details of all the income and disposals of chargeable assets on which the partners may be charged to tax using:
•	the internet (using 3rd party commercial software).  An instant online acknowledgment will tell you that your Tax Return has been safely received.  Go to https://online.hmrc.gov.uk/ssoin to register and enrol for Self Assessment Online for Partnerships;  OR
•	this form and any supplementary Pages you need.
Make sure your Tax Return, and any documents asked for, reach us by:
•	31 October 2008 if you complete a paper Tax Return; OR
•	31 January 2009 if you file online.”
11.	In their Paper Hearing Submission, HMRC stated that “The HMRC website (Folio 7) advises that commercial software is needed to file partnership returns online.” In another place in the same submission, HMRC stated the “The HMRC Internet Site (Folio 7) also confirms that commercial software is required in order to file a Partnership Return.”   HMRC is not therefore stating that its website contained this advice in these terms at the relevant times in 2008-2009 and the Tribunal therefore disregards this evidence as irrelevant.  It also considers it unsatisfactory that HMRC have made such statements: when read carefully, they are clearly irrelevant, but the effect of including them is that a general impression is created that all relevant advice was contained on their website at the time.  HMRC’s overall case is undoubtedly weakened by the inclusion of such apparently misleading statements. 
12.	In their letter dated 20 July 2009, HMRC stated that “The requirement for 3rd party software was also publicised in the ‘Working Together’  site for agents under the links ‘Agents’ guide to changes to the paper Self Assessment main return’ and ‘Latest news for agents and advisers’.”  The Tribunal accepts this was the case (though with some hesitation, following its comments in the previous paragraph), but notes that this advice would only have been apparent to an adviser after searching for it on HMRC’s website, and there is no evidence before the Tribunal as to how difficult this advice would have been to find.
13.	The Partnership’s accountant Mr Carl Biggs dealt with submission of their returns.  Mr Biggs dealt with submission of the personal returns of the partners online without problem.  He attempted to do the same in relation to the partnership return in January 2009 (after the deadline for filing in paper form) but without success.  We accept that, as stated in his letter dated 5 March 2009, Mr Biggs spent considerable time trying to find out why he had not been able to file the partnership return electronically, and only discovered from HMRC’s helpline that he would need to acquire further software himself to be able to do this.  We find that he was given (or referred to) a list of potential suppliers by the helpline and researched some of them, to find a minimum cost of £500 would be incurred in acquiring the necessary software from them.   He therefore took the decision to file the return late in paper form, which he did.  The Respondents received it on 19 January 2009.
14.	The return having been received out of time, the Respondents imposed a late filing penalty of £100 on the Appellant and notified her of that fact by a penalty notice which was not provided to the Tribunal but which appears to have been issued in late February or early March 2009 (possibly on 17 February 2009).  Whilst it is unfortunate that no copy has been provided of this notice, there was no dispute as to its issue raised in the papers before us (indeed, all the arguments raised proceeded on the basis that the notice had been issued and received), therefore the Tribunal finds as a fact that such issue occurred.
15.	We also find that Mr Biggs was dealing with the filing of another partnership return at the same time, and went through a similar process.  We find that (as stated in Mr Biggs’ “Comments on the Revenue’s Case” of 16 October 2009) HMRC accepted his appeal in relation to the other partnership and cancelled the late filing penalty “on the grounds that the penalty cannot exceed the amount of tax due.”  This cancellation appears to have been confirmed in a letter from HMRC dated 16 February 2009, in response to a letter from Mr Biggs dated 29 December 2008.  HMRC’s letter does not state the grounds for agreeing to the cancellation, and no copy of Mr Biggs’ letter dated 29 December 2008 (which might have clarified such grounds) was put before us.
16.	Following two internal reviews of the Appellant’s penalty by HMRC (resulting in confirmation of that penalty), Mr Biggs submitted a notice of appeal dated 4 August 2009, which was received at the Tribunal on 5 August.  On 13 August 2009, the Tribunal sent the Appellant’s notice of appeal to HMRC, requiring their statement of case to be submitted in response within 42 days from that date, pursuant to Rule 25(1)(a).
