[2010] UKFTT 185

TC00489

Appeal number: TC/2009/15398 

Contractors Return – Late filing penalty – Change of accountant – New accountant unable to obtain information from previous accountant – whether reasonable excuse throughout period of default – No – Whether Return filed without unreasonable delay after excuse ceased – No – Appeal dismissed – sections 98A & 118(2) Taxes Management Act 1970

FIRST-TIER TRIBUNAL

TAX 

	MICHAEL SMITH	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 		John Brooks (Judge)								
			
Sitting at Cardiff on 4 March 2010

The Tribunal determined the appeal on 4 March 2010 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases). 

© CROWN COPYRIGHT 2010

DECISION
Introduction
1.	This case arose from an appeal by Mr Michael Smith against penalties of £900 and £300 issued by HM Revenue and Customs (“HMRC”), on 12 March 2007 and 9 October 2008 respectively, under s. 98A of the Taxes Management Act 1970 (“TMA”) in respect of Mr Smith’s failure to file a Contractors Return (the “Return”) for the tax year 2005-06 on time.
2.	The appeal was allocated by the Tribunal to the default paper category.  Having considered 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 17 March 2010.
3.	Following receipt of this Decision Notice Mr Smith wrote to the Tribunal stating that he wished to appeal against the Tribunal’s decision.
4.	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, as in this case, 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.
5.	Therefore Mr Smith’s letter has been treated as a request for full written findings of fact and reasons for the decision.
6.	This decision is provided in accordance with Rule 35, in order to enable Mr Smith to decide whether to apply for permission to appeal against the decision of the Tribunal and to assist him in formulating any such appeal.
Evidence
7.	The evidence before the Tribunal was contained in the following documents:
(1)	Mr Smith’s Notice of Appeal dated 23 October 2009;
(2)	HMRC’s undated document headed “Paper hearing submission” which constitutes its Statement of Case for the purposes of the Rules; and
(3)	The following documents attached to HMRC’s Statement of Case:
(a)	letter from Mr Smith to HMRC dated 8 March 2009 (Folio 1);
(b)	letter from HMRC to Mr Smith dated 1 April 2009 (Folio 2);
(c)	letter from Mr Smith to HMRC dated 6 April 2009 (Folio 3);
(d)	letter from HMRC to Mr Smith dated 30 April 2009 (Folio 4);
(e)	Mr Smith’s “Request for review of decision” dated 30 May 2009 (Folio 5);
(f)	“Conclusion of Review” letter from HMRC to Mr Smith dated 10 July 2009 (Folio 6);
(g)	letter from HMRC to Mr Smith dated 5 October 2009 (Folio 7);
(h)	letter from Mr Smith to HMRC dated 12 October 2009 (Folio 8);
(i)	letter from HMRC to Mr Smith dated 15 October 2009 (Folio 9);
(j)	further copy of Mr Smith’s Notice of Appeal (Folio 10);
(k)	copy of Regulation 73 Income Tax (PAYE) Regulations 2003 (Folio 11); and
(l)	printed extract from HMRC’s website “Penalties if you file PAYE returns late: P34, P14, P11D(b)” (Folio 12).
Facts
8.	From these documents I find the following facts.
9.	HMRC issued the blank Return to Mr Smith on 16 January 2006. The due date for submission of the completed Return was 19 May 2006. 
10.	The blank Return, like all correspondence from HMRC, was delivered to Mr Smith at his home address. As it concerned his business he did not deal with it himself but took it to his accountant, as he did with all such communications from HMRC, and relied on his accountant to complete and submit the Return on his behalf.  
11.	However, the Return was not delivered to HMRC on time because Mr Smith had changed accountants and the new accountant was unable to obtain information necessary for its completion from his predecessor in time to complete the Return for submission by the due date.
12.	On 12 March 2007, as the Return had not been received, HMRC issued a Penalty Notice in the sum of £900. This was sent to Mr Smith at his home address. 
13.	The Return, which was completed by Mr Smith’s accountant, was received by HMRC on 21 May 2008 some 733 days late.
14.	HMRC issued a further Penalty Notice in the sum of £300 on 9 October 2008 which was sent to Mr Smith’s home address.
Legislation
15.	The relevant statutory provision is contained in s. 118(2) TMA which, so far as is material to this appeal, provides:
“…where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.”
Submissions
16.	Mr Smith accepts that the Return was submitted late by his accountant and does not challenge either that he was required to submit the Return or the amount of the penalties concerned. 
17.	However, he contends that by relying on his accountant to complete and submit the Return on his behalf he had a reasonable excuse throughout the period of default for its late submission and, as such, should be deemed not to have failed to file the Return on time. 
18.	As he states in his Notice of Appeal:
“… I do not feel that I was responsible for the [Return] being late – it was an unavoidable consequence, as far as I can see, of information not being made available to a new agent by an old agent – there could be several reasons for this – just non co-operation due to loss of business, or possibly the old agent just not being up to date with his work on my behalf and actually not knowing the information required – the former is my own opinion.
So, although I appreciate, it may be my responsibility to make returns on time – these matters were entirely in someone else’s control and there was nothing I could have done to alter this position.” 
19.	HMRC contend that although Mr Smith had an accountant dealing with his affairs it is still his responsibility to make sure that the Return was submitted by the due date as the legislation places the responsibility for delivery of the completed Return, which cannot be transferred to an agent acting on his behalf, “squarely on the shoulders” of Mr Smith. As such, they argue, Mr Smith does not have a reasonable excuse and the appeal should be dismissed and the penalties confirmed. 
Discussion and Conclusion
20.	For Mr Smith to succeed in his appeal he must establish that he has a reasonable excuse for the late submission of the Return and either that the excuse continued throughout the period of default or that the Return was submitted without unreasonable delay after the excuse ceased.
21.	There is no definition of “reasonable excuse” in the legislation which “is a matter to be considered in the light of all the circumstances of the particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]).
22.	Having found that the Return was not submitted on time because of the failure by the accountant, on whom Mr Smith relied, to obtain the information necessary for its completion from his predecessor, it is necessary to consider whether this provides Mr Smith with a reasonable excuse.
23.	Although reliance on “any other person” or third party is specifically precluded from being a reasonable excuse for VAT purposes by s 71 Value Added Tax Act 1994 it can amount to a reasonable excuse in a direct tax context if it was reasonable to rely on that third party (Rowland v HMRC). This raises the issue of whether it was reasonable for Mr Smith to have relied on his accountant to complete and submit the Return on his behalf.
24.	Having carefully considered the circumstances of this case, in particular the fact that all correspondence from HMRC, including the Return and the Penalty Notices, was sent to Mr Smith at his home address and then taken by him to his accountant to deal with, I find that it was initially reasonable for Mr Smith to have relied on his accountant to complete and submit the Return on his behalf.
25.	However, after he had received the first Penalty Notice, in March 2007, Mr Smith would have been aware, or with reasonable diligence should have been aware, that the accountant had not filed the Return on time. Knowing that the Return, which was due on 19 May 2006, had not been submitted by March 2007 I find that it was no longer reasonable for Mr Smith to rely on his accountant.
26.	I therefore find that Mr Smith did have a reasonable excuse for the failure to submit the Return but that this excuse ceased in March 2007 or shortly thereafter after receipt of the first Penalty Notice. 
27.	As the Return was not received by HMRC until 21 May 2008, some 14 months after the excuse ceased, I find that the Return was not submitted “without unreasonable delay after the excuse had ceased”. 
28.	In the circumstances the appeal is dismissed and the penalties confirmed.
29.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

JOHN BROOKS
TRIBUNAL JUDGE
RELEASE DATE: 26 April 2010