[2010] UKFTT  310 (TC)

TC00597	
Appeal number: TC/2009/16866

Income tax – fixed first and second penalties for late filing of partnership return for 2007-08 – was notice to submit return given? – yes – did Appellant have reasonable excuse for failure to submit? – initially yes, but not for whole period of default – appeal dismissed in relation to both first and second penalties	

FIRST-TIER TRIBUNAL
TAX

	ALEXANDRA LUTHER HAMMILL (as representative partner for THE POTTING SHED)	Appellant	

-and-

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS (INCOME TAX)	Respondents	

TRIBUNAL:	KEVIN POOLE  (TRIBUNAL JUDGE)
ANDREW PERRIN FCA	

Decision under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 following determination without a hearing, incorporating full written findings of fact and reasons.
(Original decision (incorporating summary findings of fact and reasons) released on 18 March 2010 following determination without a hearing.)

© CROWN COPYRIGHT 2010

DECISION

Introduction and Background
1.	This is an appeal against the issue of two first and two second fixed late filing penalty notices of £100 each in respect of the late filing of a partnership return for the year ended 5 April 2008.  The return in question was not received until 26 August 2009.
2.	The Appellant was at all material times the representative partner in a partnership known as “The Potting Shed”.  There was at all material times one other partner, Liam Nicholas Stevenson.  The partnership commenced business on 15 October 2007.  HMRC’s records showed the partnership was set up on 3 December 2007 whereas the Appellant states the partnership was registered in October 2007.
3.	HMRC state (and the Tribunal accepts) that a partnership return for the year ended 5 April 2008 was issued on 6 April 2008 (though the Appellant denies having received it).  The deadline for filing this return was 31 October 2008 (if filed in paper form) or 31 January 2009 (if filed online).
4.	On 23 January 2009, the Appellant telephoned HMRC.  According to her account in the Notice of Appeal, the purpose of the call was “to confirm UTR numbers and if Liam [i.e. her fellow partner] needed to complete a tax return and if we needed to complete a partnership tax return; could they send appropriate documentation to enable us to complete what was required.”  According to HMRC, no mention was made in that phone call to the effect that a duplicate partnership return was required or that the original had not been received.  In response to this call, HMRC sent a letter dated 26 January 2009, purporting to give her the UTR number of The Potting Shed; in fact the number provided in that letter was the Appellant’s personal UTR number.
5.	On 28 January 2009, HMRC wrote to Mr Stevenson, informing him that they believed he should be filling in tax returns and warning that they would in due course be sending one to him.
6.	The Appellant arranged for her own 2007-08 personal return to be filed online before the deadline on 31 January 2009.
7.	No partnership return having been received by 31 January 2009, HMRC issued first fixed penalty notices for £100 each dated 17 February 2009 addressed to the Appellant and Mr Stevenson.
8.	On 16 March 2009 the Appellant wrote to HMRC to appeal against the penalties.  In her letter, she said “I wish to appeal against the penalty of £200 as we did not receive our Unique Taxpayer Reference number until 28th January; I was lead to believe we could not submit our Partnership Tax Return without a UTR number...  I apologise for the late submission and would appreciate any leniency which may be applied in this matter and the penalties revoked.”
9.	On 6 May 2009 HMRC wrote to the Appellant, rejecting her appeal on the grounds that “the UTR number for the Partnership was sent out on the Partnership Tax Return in April 2008.”
10.	There is no evidence that the Appellant contacted HMRC in response to this letter.  However, on 19 June 2009 a different office of HMRC wrote to her again, using a basic letter in essentially the same standard form as the 6 May 2009 letter, but this time rejecting her appeal on slightly different grounds, stating that she did not appear to have a reasonable excuse for the late filing “because we have still not received your partnership tax return”.  The Tribunal infers that the Appellant’s appeal was considered separately twice in this way because of teething problems with the introduction around that time of HMRC’s new review procedures.
11.	The same office of HMRC that had written the letter dated 6 May 2009 wrote to the Appellant again on 24 June 2009, stating that in the absence of any reply to the letter dated 6 May, the appeal had now been determined under s 54 Taxes Management Act 1970 (“TMA”) (as the 6 May letter stated it would be); the letter also noted that the return was still outstanding, and it advised the Appellant to submit it before 31 July 2009 to avoid a further penalty.
12.	The Appellant submitted a “Request for Review of Decision” in HMRC’s standard form dated 7 July 2009, in which she said she did not accept HMRC’s view because “I was never sent any forms and never asked to complete a partnership tax return for 2007-08 I was only requested to complete a personal tax return which was completed on time.”