17.	On 23 September 2009 HMRC sent their “Paper Hearing Submission” to the Tribunal.  There is unfortunately no record of the date of its receipt at the Tribunal, but in most cases we are informed that statements of case are received by the Tribunal on the working day following the date of the covering letter.  It is likely therefore that it was received on 24 September 2009, just within the 42 day period required under the Rules.  We therefore find, on a balance of probabilities, that the statement of case in this appeal was filed within the requisite 42 day period.
18.	On 29 September 2009, shortly after the issue of HMRC’s “Paper Hearing Submission”, HMRC issued a penalty notice addressed to Mr P T Kingston, the other partner in the Partnership, notifying him of the imposition on him of a separate penalty of £100 in respect of the late filing of the partnership return.  No clear explanation has been given of why this penalty was imposed later than the penalty of £100 imposed on the Appellant, and we find it was as a result of a simple omission on the part of HMRC (as they stated in their letter dated 20 November 2009).
19.	In his letter dated 15 October 2009 (relating to the penalty imposed on Mr Kingston), Mr Biggs stated that “During the 2007-08 year Mr Kingston suffered serious health problems in that his working ability was effected [sic].  After numerous medical consultations Mr Kingston was diagnosed with Fibromyalgia.”  He added: “I am not certain if you need any medical confirmation or if you need any details of what this disability has had on my client, but it can be obtained if necessary.”  No further evidence was supplied in relation to Mr Kingston’s medical condition, but we accept that he was suffering muscular aches and pains of some severity during the year ended 5 April 2008.  No evidence was provided in the papers before us as to his condition after that date, or as to the extent of the disability he suffered.
20.	In Mr Biggs’ “Comments on the Revenue’s case” sent with his letter dated 16 October 2009, he stated he could “confirm that my client [i.e. the Appellant] was signed off for a large part of 2007-08 as a result of her medical condition.  I have not been able to obtain the full medical condition as I believe it to be personal.  However if evidence is needed I can ask my client to supply this information direct to you.”  In that same document, he said that “Mr Kingston does have such an excuse in that he suffered from Fibromyalgia.  This condition has seriously effected [sic] him and his ability to do anything.”
21.	Later in the same document, he said “Please let me know if you need any further detailed evidence on both partners medical conditions.  As you will appreciate it can be private and any suggestion you may have I will try and obtain.”  HMRC do not appear to have responded specifically to this statement, and no other evidence as to the medical condition of the Appellant or Mr Kingston was placed before us.
22.	In the circumstances, we are able to accept that both the Appellant and Mr Kingston were incapacitated to some degree during the year ended 5 April 2008, but no evidence was given to us as to their condition thereafter, and no details of the extent or severity of their conditions at any time was provided.  In particular, we had no evidence as to their medical condition during the period from 6 April 2008 to 19 January 2009.  
Grounds of Appeal
23.	Mr Biggs has given various different grounds of appeal in his various letters to HMRC and in the notice of appeal.
24.	In his letter dated 5 March 2009, he appealed against the original penalty on two grounds:
(1)	“The penalty cannot exceed the amount of tax payable and as the partnership does not pay tax, the penalty cannot be higher than nil.”
(2)	“The Revenue does not allow a partnership return to be filed electronically and there is no notification of this fact in the papers I have.”
25.	In his letter dated 30 June 2009 Mr Biggs gave “a number” of grounds of appeal summarised under four headings:
(1)	He filed as many returns as he could online (including the personal returns of the two partners in the Partnership), however he “received no communication from the Inland Revenue to inform me their software did not permit me to file a partnership return electonically [sic]”.
(2)	He only found out about this issue by contacting the helpline when trying to file the partnership return online, “and that I would need to file on software from my own resourses [sic]. That would cost over £500 to acquire.”
(3)	Neither the partnership nor either partner had any tax to pay.  “As such there is a nil amount of tax to pay and the penalty cannot exceed this sum”.
