The First-tier Tribunal ('FTT') has allowed the taxpayers' joined appeals in Morgan v HMRC and Donaldson v HMRC 1 against daily penalties for late filing of their self-assessment returns, because HMRC had failed to give notice to the taxpayers of the date from which the daily penalties would start to accrue.
Mr Morgan submitted his 2010/11 paper self-assessment return to HMRC on 27 April 2012. HMRC assessed him to a fixed penalty of £100 for late filing and £870 in daily penalties. Mr Morgan had submitted his return late due to the demands of his job and accepted that he was liable to the fixed penalty of £100. He did not accept that he was liable to the daily penalties and appealed the assessment of £870 to the FTT.
Mr Donaldson submitted his 2010/11 paper self-assessment return on 1 May 2012. HMRC assessed him to a fixed penalty of £100, £900 in daily penalties and £300 for filing his return more than six months late. On receiving notice of his liability to the fixed penalty of £100, Mr Donaldson asked his accountant to submit his tax return to HMRC. His accountant failed to do this and Mr Donaldson argued that the failure of his professional adviser amounted to a 'reasonable excuse' and accordingly the penalties of £100 and £300 should not be levied. He also appealed the £900 daily penalty assessment.
HMRC's position was that it had provided a payment reminder and a notice notifying the assessment of a £100 fixed penalty to both taxpayers.
The payment reminder stated:
'If we still haven't received your online tax return by 30 April (31 January if you're filing a paper one) a £10 penalty will be charged every day it remains outstanding. Daily penalties can be charged for a maximum of 90 days, starting from 1 February for paper tax returns or 1 May for online tax returns.' (emphasis added).
The notice notifying the fixed penalty stated:
'If you still haven’t sent us your tax return please do so now to avoid further penalties. If your tax return is more than three months late we will charge you a penalty of £10 for each day it remains outstanding. Daily penalties can be charged for a maximum of 90 days starting from 1 February for paper returns or 1 May for online returns.' (emphasis added).
The question before the FTT was whether the notice requirements contained in paragraph 4, Schedule 55, Finance Act 2009, for the assessment of daily penalties had been satisfied.
The FTT's decision
The FTT allowed both Mr Morgan and Mr Donaldson's appeals against the daily penalties finding that HMRC had failed to provide them with notice specifying the date from which the daily penalty would be payable and thus had not complied with paragraph 4(1)(c), Schedule 55, Finance Act 2009. Accordingly, daily penalties could not be assessed on either of the appellant taxpayers. The FTT adopted a 'purposive' interpretation of the legislation and in its view paragraph 4(1)(c) required HMRC to give taxpayers:
- a clear warning of the future imposition of daily penalties; and
- clear notice of the date from which the daily penalties would start to accrue.
The FTT was of the view that the wording in the payment reminder and the notice notifying the fixed penalty were ambiguous and simply served as a warning to taxpayers.
It is to be hoped that HMRC will review its existing practice and amend the wording which appears on payment reminders and notices notifying fixed penalties in order to make it clear to taxpayers who have failed to file their returns on time that daily penalties will be chargeable and the date from which they will begin to accrue. Such wording should also be clearly highlighted and drawn to the taxpayer's attention.