13.	As no partnership return had been received by 31 July, on 4 August 2009 HMRC issued further fixed penalty notices addressed to the Appellant and Mr Stevenson for £100 each.
14.	HMRC responded to the Appellant’s request for a review by letter dated 13 August 2009, stating: “I must advise you that before I can complete my review the return must be submitted...  I have therefore enclosed a copy of the 2007/08 tax return for your attention and would ask you to complete and return it within the next two week so that your appeal can be considered.”
15.	The completed return was received by HMRC on 26 August 2009.
16.	On 2 September 2009, HMRC concluded their review, writing a letter of that date to the Appellant in which they confirmed the rejection of her appeal.  Their grounds for doing so were that the return had been issued by HMRC on 6 April 2008, and a paper return was only received on 26 August 2009.
17.	In her notice of appeal dated 1 October 2009, the Appellant again maintained that “we did not receive any forms to enable us to complete a partnership tax return for the year ended 05/04/08.  The only form sent to us was a personal tax return form for myself Miss A L Hamill UTR 1772479110 which was completed on-line by Paul Hughes.  On 23rd January 2009 I telephoned HMRC to confirm UTR numbers and if Liam needed to complete a tax return and if we needed to complete a partnership return; could they send appropriate documentation to enable us to complete what was required....  The only UTR for a tax return was my personal UTR number, we were under the impression this was all that was required, until we both received a penalty notice dated 17th February 2009... The person that reviewed our appeal eventually sent us the appropriate paper work to enable us to complete our partnership tax return... I believe it is unfair that we should be penalised for an oversight at HMRC.”
18.	After service of HMRC’s Statement of Case, the Appellant submitted a Reply dated 14 February 2010, in which she pointed out the error made by HMRC in sending her own personal UTR to her in their letter dated 26 January 2009 rather than the partnership’s UTR.  She also said “I made numerous telephone calls in January 2009 to HMRC for them to confirm UTR numbers and send relevant forms that we needed to complete.  I received my personal UTR number and completed my tax return, this lead me to believe this was all that was required of us.  I received no partnership tax return until 17th August 2009... Please note that my personal tax return for 07/08 was completed on time but Mr Stevenson has still not received his forms to enable him to complete his 07/08 tax return.”
Was notice to submit return given?
19.	The first question is whether (and if so, when) a notice was given under s 12AA TMA requiring the submission of a partnership tax return.
20.	HMRC maintain that a partnership tax return, incorporating the partnership’s UTR number and a notice requiring the submission of a completed return, was issued to the Appellant’s address on 6 April 2008 and was not returned to them undelivered.  They argue that under s 115 TMA, the return is therefore deemed to have been given to the Appellant.  
21.	The Tribunal sees no wording in s 115 TMA to found such an assertion: that section makes no reference to items being deemed duly served unless they are returned undelivered and, in the Tribunal’s view, it is more in the nature of an enabling provision which permits notices to be “given” by posting to the appropriate address.  Nothing in the section appears to deem notices to have been given even if it is established to the satisfaction of a court or tribunal that, as a matter of fact, the notice never arrived. 
22.	However, the Tribunal holds that, on a balance of probabilities, the partnership return did indeed arrive at the Appellant’s address in April 2008.  It notes that in the Appellant’s first letter of appeal to HMRC (dated 16 March 2009) after receiving the initial penalty notices,  she did not assert that she had never received the original partnership return – that assertion appeared for the first time in her request for a review of the HMRC decision dated 7 July 2009.  On the contrary, she was clearly aware at the time she wrote her letter dated 16 March 2009 that a partnership return was required – otherwise, her statement that “I was lead to believe we could not submit our Partnership Tax Return without a UTR number” would make no sense.  It also appears from HMRC’s Statement of Case (and the Appellant did not address this point in her later Reply to it) that the Appellant quoted the partnership UTR number in her own personal tax return which was filed online on 30 January 2009.  No explanation of how she had this information has been provided by her, and the Tribunal is therefore left to draw its own inference, which is that the information was taken from the original partnership tax return that was issued in April 2008.  Whilst the letter dated 26 January 2009 from HMRC (purportedly providing her with the partnership’s UTR number, but in fact providing her own) certainly did nothing to help matters, it clearly did not provide her with the partnership UTR number, and so cannot explain how she had it.
