[2010] UKFTT 78 (TC)

TC00390

Appeal number TC/2009/10653

INCOME TAX – late submission of paper partnership return – reliance on misleading advice on HMRC website – whether reasonable excuse - yes

FIRST-TIER TRIBUNAL

TAX 

	B&J SHOPFITTING SERVICES	
Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS 	
Respondents

				TRIBUNAL: 	Barbara Mosedale 

The Tribunal determined the appeal on 2nd October 2009 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal (with enclosures) dated 2 June 2009,  HMRC’s Statement of Case (with enclosures) submitted on 24 June and the Appellant’s Reply (by his agent Kevin Doyle Director in the John Doyle Partnership) dated 2 July 2009

© CROWN COPYRIGHT 2009

DECISION

1.	The Appellant is a partnership and the partners are Mr Barry Powell and Mrs J Powell.  On 17 February 2009 HMRC imposed a £200 penalty for late filing of the partnership return for year ended 31 January 2008.  The Appeal was lodged on 5 March 2009 with HMRC who then conducted a review and upheld the imposition of the penalty on 28 May.  The Appellant then lodged an appeal with the First-tier Tribunal on 2 June 2009.
2.	The penalty was imposed under s93A(2) Taxes Management Act 1970 (“TMA”) which provides that each “relevant partner” is liable to a penalty of £100.  “Relevant” partner is defined in s93A(8) as a person who was a partner at any time during the period in respect of which the return was due.   In this case there were two such partners (Mr Powell and Mrs Powell) so HMRC imposed penalties totalling £200.
3.	There was no dispute that the Partnership return was issued to the Appellant on 6  April 2008 and that (under s12AA TMA)  the filing date for paper returns was 31 October 2008 but 31 January 2009 for online returns.  There was no dispute that the Appellant (by his agent) filed a paper return on 13 January 2009.
4.	Under the Practice Direction for the First-tier Tribunal for Categorisation of Cases in the Tax Chamber this case, as an appeal against penalties for late income tax self assessment returns, was categorised as a Default Paper case.  Neither party requested an oral hearing (as they are able to do under Rule 26(7) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009) so I determined the appeal on the papers.  
5.	Section 93A(7) TMA provides that on an appeal to the Tribunal:
“…the tribunal may-
(a)	if it appears …that, throughout the period of default, the person for the time being required to deliver the return….had a reasonable excuse for not delivering it, set the determination aside; or
(b)	if it does not so appear…., confirm the determination.”
6.	In summary the submission made by the Appellants’ agent was that the agent had researched HMRC’s  website and discovered – so they thought - that the capping system would mean no penalty would be imposed if a paper return was filed and the tax paid before 31 January 2009.  Their evidence, which was not disputed by HMRC, is that they were given the same advice by the HMRC helpline.  The agent’s evidence is that he relied on this advice and submitted the paper return late but before 31 January and ensured that the Appellant had paid the tax before this date in the belief that there would be no penalty imposed.
7.	The agent submitted a copy of the information on the HMRC website “self-assessment online” and HMRC did not dispute its authenticity or the date on which it was available to the public.  Under the main heading “Partnership returns” there are a number of sub-headings all dealing with partnerships such as “individual partnership pages” and “requirement for partners’ UTRs”.  Then immediately after this there is another heading.  This heading is probably another main heading rather than a sub-heading under “Partnership returns” although this was not to me entirely clear.  Under this new heading of “Penalty notices for late filing” is the following text:
“Paper returns filed after 31 October will be subject to a late filing penalty.  The taxpayer will be alerted to this via a message on the SA302 tax calculation, after the return has been processed.  Penalty notices themselves won’t be issued until February.  If all the tax due has been paid by 31 January the Penalty Notice will be issued in the sum of nil; as the penalty cannot exceed the amount of tax outstanding at 31 January”
8.	Even assuming that this is under a main heading and not the partnership heading, it did not state that it was inapplicable to partnerships.  My finding was that bearing in mind the proximity of this statement to the section on partnerships, anyone reading it would reasonably suppose that it did apply to partnerships.  
9.	The parties agreed, and I concurred, that the agent was wrong to believe that no penalty would be charged on paper partnership returns filed late even where the tax was paid by the due date.  S93(7) TMA is taken by HMRC to mean that for personal returns the penalty cannot exceed the amount of tax actually owing on 31 January 2009.  In fact s93(7) refers to “liability to tax shown on the return” so it seems to me it is only applicable where the liability on the return is less then the standard penalty and does not apply to situations where the liability to tax is greater than the standard penalty but the taxpayer has discharged it on or before 31 January.  Be that as it may, there is no equivalent provision to s93(7) TMA for partnership returns and the website was therefore misleading.
10.	HMRC did not dispute that the agent did rely on their advice nor that it was misleading.  But they took the view that a reasonable excuse can only be an exceptional event beyond the taxpayer’s control which prevented the return from being filed by the due date such as severe illness or bereavement.  To quote their letter offering a review “our view is that a reasonable excuse will only apply when an exceptional event beyond your control has prevented you from sending your Return in on time”.
