[2011] UKFTT 55 (TC)

TC00933

	Appeal number: TC/2010/06126

STAMP DUTY LAND TAX – Penalty for late filing of return – Did the loss of return in the post constitute a reasonable excuse – Yes – Did the Appellants’ representative act without unreasonable delay after the excuse had ended – Yes – Appeal allowed

FIRST-TIER TRIBUNAL

TAX 

	MR C RUNHAM & MS C NARAMORE	Appellants

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	Michael Tildesley OBE (TRIBUNAL JUDGE)

The Tribunal determined the appeal on 27 October 2010 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 23 July 2010,  HMRC’s Statement of Case submitted on 6 September 2010 and the Appellant’s Reply dated 1 October 2010. The Tribunal allowed the Appeal giving summary reasons for its decision. HMRC has requested extended reasons.

© CROWN COPYRIGHT 2011

DECISION

The Appeal
1.	The Appellants appealed against the imposition of a flat rate penalty in the sum of ₤100 for failing to submit a return of land transactions before the end of the period of 30 days after the effective date of the transaction in accordance with section 76(1) of the Finance Act 2003.
The Facts
2.	The Appellants instructed a firm of solicitors to carry out their conveyancing in respect of the sale of their existing property and the purchase of a new residential property in West Malling, Kent. On 19 March 2010 the Appellants completed the purchase of a property, and stamp duty of ₤12,525 was payable on the date.
3.	Immediately following completion of the purchase the Appellants’ legal representative requested a cheque for the requisite amount of stamp duty from the client account. The representative then affixed the cheque to the Stamp Duty Land Tax form (SDLT1) which had been previously completed and signed by the Appellants, and posted the form and cheque to HMRC on 19 March 2010.
4.	On 26 April 2010 the Appellants’ representative contacted HMRC because she had not received the certificate of payment of the Stamp Duty Land Tax (SDLT5). The representative was alerted to the non-receipt of SDLT5 by a prompt on the computer system that the priority afforded by the Land Registry search on the property was due to expire on 30 April 2010.   HMRC advised the representative to write in which she did straightaway. The representative requested HMRC to contact her urgently to confirm whether the stamp duty form was received.
5.	On 7 May 2010 HMRC advised the representative that it had not received the SDLT1 and cheque.
6.	As soon as the representative was advised of the non-receipt of SDLT1 and cheque she requested the accounts department to cancel the cheque. The representative then submitted a new SDLT1 electronically and paid the outstanding stamp duty by electronic transfer.  
7.	HMRC received the return on 7 May 2010, 20 days after the filing date for the return which gave rise to the penalty of ₤100.
8.	The representative also sent a letter dated 7 May 2010 to HMRC explaining the circumstances and requesting waiver of any penalty.
9.	On 10 June 2010 HMRC issued its decision upholding the penalty. The Appellants requested a review which was concluded on 8 July 2010 and confirmed the penalty of ₤100. On 23 July 2010 the Appellants lodged their Appeal with the Tribunal.
The Law
10.	Section 76 of the Finance Act 2003 requires the purchaser to deliver a return in the case of a notifiable transaction to HMRC before the end of the period of 30 days after the effective date of transaction.
11.	Section 77 of the Finance Act 2003 defines a notifiable transaction as including  an acquisition of a major interest in land that does not fall within one or more of the exceptions in section 77A.
12.	Section 119(1) of the Finance Act 2003 defines the effective date of a transaction which is the date of completion or such alternative date as HMRC may prescribe by regulation.
13.	Paragraph 3, schedule 10 of the Finance Act 2003 provides that a flat rate penalty of ₤100 may be imposed for a return filed within  three months after the filing date, or ₤200 in any other case.
14.	Section 97 of the Finance Act 2003 specifies that 
(2) Where a person had a reasonable excuse for not doing anything required to be done for the purposes of this Part –
(a) he shall be deemed not to have failed to do it unless the excuse ceased, and
(b) 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.
Reasons
15.	The Appellants failed to file a return of their land transaction within 30 days of completion of the purchase on 19 March 2010. The return was delivered on the 7 May 2010, 20 days after the filing date. The Appellants were, therefore, liable to pay a flat rate penalty in the sum of ₤100.
16.	The Appellants asserted that they have a reasonable excuse for the late filing of the return and as soon as the excuse ceased they acted without unreasonable delay in remedying the default.
17.	The Appellants’ reasonable excuse was that their representative sent the return and the cheque for the outstanding duty by ordinary post in good time to be delivered to HMRC before the filing date. The Appellants stated that the return must have got lost in the post and that their representative acted without unreasonable delay as soon as the excuse ceased. 
18.	The sole issue in this Appeal is whether the Appellants had a reasonable excuse and they acted without unreasonable delay as soon as the excuse ceased. 
19.	Section 97 provides no statutory definition of reasonable excuse. HMRC considers a reasonable excuse as an exceptional event beyond the person’s control which prevents the person from submitting a return on time. The Stamp Duty Land Tax  Manual (SDLTM 86460) specifically mentions that a return delayed in the post is not considered a reasonable excuse for late submission.
