In R McGreevy v HMRC  UKFTT 0690 (TC), the First-tier Tribunal (FTT) allowed the taxpayer's appeal against penalties imposed for the late filing of her non-resident CGT (NRCGT) return on the basis that she had a reasonable excuse.
Ms McGreevy (the taxpayer) was UK non-resident, living in Australia. The case concerned the late filing by the taxpayer of a NRCGT return and the subsequent imposition of penalties by HMRC for the late filing.
The disposal detailed in the return related to a sale of property located in the UK which completed on 7 July 2015. The taxpayer did not file her NRCGT return until August 2016, whereas it should have been filed with HMRC within 30 days after the completion of the transaction.
The return itself indicated that there was no tax to pay as the taxpayer qualified for private residence relief (PRR) on the sale. Nevertheless, HMRC issued penalty notices in September 2016 in the sum of £1,600, comprising £700 in late filing penalties and £900 in daily penalties for the period between August 2015 and August 2016 (the notices).
The taxpayer appealed the notices on the basis that she had a reasonable excuse for her failure to file her NRCGT return on time. She did not know that she was required to complete a separate NRCGT return because she believed the disposal could be set out in her annual non-resident self-assessment return, which included a space for capital gains. She explained to HMRC that her mistake was an honest mistake and, once discovered, was remedied at the earliest opportunity.
HMRC's position was that there existed sufficient published material to indicate that a NRCGT return must be made within 30 days of completion. Taxpayers, so HMRC argued, had an obligation to be aware of the relevant rules and the taxpayer in this case ought to have acquainted herself with the correct legal position.
The appeal was allowed and the penalties were cancelled.
In penalty cases, the burden of proof is on HMRC. It has to establish that the penalty has been properly imposed. The FTT found that the daily penalties were not lawful as HMRC had been unable to demonstrate that they had been imposed by an HMRC officer. In addition, HMRC had failed to notify the taxpayer of the starting date for the penalties (paragraph 4, Schedule 55, Finance Act 2009).
With regard to the late filing penalties, the FTT found that they were validly issued and so went on to consider whether the taxpayer had a reasonable excuse for the delay. The FTT noted that the NRCGT return was in its first year of existence at the time the gain arose and that the paper self-assessment return that the taxpayer had received for the 2015/16 tax year made no reference to a NRCGT return, nor had the taxpayer received any separate notification. Despite the newness of the rules, the FTT observed that HMRC had made no attempt to target the relevant and small number of taxpayers to whom the new rules would or may apply.
The FTT was particularly scathing in response to HMRC’s submission that information about the requirement to file a NRCGT return was in the public domain, describing it as "claptrap". The published information, on which HMRC relied, amounted to statements contained within the Chancellor's Autumn Statement for 2013 and a separate document buried on HMRC's website which the FTT described as "obscure". The FTT said:
"I am sure that every December in the past few years the appellant, like many other inhabitants of Rozelle, NSW, Australia, has been agog with excitement waiting for the British Chancellor of the Exchequer’s Autumn Statement. How much more relevant must it be to their tax affairs than anything the Australian Treasurer has to announce. That this “contention” by HMRC, that the new legislation had been announced in the Autumn Statement (with the implication that it was reasonable for the appellant to know this and unreasonable not to have known it) was seriously advanced by HMRC as a ground for denying the appellant had a reasonable excuse for not knowing about the NRCGT return deadlines, is a prime example of the concept of “nerdview”: a phrase coined by Professor Geoff Pullum of Edinburgh University. Only a small coterie of people obsessed by tax (of which I am no doubt one) would admit that the Chancellor’s Autumn Statement on tax matters is something that should register in anyone’s consciousness …".
HMRC was not assisted by the fact that in its Statement of Case it referred to the wrong Autumn Statement. The FTT commented:
"The SoC does not exhibit reasonable care when it gave the Tribunal incorrect information. But HMRC expects a non-resident living in a suburb of Sydney to be more knowledgeable about UK tax consultations than their own staff."
Perhaps not surprisingly, the FTT had little difficulty in finding that the taxpayer did have a reasonable excuse, concluding that the arguments advanced by HMRC about the taxpayer's knowledge of the law were "little short of preposterous".
This is yet another case in which HMRC appears to have demonstrated a complete lack of empathy and proportionality with one of its 'customers'.
There were clearly special circumstances in this case, not only because the rules were new, largely unreported, and applied to a comparatively small number of people, but also because the taxpayer fully expected (and received) a full tax exemption for the gain under the PRR. She also believed that she could notify the gain to HMRC through her normal self-assessment return because it included space for gains to be declared.
A moments thought on the part of the officers dealing with this matter ought to have indicated that this was a case where the taxpayer had a reasonable excuse and penalties should not have been imposed. Regrettably, such an analysis appears not to have been undertaken at any stage in this case.
Increasingly, HMRC appears to be adopting a harder stance when exercising its powers to impose penalties and no doubt the Chancellor is grateful for such additional revenue.
This case acts as a welcome reminder that the FTT will act as a bulwark against the excesses of HMRC.
A copy of the decision can be found here.