11.	They also considered that the reliance put forward by the agent on HMRC’s guidance is not an excuse because ignorance of the law is no defence.  They also made the point that they did not consider that the proffered excuse could have existed for the entire period of the default as required by s93A(7) TMA.
12.	In this case, of course, the agent was putting forward the reasons for his actions as a reasonable excuse for the Appellant’s failure to file on time.  Reliance on a third party as a matter of policy will not normally be a reasonable excuse because a taxpayer should not be able to avoid his liabilities by passing them on to someone else.  In this case, the agent, quite rightly in my view, did not suggest that his clients’ (mistaken) reliance on him to submit their returns on time was by itself a reasonable excuse.
13.	 Nevertheless, where the reason for the agent’s failure would have been a reasonable excuse had it been the Appellant’s own failure, it seems to me that the Appellant must be able to rely on it.  So in this case I considered the acts of the agent – in particular the reliance on HMRC’s website -  as if it were reliance by the Appellant.  
14.	An excuse is likely to be reasonable where the taxpayer acts in the same way someone who seriously intends to honour their tax liabilities and obligations would act.  An unexpected contingency may well be a reasonable excuse because it is reasonable that a taxpayer would not have planned for it and needs time to deal with it.  However, I did not accept HMRC’s view of the law that a reasonable excuse is limited to an exceptional event beyond the taxpayer’s control.  A taxpayer is also behaving as a reasonable person mindful of his tax liabilities when relying on advice given by HMRC.  HMRC is the Government’s tax collector and it is reasonable to presume that their published guidance is a correct statement of the law.  This is particularly the case where the same misleading advice was given by the helpline.
15.	I agreed that ignorance of the law is not by itself a reasonable excuse.  As a matter of policy not knowing the law cannot be a reasonable excuse for not complying with it.  If ignorance of the law were a reasonable excuse it would encourage taxpayers to ignore the law and penalise those who attempt but fail to fully comply with it.   But here the agent was not relying on his ignorance of the law but on his mistaken reliance on HMRC’s misleading guidance on the law.  In general, being misinformed about the law by another person will not be a reasonable excuse:  as I have already said it is not a reasonable excuse for a taxpayer to rely on a third party to discharge his obligations.  
16.	However, where it is HMRC who has mis-stated the law, it seems to me that this is quite a different matter.  HMRC has responsibility for gathering the correct amount of tax and it must be reasonable for a taxpayer to rely on HMRC’s guidance as a correct statement of the law.  Further, it is actually HMRC who impose the penalty:  HMRC must therefore ensure that they do not mislead taxpayers into mistaken actions which incur a penalty.
17.	I concluded that it was reasonable for the agent (and therefore the Appellant) to rely on the misleading information on HMRC’s website and given to them by HMRC’s helpline.  I went on to consider whether, had it in fact been the position that no penalties would be payable if the tax was all paid by the due date for the return (31 January 2009), I would have considered this to be a reasonable excuse for not filing the return by the due date.  I consider that the absence of a penalty is not necessarily a reasonable excuse for failing to comply with the law.  Therefore, a mistaken belief engendered by HMRC that there is no penalty for non-compliance is not necessarily a reasonable excuse for non-compliance.  However, in this case, where there was a later filing date for electronic than paper returns but those wishing to submit electronically and take advantage of the later date would the need to purchase third party software in order to make the electronic return, I considered that it was reasonable for the agent to see, as he said he did, the (supposed) absence of a penalty as the law evening up the position between taxpayers making electronic and those making paper returns.
18.	I found that the Appellant had a reasonable excuse in these particular circumstances for failing to submit the paper partnership return on time.  I went on to consider whether the reasonable excuse had lasted throughout the period of default.  The undisputed case from the agent was that he had researched the position very early in the tax year and decided to rely on the (mistaken) belief that no penalty would be due if a paper return were submitted as long as all tax was paid by 31 January 2009.  It seems to me that this excuse (which I have found to be a reasonable excuse) therefore existed throughout the period of default as the agent’s undisputed evidence is that he did not learn of his mistake until the penalties were issued which was some time after the paper return was submitted.  I allowed the appeal.
19.	The Decision Notice was issued to the parties on 15 October 2009 and included a summary of the findings of fact and reasons for the decision.  This Decision Notice now issued includes full written findings of fact and reasons for the decision as requested under Rule 35(4) by one of the parties.  The Respondents have a right to apply for permission to appeal against this decision.  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: 15 January 2010