Austin v HM Inspector of Taxes SPC00426 (18 August 2004)

                                                                                                                        SPC00426
PENALTY – error in penalty notice on what the taxpayer had failed to do, in the amount of the daily penalty, and, for one year, the date of the notice that the taxpayer had failed to comply with – notices quashed – other penalties reduced

THE SPECIAL COMMISSIONERS

	WILLIAM ANTHONY AUSTIN	Appellant

	- and -

	NEIL PRICE
	(HM INSPECTOR OF TAXES)	Respondent

		Special Commissioner:	DR JOHN F AVERY JONES CBE

Sitting in public in London on 10 August 2004

Philip J. Levi FCA, CTA (Fellow), TEP for the Appellant

Roy Woodger, Appeals adviser North London, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

1.	Mr W A Austin appeals against daily penalties of £340 for failure to comply with notices under section 19A of the Taxes Management Act 1970 in respect of each of the years ended 5 April 2000 and 2001 for the period 8 August 2003 to 10 September 2003, and further daily penalties of £510 in respect of each of the same years imposed for the period 11 September 2003 to 31 October 2003.  The taxpayer was represented by Mr Philip Levi and the Inspector by Mr Roy Woodger.
2.	I find the following facts:
(1)	The Appellant, a hairdresser, for whom Mr Levi prepares accounts and tax returns, submitted tax returns for the years ended 5 April 2000 and 2001 containing estimated figures for trading income, dividends and interest.
(2)	In respect of the year to 5 April 2000 a section 19A notice was issued on 22 January 2003 requiring actual details of business profits for the year ended 31 December 1999 and savings and dividend income for the year ended 5 April 2000 in place of the estimates in the tax return; a penalty warning notice was issued on 26 March 2003; an initial penalty of £50 was charged on 7 August 2003, none of which was appealed.  The first daily penalty of £340 was charged on 11 September 2003 for the period 8 August 2003 to 10 September 2003.  The second daily penalty of £510 was charged on 2 December 2003 for the period 11 September 2003 to 31 October 2003. 
(3)	In respect of the year to 5 April 2001 a section 19A notice was issued on 26 March 2003 requiring full details of business profits for the year ended 31 December 2000 and of dividend income for the year ended 5 April 2001 and completion of a self-assessment tax return; an initial penalty of £50 was charged on 7 August 2003, none of which was appealed.  The first daily penalty of £340 was charged on 11 September 2003 for the period 8 August 2003 to 10 September 2003.  The second daily penalty of £510 was charged on 2 December 2003 for the period 11 September 2003 to 31 October 2003.
(4)	The £340 penalty notices for each of the two years are in exactly the same form.  It starts by stating in bold that the amount of the penalty is £340.  The following appears under the heading Details:
“Penalty under the provisions of Section 97AA(1)(b) of the Taxes Management Act 1970 in respect of your continuing failure to comply with a notice dated 26 March 2003 served upon you under Section 19A(2) of that Act to produce such documents as were specified in that notice, within 30 days from the date you received the notice.
Daily penalties of £340.00 per day for the period from 8 August 2003 to 10 September 2003 (34 days).”
(5)	The two £510 penalty notices are in similar form but correctly state the date of each of the section 19A notices; they include after “such documents” the words “and furnish such accounts or particulars;” and correctly state that the penalty is £10 per day for the specified period of 51 days.
(6)	The section 19A notices were complied with on the day before the hearing. 
3.	Mr Levy contends that the £340 penalty notices are invalid because of the incorrect date of the section 19A notice in respect of 1999/2000; failing to identify the relevant tax years for each penalty notice, relying on Baylis v Gregory [1988] STC 476 that a wrong year on an assessment carrot be corrected; failing to state that they were for failure to furnish accounts or particulars rather than documents; failing to attach a copy of the section 19A notice; and for wrongly stating at the end that the penalty was £340 per day for 34 days.  He contends that the £510 notices are invalid for failure to specify the tax years and to attach a copy of the section 19A notices.  He relies on Fleming v London Produce Co Ltd (1968) 44 TC 582 that these errors are too great to be corrected under section 114 of the Taxes Management Act 1970.  In the notice of appeal, he claimed that the notice could not require the making up of accounts, but withdrew this contention after Mr Woodger had cited authority to the contrary.  Mr Levi put forward as mitigating circumstances that he had been ill in August and September 2003 and travelling in November and December 2003.  He now practises as a sole practitioner in Andorra and had other pressing work.  He regarded the imposition of penalties in a small case such as this as using a sledgehammer to crack a nut.
4.	Mr Levi also contends that the penalties were criminal charges for article 6 of the Human Rights Convention, which has the added requirement to inform the person “in detail” of the charge against him.  Mr Woodger only had notice of this point in Mr Levi’s skeleton faxed on the afternoon of 5 August 2004 and merely stated that the Inspector did not accept this.
5.	Mr Woodger accepts the existence of the errors in the £340 notices, but not the £510 notices, but contends that they are saved by section 114 of the Taxes Management Act 1970.  He points out that there was considerable delay in providing the information before Mr Levi’s illness.  Mr Levi promised to supply the information on several occasions but failed to do so.
6.	Section 100B of the Taxes Management Act 1970 provides:
“(1) An appeal may be brought against the determination of a penalty under section 100 above and, subject to [sections 93, 93A and 95A of this Act] [and] the following provisions of this section, the provisions of this Act relating to appeals shall have effect in relation to an appeal against such a determination as they have effect in relation to an appeal against an assessment to tax. 
(2) [Subject to sections 93(8) and 93A(7) of this Act] on an appeal against the determination of a penalty under section 100 above section 50(6) to (8) of this Act shall not apply but— 
