[2011] UKFTT 391 (TC)

TC01246

Appeal number TC/2010/09310

Income tax - penalty assessment - Schedule 24 Finance Act 2007 - whether error on tax return was careless - whether Tribunal should reduce the penalty under paragraph 17(3)(b) of Schedule 24 - appeal allowed in part

FIRST-TIER TRIBUNAL

TAX 

	MR GILES DAVIS	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: S.M.G.RADFORD (TRIBUNAL JUDGE)
						N.DEE

Sitting in public at Reading County Court on 20 April 2011

The Appellant did not appear

Ms H.Thorn for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	This is an appeal against a penalty assessment in the amount of £703 issued on 27 July 2010.
2.	The penalty was issued as a result of an inaccuracy in the Appellant’s tax return which HMRC deemed careless.
3.	The Appellant had earlier advised the Tribunal that due to a work engagement he was unable to appear but confirmed that the hearing should go ahead in his absence.
Background and facts
4.	The Appellant was not issued with a notice to file a self assessment return for the year ended 5 April 2009 but as he had a new source of untaxed income which he was required to declare he requested a return. The source of this income was income from property.
5.	The Appellant’s self assessment tax return for the year ended 5 April 2009 was filed online by him on 31 January 2010.
6.	The Appellant was previously employed by Hazell Carr Ltd and his employment was transferred to Xafinity Ltd under a TUPE arrangement in April 2008. 
7.	The Appellant only entered onto the employment pages of the self assessment return his pay and tax figures relating to his period of employment with Xafinity Ltd 
8.	The pay and tax figures for the period of employment with Hazell Carr Ltd, were not entered on the return.
9.	The employment page of the tax return states that the total from the P60 must be entered. This page also states that an employment page should be completed for each employment.
10.	Pay and tax figures for the  previous period of employment with Hazell Carr Ltd were shown on the appellant’s P60. 
11.	The Appellant’s return showed details of income from property.  The figures were agreed and are not in dispute. 
12.	HMRC opened an enquiry into the return under Section 9A of the Taxes Management Act 1970 (“TMA”) on 18 February 2010.
13.	The enquiry was closed under Section 28A of the TMA on 1 July 2010. The conclusion was that the Appellant had omitted to declare pay of £50,000 with tax deducted of £15,312 from the employment with Hazel Carr Ltd.
14.	The self assessment calculation for the year ended 5 April 2009 showed an overpayment of £4,184.40. The revised tax due following the conclusion of the enquiry was tax due of £503.60. The difference is £4,688.
15.	The penalty was charged at 15% on the difference between the original and revised tax assessments.
16.	A statutory review was offered on 1 July 2010 and accepted on 22 July 2010. The review was carried out by Mr Telfer of the Appeals and Review Unit on 9 November 2010 and Mr Telfer upheld the penalty decision. 
17.	An appeal was made to Tribunal Service on 1 December 2010.
18.	The Schedule 24 of the Finance Act 2007 (“Schedule 24”) penalty was calculated on the difference of £4,688. The penalty charge is 15% of this which is £703. 
19.	It was not disputed by the Appellant that his return should not be treated as falling under Section 8 of the TMA.
20.	It was not disputed by the Appellant that his return contained inaccuracies which resulted in an agreed underpayment of tax. 
Legislation
21.	Section 7(1) of the TMA provides that where a person has not been given a notice under Section 8 to file a return and there is an additional liability to tax they should notify HMRC within six months from the end of that year.
22.	Section 8(1) of the TMA provides, where notice has been given, for a person to make and deliver a tax return. 
23.	Section 9 of the TMA requires that the return is to include a self-assessment.
24.	Section 9A of the TMA provides for HMRC to enquire into a return 
25.	Section 28A of the TMA provides that an enquiry into a return is completed when a closure notice is issued and states the conclusions reached.
26.	Paragraph 1(1) of Schedule 24 provides that a penalty is payable by a person when 
(a) that person gives HMRC a document listed in the Table, which includes a return under Section 8 TMA 1970, and
             (b) when conditions 1 and 2 are satisfied
27.	Paragraph 1(2) of Schedule 24 states that Condition 1 is that the document contains an inaccuracy which leads to (a) an understatement of tax or (c) a false or inflated claim to repayment of tax.
28.	Paragraph 1(3) of Schedule 24 states that Condition 2 is that the inaccuracy was careless or deliberate within the meaning of Paragraph 3.
29.	Paragraph 3(1) of Schedule 24 defines an inaccuracy as careless if due to a failure to take reasonable care.
30.	Paragraph 4(1)(a) of Schedule 24 states the penalty payable for careless action is 30% of the potential lost revenue.