20.	The Tribunal is not bound by HMRC’s construction of reasonable excuse. The Tribunal prefers Lord Donaldson’s interpretation of reasonable excuse in Customs and Excise Commissioners v Steptoe [1992] STC 757 which requires the Tribunal to consider reasonable excuse from the perspective of prudent person exercising reasonable foresight and due diligence and giving proper regard to his responsibilities under the Tax Acts. The Tribunal also notes that section 59(7) of the VAT 1994 provides in respect of default surcharge for  the late filing of VAT return that
"If a person satisfies the Commissioners or, on appeal, a tribunal that, in the case of a default which is material to the surcharge -
(a)     the return or, as the case may be, the VAT shown on the return was despatched at such a time and in such a manner that it was reasonable to expect that it would be received by the Commissioners within the appropriate time limit, or
(b)     there is a reasonable excuse for the return or VAT not having been so despatched,
he shall not be liable to the surcharge ."
21.	Although the above references relate to reasonable excuse in the context of VAT legislation, the Tribunal considers that in the absence of direct authority they are persuasive as to the meaning of reasonable excuse in other parts of the tax legislation.
22.	HMRC in its statement of case disputed that the Appellants’ circumstances amounted to a reasonable excuse, saying that
“The agent has said that the SDLT return form was signed by the Appellants in September 2009 and submitted by the agent on the purchase completion date, 19 March 2010 together with a cheque for the tax due. The agent did not retain a copy of the return but it can confirm a cheque was drawn from their accounts department on 19 March. The review officer found that the most likely explanation was that the form SDLT1 was lost in the post, but in fact, no evidence has been supplied that confirms the form was ever posted. The non-receipt of the Land Transaction Certificate required to register the ownership of the property was not pursued by the agent until after the filing date had expired. The agent took prompt action to submit a return on-line when she discovered that HMRC had not received one but this does not alter the fact that the return form SDLT1 had not been received within the time limit. Had the agent’s internal processes kept the case under review for receipt of the Land Transaction Certificate at an earlier date, the non-receipt of the return may have been identified in time to avoid a penalty.
23.	  HMRC challenges the Appellants’ factual account in two respects. First HMRC stated that the Appellants have produced no evidence that the SDLT1 form was posted on the 19 March 2010. The Tribunal disagrees. The Appellants’ representative supplied a statutory declaration that she posted the required form on 19 March 2010, and also confirmed the existence of a record documenting the drawing of  the cheque from the client account for the stamp duty. Second HMRC asserted that the Appellant had no internal processes which kept under the review the receipt of the Land Transaction Certificate. The Tribunal disagrees. The Appellant had established a process which involved a prompt on her computer that the 30 day period of protection given by the official Land Registry  search of the property was due to expire. This prompt alerted her to the non-receipt of the certificate of payment of the Stamp Duty Land Tax (SDLT5).
24.	The Tribunal makes the following findings of fact
(1)	The Appellants exercised due diligence in instructing legal representatives to carry out the conveyancing associated with the purchase of their new property.
(2)	The purchase was completed on 19 March 2010.
(3)	The Appellants’ representative requested a cheque for the requisite amount of stamp duty from the client account. The representative then affixed the cheque to the Stamp Duty Land Tax form (SDLT1) which had been previously completed and signed by the Appellants, and posted the form and cheque to HMRC on 19 March 2010.
(4)	 The representative despatched the Stamp Duty Land Tax form (SDLT1) at such time and in such manner that it was reasonable to expect that it would be received by HMRC before the expiry of the 30 day time limit.
(5)	HMRC did not receive the SDLT1 by the required date. The most likely explanation for the non-receipt of the form was that it got lost in the post.
(6)	The representative had established a process which involved a prompt on her computer that the 30 day period of protection given by the official Land Registry  search of the property was due to expire. This prompt alerted her to the non-receipt of the certificate of payment of the Stamp Duty Land Tax (SDLT5) which caused her to make enquiries of HMRC on 26 April 2010 about the delivery of the return
(7)	On 7 May 2010 HMRC advised the representative of the non-receipt of the SDLTI in respect of the property. The representative then immediately submitted a new SDLT1 electronically and paid the outstanding stamp duty by electronic transfer.  
25.	The Tribunal is satisfied that the above facts found constitute a reasonable excuse within the meaning of section 97 of the Finance Act 2003 and that the Appellants acted without unreasonable delay once the excuse ceased.
Decision
26.	The Tribunal, therefore, allows the Appeal and quashes the penalty of ₤100 and the associated interest.

27.	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.

MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 17 JANUARY 2011