In HMRC v Romie Tager  UKUT 0040 (TCC), the Upper Tribunal (Judge Colin Bishopp) ("UT"), has considered tax related penalties under paragraph 50, Schedule 36, Finance Act 2008, for failure to comply with an information notice. The UT imposed a penalty on Mr Tager amounting to almost £1.25 million (slightly less than 100% of the tax in issue).
Mr Tager had submitted his tax returns for the years 2008/09, 2009/10 and 2010/11, on various dates in April 2012. On 28 August 2012, HMRC opened enquiries into each of the returns, pursuant to section 9A Taxes Management Act 1970. HMRC subsequently issued two information notices to Mr Tager, pursuant to paragraph1, Schedule 36, Finance Act 2008, requiring him to supply documentation and information ("the income tax notices"). Mr Tager failed to fully comply with the income tax notices and penalties for non-compliance with the notices were imposed by HMRC, pursuant to paragraphs 39 and 40, Schedule 36.
Mr Tager delivered to HMRC an inheritance tax return in respect of his father's estate on 26 January 2009. HMRC was not satisfied with the inheritance tax return and raised various enquiries. On 16 September 2011, HMRC issued an information notice to Mr Tager, again, pursuant to paragraph 1, Schedule 36, in relation to the inheritance tax return. Various penalties were imposed on Mr Tager for non-compliance with this notice, under paragraphs 39 and 40, Schedule 36. This notice was subsequently withdrawn by HMRC and on 17 December 2012 a new information notice was issued ("the inheritance tax notice").
On 16 December 2013, HMRC made two applications to the UT, one in respect of the income tax notices and the other in respect of the inheritance tax notice. The applications were for a tax-related penalty to be imposed on Mr Tager by the UT, pursuant to paragraph 50, Schedule 36.
At a direction hearing on 14 February 2014, the UT decided to give Mr Tager a final opportunity to comply with the information notices. Mr Tager had been given a few more weeks to comply and had provided an undertaking to the UT that he would do so.
Mr Tager had complied partially with the income tax notices and, until 7 October 2014, had not complied at all with the inheritance tax notice. Accordingly, the applications came before the UT again on 10 October 2014.
In granting the applications, the UT observed that a paragraph 50 penalty was a "last resort", intended to be punitive, unlike penalties issued under paragraphs 39 and 40, the purpose of which was to encourage compliance.
In the view of the UT, in deciding whether it is appropriate for a penalty to be imposed under paragraph 50 and the amount of any such penalty, it had to consider, amongst other things:
- the amount of tax in issue;
- the extent of non-compliance;
- the duration of non-compliance; and
- any remorse.
The UT also noted that a paragraph 50 penalty was not a proxy for an assessment, as the imposition of such a penalty did not preclude a future assessment and last minute compliance by a taxpayer would not therefore necessarily avoid a penalty (although such compliance might reduce the amount of any such penalty).
With regard to the income tax notices, the UT decided to imposed a penalty of £75,000 (nearly 100% of the income tax at risk), and in relation to the inheritance notice, a penalty of £1,171,020 was imposed (100% of the inheritance tax at risk).
In relation to Mr Tager's breach of the undertakings he had given to the UT, the parties were invited to provide written submissions to the UT on what action, if any, the UT should take.
This is the first occasion on which HMRC has applied to the UT for a penalty to be imposed on a taxpayer, pursuant to paragraph 50. As such, the UT's analysis of paragraph 50 and the factors it will consider when deciding whether it is appropriate for a penalty to be imposed and the amount of any such penalty, warrant careful consideration. As this case demonstrates, the amount of any such penalty can be large (almost 100% of the tax at risk in this instance) and given HMRC's success in this case, it may be encouraged to make similar applications to the UT in other cases where it is of the view that a taxpayer has failed to comply with a Schedule 36 notice.
Recipients of Schedule 36 notices should seek expert professional advice at an early stage in the process on the best course of action. Although Mr Tager chose not to appeal the notices he received, such a course of action may be appropriate. Simply doing nothing (or too little), and hoping HMRC will go away is unlikely to lead to a satisfactory outcome from the taxpayer's perspective and may lead to a substantial punitive penalty being imposed by the UT.