31.	Paragraph 5(1) of Schedule 24 defines the potential lost revenue as the additional tax due as a result of correcting the inaccuracy.
32.	Paragraph 9 (1) of Schedule 24 provides for reductions in the penalty where a person discloses an inaccuracy by
(a)	 Telling HMRC about the inaccuracy,
(b)	Giving HMRC reasonable help in quantifying the inaccuracy and 
(c)	Allowing HMRC access to the records so the inaccuracy can be corrected.
33.	Paragraph 9(2) of Schedule 24 defines disclosure as 
(a)	unprompted if made at a time when the person making it had no reason to believe that HMRC had discovered, or was about to discover, the inaccuracy, and 
(b)	otherwise is prompted.
34.	 Paragraph 9(3) of Schedule 24 states that in relation to disclosure quality includes timing, nature and extent.
35.	Paragraph 10(1) of Schedule 24 states that where a person is otherwise liable to a 30% penalty and an unprompted disclosure is made HMRC shall reduce it to a  percentage (which may be 0%), which reflects the quality of the disclosure. 
36.	Paragraph 10(2) of Schedule 24 states that where a person is otherwise liable to a 30% penalty and a prompted disclosure is made HMRC shall reduce it to a percentage, not below 15%, which reflects the quality of the disclosure.
37.	Paragraph 13(1) of Schedule 24 provides for HMRC to 
(a)	Assess the penalty, 
(b)	Notify the person, and
(c)	State the tax period for the penalty.
38.	Paragraph 13(3) of Schedule 24 requires that the penalty assessment must be made within a period of 12 months beginning with
(a)	the end of the appeal period for the decision correcting the inaccuracy, or
(b)	where there is no assessment in (a) the date on which the inaccuracy is corrected.
39.	Paragraph 15 (1) of Schedule 24 provides that an appeal can be made against a penalty being payable.
40.	Paragraph 15 (2) of Schedule 24 provides that an appeal can be made against the amount payable of a penalty.
41.	Paragraph 17 (1) of Schedule 24 provides that on an appeal under paragraph 15 (1) of Schedule 24 the Tribunal can affirm or cancel HMRC’s decision to charge a penalty.
42.	Paragraph 17(2) of Schedule 24 provides that on an appeal under paragraph 15 (2) of Schedule 24 the Tribunal can affirm or substitute the amount of the penalty.
43.	Paragraph 17 (3) of Schedule 24 provides that if the Tribunal decides to substitute its decision for HMRC’s the Tribunal may rely on paragraph 11 of Schedule 24 to the same extent as HMRC or to a different extent but only if the Tribunal thinks that HMRC’s decision in respect of the application of paragraph 11 was flawed.
44.	Paragraph 11 of Schedule 24 states that if HMRC think it right because of special circumstances they may reduce the penalty under paragraph 1 or 2.
Appellant’s Submissions
45.	The Appellant submitted that a penalty should not be charged as the inaccuracy was not caused by careless behaviour.
46.	He submitted that there were mitigating circumstances for the inaccuracies which could be summarised. He was confused regarding the entries on his P60 and complied with the instructions given on the P60. He was unable to obtain help on 31 January 2010, the day that he electronically filed the return. 
47.	The Appellant submitted that he had done everything possible in a complicated situation. He had filed the return voluntarily, appreciating that there was a legal duty to do so and had not sought to avoid tax.
48.	He submitted that the 15% penalty was excessive bearing in mind his circumstances, previous history and the nature of the offence.
49.	His P60 from Xafinity Consulting stated that only those figures for the period recorded as “this employment” should be included on his tax return so although the amount paid to him by Hazell Carr was included on his P60 he did not include that amount on his tax return. He assumed that his previous employer Hazell Carr had made an interim return and did not complete a second employment page showing the income from Hazell Carr.
HMRC’s Submissions
50.	HMRC submitted that Mr Davis should pay a penalty under Schedule 24 as he gave HMRC an inaccurate self assessment return within Section 8 TMA 1970.
51.	The return contained an inaccuracy which led to an understatement of liability to tax. HMRC submitted that this inaccuracy was careless. 
52.	The legislation defines the degrees of culpability at Paragraph 3 of Schedule 24 where carelessness is a failure by the Appellant to take reasonable care.
53.	Reasonable care is not defined in the legislation but failure to take reasonable care can be likened to the longstanding concept in general law of negligence.
54.	In the 1856 case of Blyth v Birmingham Waterworks Co, Baron Alderson said
Negligence is the omission to do something which a reasonable man, guided upon those considerations which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. The defendants might be liable for negligence, if, unintentionally, they omitted to do that which a prudent and reasonable person would have done, or did that which a person taking reasonable care would not have done.