(4)	He had acted on another partnership where “the Revenue accepted the above comments and cancelled the fine therefore setting a precedent.”
26.	In the notice of appeal dated 4 August 2009, Mr Biggs gave the following grounds for appeal:
“I was not aware that the Revenue did not allow partnership self assessments to be filed on the Revenue software.  I had never filed a partnership return electronically previously.  I attempted to file the self assessment for both this partnership and also another without success and then found that I had to acquire software which would have cost in excess of £500 to enable me to do this.
When I am trying to file as many self assessment forms electronically as possible, I believe such a cost for a small practice is excessive.
Both partnerships received late penalty fines.  I lodged an appeal to the respective tax offices.  The first office accepted my appeal and cancelled the penalty.  That is a precedent in that all taxpayers should be treated the same under the Taxpayers Charter.  It follows that my client should receive the same treatment.
The partnership does not have any tax to pay.  Likewise both partners either received a refund of tax in the year, or had no tax to pay.  In all my dealings with the Revenue, they have always agreed that the penalty cannot exceed the amount of tax payable.  As there was not tax payable by either the partnership or the individual partners, the penalty cannot be more than nil.”
27.	In relation to Mr Kingston’s penalty, Mr Biggs also raised the following grounds of appeal in his letter dated 15 October 2009:
(1)	A reasonable excuse for the delay under s 92A(7)(a) TMA, arising from Mr Kingston’s illness referred to above;
(2)	The penalty was issued to Mr Kingston after the Appellant’s penalty had already been appealed to the Tribunal, effectively making the issue of the penalty to Mr Kingston “out of time”.
(3)	A reasonable excuse arising from the illness of “Mr Kingston’s partner” during the relevant period.  It was not made clear whether this refers to Mr Kingston’s business partner (i.e. the Appellant) or a private partner.  But on the basis that no evidence of any illness was provided except in relation to Mr Kingston and the Appellant, we have assumed this is a reference to the illness of the Appellant.  If it were to relate to any other person, we would find this statement insufficient on its own to amount to evidence of any kind.
(4)	As there was no tax liability for the partners or the partnership for the year in question, the penalty should be reduced to nil.
28.	In his “Comments on the Revenue’s Case” submitted with his letter dated 16 October 2009, Mr Biggs made some further submissions:
(1)	First, he argued that the essence of HMRC’s case was compliance with time limits and they had themselves failed to comply with the 42 day time limit for filing of their statement of case
(2)	Second, he repeated his reference to the other similar case, in which his appeal had been accepted by HMRC.  He stated that the penalty in the other case had been cancelled on the basis that the penalty could not exceed the tax due; and under the Taxpayer’s Charter the Appellant was entitled to equal treatment.
(3)	Third, he expanded on the medical condition of the Appellant (having been “signed off for a large part of 2007-08 as a result of her medical condition”) as a possible “reasonable excuse” for the delay.
(4)	Fourth, he argued that the legislation allowed Mr Kingston a 30 day period to appeal his penalty, and the penalty notice had only been served on 29 September 2009; thus HMRC were in some way preventing Mr Kingston from exercising his full rights of appeal.  He referred again to Mr Kingston’s fibromyalgia.
29.	From all the above, we would summarise the Appellant’s grounds of appeal as follows:
(1)	HMRC’s case should be struck out due to the late filing of their statement of case.
(2)	By imposing the second penalty (on Mr Kingston) after the appeal had already started, HMRC were in some way denying Mr Kingston his full rights of appeal and their case should therefore be struck out.
(3)	There was a reasonable excuse for the delay in filing the return based on the medical condition of Mr Kingston and/or the Appellant and therefore either or both of them should have their penalty cancelled.
(4)	A different taxpayer had had his appeal allowed by HMRC in a similar situation and therefore on the basis of a right of equality of treatment arising from the Taxpayer’s Charter, this appeal should also be allowed.
(5)	The penalties should be set aside because the tax liability of the partners for the year ended 2007-08 was nil and the penalty should not exceed the amount of tax due.