(a) in the case of a penalty which is required to be of a particular amount, the Commissioners may— 
(i) if it appears to them that no penalty has been incurred, set the determination aside, 
(ii) if the amount determined appears to them to be correct, confirm the determination, or 
(iii) if the amount determined appears to them to be incorrect, increase or reduce it to the correct amount, 
(b) in the case of any other penalty, the Commissioners may— 
(i) if it appears to them that no penalty has been incurred, set the determination aside, 
(ii) if the amount determined appears to them to be appropriate, confirm the determination, 
(iii) if the amount determined appears to them to be excessive, reduce it to such other amount (including nil) as they consider appropriate, or 
(iv) if the amount determined appears to them to be insufficient, increase it to such amount not exceeding the permitted maximum as they consider appropriate.” 
Section 114 of the Act provides:
“(1) An assessment [or determination], warrant or other proceeding which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding. 
(2) An assessment [or determination] shall not be impeached or affected— 
(a) by reason of a mistake therein as to— 
(i) the name or surname of a person liable, or 
(ii) the description of any profits or property, or 
(iii) the amount of the tax charged, or 
(b) by reason of any variance between the notice and the assessment [or determination].” 
7.	In my view the £340 notice for 1999/00 is clearly bad for specifying the wrong date of the section 19A notice by giving the date of the section 19A notice for 2000/01.  While some errors in dates might not invalidate a penalty notice, perhaps if 18 March had been specified as 81 March when there was only one relevant notice, here the error makes the notice completely misleading by referring the taxpayer to a notice for another year, and perhaps leading him to believe that he had received a duplicate copy of a notice relating to 2000/01.  I do not consider that section 114 can save the notice as being “in substance and effect in conformity with or according to the intent and meaning of the Taxes Act;” the error is not about “the person or property charged” and so the second part of subsection (1) need not be considered.  It is not in substance in conformity with, or in accordance with, the intent of the Act to specify that the taxpayer has not complied with a section 19A notice giving the date of a notice relating to a different year.  As Megarry J said in Fleming v London Produce at page 597I: “The likelihood of the recipient being deceived or misled would also be an important factor.”  Here there was such a likelihood.
8.	The £340 notices for both years are also in my view bad by stating two different figures for the penalty: £340 at the beginning and £340 per day for 34 days at the end.  It is more probable that it meant to state £10 per day at the end rather than £11,560 at the beginning, particularly as the latter is greater than the maximum, but the taxpayer should not be expected to make corrections to discover the amount of the penalty.  When imposing a daily penalty it is clearly important that the daily rate should be stated correctly.  In addition, the notice states that the taxpayer has failed to produce documents whereas he was required to produce accounts and particulars.  Although it is the section 19A notice that determines what the taxpayer is required to produce, which is referred to by its date, the taxpayer is entitled to know what he has failed to do for which the penalty is being imposed; he might, for example, have partly complied with the notice in which case it would be important that what he had failed to do should be accurately specified.  I do not consider that section 114 can save the notices as being “in substance and effect in conformity with or according to the intent and meaning of the Taxes Act.”  If a daily penalty is imposed it must be clear to the taxpayer how it is calculated and what is the total, and the notice must state what the taxpayer has failed to do.  As Megarry J said in Fleming v London Produce at page 597G: “I would be slow to accept that [the predecessor of section 144] provide[s] an impervious cover for gross errors.”  I regard these as gross errors.  However, I do not think there is any force in Mr Levi’s contentions that the notice must specify the relevant tax year or that it should attach a copy of the section 19A notice.  There is no requirement to do either of these.  So long as the relevant section 19A notice is specified the taxpayer is sufficiently informed about what the penalty is for, although it would certainly be helpful to the taxpayer if the years had been stated in this case where two notices are served at the same time relating to different years.
9.	In view of my decision that it is not necessary for a penalty notice to state the year or attach a copy of the section 19A notice, I cannot see anything wrong with either of the £510 penalty notices.  However, I must consider the amount in relation to the tax liability of £1,256 (1999/00) and £2,037 (2000/01), which is 41 per cent and 25 per cent of the tax liability.  The penalty must be proportionate and in my view the amounts are excessive in relation to the tax liability.  I “consider appropriate” that the penalties should be half the amounts, namely £255 in respect of each year. 
10.	Mr Levi explained that the taxpayer was one of his original clients who he could not turn away after acting for him since 1964.  It seems to me that clients can expect better treatment from their qualified advisers than the delays experienced in this case for which no other reason was given than pressure of work by Mr Levi, his illness being occurring there had already been considerable delays.
11.	I have reached the above conclusions without reference to whether the penalties are criminal charges the Human Rights Convention.  In the absence of hearing full argument from either party about whether the penalties are criminal charges I would prefer not to make a decision on this.
12.	Accordingly I allow the appeals against the two penalties of £340 and set them aside, and reduce to half the two penalties of £510.

J F AVERY JONES

SPECIAL COMMISSIONER
                                           Released date: 18 August 2004

SC 3116/03