55.	HMRC submitted that the Appellant had the correct information in the form of his P60 but did not interpret this information correctly. HMRC were not aware of the Appellant’s abilities or knowledge but assumed from his level of remuneration he is not unintelligent.
56.	In HMRC’s view it was reasonable to expect a person who is unsure to take care to find out the correct position or to draw their attention to the entries.
57.	HMRC correctly calculated the standard amount of penalty for careless action as 15% of the potential lost revenue.
58.	HMRC considered the reduction to the penalty for disclosure. The disclosure was prompted by the enquiry. The Appellant was otherwise liable for the 30% penalty which HMRC reduced to the minimum 15% allowed by the legislation.
59.	HMRC had regard to the timing, nature and extent of the disclosure and could not reduce the penalty below 15%.
60.	Penalties can be suspended for careless inaccuracy but HMRC contended that suspension of the penalty in this case was not allowed by legislation. It was unlikely that the company would be taken over under the same circumstances again and therefore conditions could not be set. The legislation required that compliance with a condition of suspension would avoid further similar penalties. 
61.	The Tribunal could only order HMRC to suspend the penalty if it considered that the decision not to suspend was flawed.
62.	HMRC asked the Tribunal to affirm HMRC’s decision that a penalty is payable.)
63.	If the Tribunal affirmed the decision above, HMRC asked the Tribunal to consider the appeal against the amount of the penalty and to find that the Appellant was careless and the disclosure prompted and affirm HMRC’s decision that the appropriate was 15 %.
Findings
64.	We find that the decision by HMRC to impose a penalty is correct. The Appellant was understandably confused but should not have waited until the last day for the filing of the tax return before attempting to contact HMRC for advice.
65.	However we have examined the details of the First Tier Tax Tribunal case of Anthony Fane v The Commissioners for Her Majesty’s Revenue and Customs which was provided for us by HMRC. We note that in that case a penalty of 15% was imposed for a number of inaccuracies which were far more serious than that of the Appellant and could have caused serious loss of revenue.
66.	The mistake of the Appellant was easily detected by HMRC as a result of the standard P14 filed by the employers. We found therefore that although the potential loss of tax was £4,688 the mistake was unlikely to be missed by HMRC.
67.	We find therefore that under paragraph 11 of Schedule 24 there were special circumstances and that HMRC’s decision in respect of the application of paragraph 11 was flawed.
Decision
68.	We affirm HMRC’s decision to impose a penalty but under our powers by paragraph 17(3)(b) of Schedule 24 we hereby reduce the penalty to 7.5% that is £351.50.
69.	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.

TRIBUNAL JUDGE
RELEASE DATE: 14 JUNE 2011