(6)	The Appellant’s accountant was not aware of the need to use extra software for filing the partnership return online, and the cost of acquiring such software was excessive (at £500); accordingly (presumably) the Appellant had a reasonable excuse for the delay in filing, which still occurred before the online filing deadline.
Decision
30.	Taking the grounds of appeal as summarised above in turn (and adopting the same numbering):
Late filing of statement of case
(1)	As mentioned in paragraph 17 above, we find that HMRC in fact complied with the deadline for filing their statement of case; in any event, we would have regarded a delay of a day or two as not significant in the context of this case, and certainly insufficient to justify the striking out of HMRC’s case.  Whilst we note the Appellant’s point that strict compliance with time limits lies at the heart of HMRC’s case, we consider there is a difference between compliance with strict time limits laid down by tax legislation where a clear and immediate penalty is provided for non-compliance, and compliance with time limits laid down in the Tribunal’s Rules, under which specific provision is made for extension of time at the Tribunal’s discretion.  If it had been necessary, therefore, we would have been prepared to waive the strict time limit under Rule 7(2)(a) in view of the fact that the length of the delay was at most a day or two.
Late issue of penalty to Mr Kingston
(2)	The scheme of the legislation imposes the responsibility for making the return on the Appellant as representative partner of the Partnership – see s 93A(1) TMA.  It is clear that under s 93A(6) TMA the appeal of the representative partner acts as an appeal on behalf of all the partners in relation to their respective penalties, and under s 93A(7) TMA any “reasonable excuse” for the default in filing the return must be a reasonable excuse of the representative partner.  Accordingly the issues that are relevant to the appeal in relation to both penalties are the same.  The fact that one of the penalties was imposed after the appeal had commenced, though unfortunate, does not affect the fact that the outcome of the appeal applies to both and is based on exactly the same facts as were relevant when the appeal was believed to relate to one penalty only.  As no prejudice in relation to the appeal has been suffered by Mr Kingston as a result of the late issue of his penalty notice, we do not see how that late issue can give rise to a successful ground of appeal.
Reasonable excuse on medical grounds
(3)	As summarised above, we have been given some very general evidence to the effect that the Appellant and Mr Kingston both suffered from significant medical problems during the year ended 5 April 2008.  However, there is no evidence to link these problems with the delay in filing the return.  Clearly by 19 January 2009 Mr Biggs had been supplied with all the information he needed to make the return, he simply decided that it was too expensive for him to comply with the deadline.
Equality of treatment of taxpayers
(4)	The evidence is that HMRC allowed the appeal in the allegedly similar case on the basis that they accepted the argument summarised at paragraph 29(5) above.  As such, we consider they were wrong in law (see paragraph 30(5) below).  We do not consider that the Taxpayer’s Charter could be interpreted as conferring an entitlement on all taxpayers to the benefit of a mistake made in favour of one taxpayer.  Even if HMRC had allowed the other appeal on some other basis, each case is particular to its own facts and must be decided independently.
Capping penalty at nil in line with tax liability
(5)	This is unfortunately incorrect in law.  Unlike penalties for late filing of personal returns (see s 93(7) TMA), there are no provisions in s 93A TMA which limit the penalties in relation to partnership returns in a similar way.
Reasonable excuse on expense grounds
(6)	We do not consider this gives rise to a reasonable excuse for the late filing.  Mr Biggs took a conscious decision, having discovered too late to perform a paper filing, that he would not incur the cost of acquiring the necessary software to effect an online filing and would instead take his chances by filing a late return in paper form.  He could have avoided that choice by informing himself about the process involved in online filing before the paper filing deadline.  The publicity given to the new system by HMRC was clearly not as extensive as it might have been, but given the general obligation of professionals in the field of taxation to stay abreast of developments in the field and the information which was contained on the tax return itself, the associated guide and on HMRC’s website, we consider this decision of her accountant cannot constitute a reasonable excuse for the Appellant.
31.	It follows that the appeal must fail and the penalties must be confirmed.
32.	The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

TRIBUNAL JUDGE
RELEASE DATE: 25 February 2010