Does the Appellant have a reasonable excuse for the default?
23.	If the notice requiring a partnership return was duly given as the Tribunal decides at 22 above, the due date for making the return was 31 October 2008 (if the return was filed in paper form) or 31 January 2009 (if filed online).
24.	The penalty for non-compliance is set out in s 93A TMA, which provides (so far as relevant to the present appeal):
“(1) This section applies where, in the case of a trade, profession or business carried on by two or more persons in partnership –
(a) a partner (the representative partner) has been required by a notice served under or for the purposes of section 12AA(2) or (3) of this Act to deliver any return, and
(b) he or a successor of his fails to comply with the notice.
(2) Each relevant partner shall be liable to a penalty which shall be £100
(3) ....
(4) If –
(a) the failure by the representative partner or a successor of his to comply with the notice continues after the end of the period of six months beginning with the filing date, and
(b) ....
each relevant partner shall be liable to a further penalty which shall be £100.
(5) & (6) ....
(7) On an appeal against a determination under section 100 of this Act of a penalty under subsection (2) or (4) above that is notified 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 (whether the representative partner or a successor of his) had a reasonable excuse for not delivering it, set the determination aside; or
(b) if it does not so appear, confirm the determination.
(7A) For the purposes of this section the filing date for a year of assessment (Year 1) in the case of a partnership which includes one or more individuals is—
(a) 31st January of Year 2
....
(8) In this section –
“the period of default”, in relation to any failure to deliver a return, means the period beginning with the filing date and ending with the day before that on which the return was delivered;
“relevant partner” means a person who was a partner at any time during the period in respect of which the return was required.”
25.	To justify the setting aside of any of the penalties, therefore, it would have to appear to the Tribunal that “throughout the period of default” (i.e. from 31 January 2009 – being the filing date set out in section 93A(7) TMA –  until 25 August 2009 – being the day before HMRC received the return) the Appellant had a reasonable excuse for not delivering the return.
26.	It seems correct to say (as HMRC point out in their Statement of Case) that this is something of an anomaly.  The partnership return in this case was submitted in paper form and the deadline under s 12AA TMA for its submission was therefore 31 October 2008.  However, under the penalty provisions of s 93A it seems the Appellant only has to show that she has a reasonable excuse covering the period from 31 January 2009 – i.e. she does not have to show a reasonable excuse for the three month period from the due filing date on 31 October 2008 until 31 January 2009, even though she was clearly in default over this period as well.  HMRC seem to invite the Tribunal to “paper over” this anomaly by considering the question of “reasonable excuse” for it under s 118(2) TMA.  If that was their intention, the Tribunal declines to do so.  Section 93A TMA is very clear in only requiring a “reasonable excuse” defence to be made out for the period commencing on 31 January in Year 2 (2009, in this case).
27.	So the question the Tribunal must consider is whether the Appellant appears to it to have had a reasonable excuse for not filing the return, throughout the period from 31 January 2009 until 25 August 2009.
28.	The Tribunal accepts that some confusion arose out of the telephone conversations in January 2009 between the Appellant and HMRC.  That confusion could be regarded as giving rise to a short term “reasonable excuse” for failing to file the return.  However, it takes the view that by the time the Appellant received the penalty notice dated 17 February 2009, she should have realised that any impression she had gleaned to the effect that no partnership return was required from her was wrong.  As further communications took place, it should have become clearer and clearer to her that she simply needed to file the return.  The Tribunal does not accept that she had a reasonable excuse for not doing so on the grounds that she was waiting for the relevant forms to be sent to her.  There is no evidence of active steps on her part to obtain the forms – in her letter appealing the initial penalties on 16 March 2009, she gave no hint that there was anything more she wanted from HMRC.
Conclusion
29.	Accordingly, whilst the Tribunal would have been prepared to accept that the Appellant had a reasonable excuse for the default covering the period up to mid-February, it is not satisfied that the excuse continued right up to 25 August 2009.
30.	The Tribunal has considered the first and second penalties separately.  At first sight, one would assume that the first penalty is intended to “punish” the initial failure to meet the 31 January 2009 deadline, and the second penalty is intended to “punish” the further default from that date up to 31 August 2009.  If that were correct, one might consider that the first penalty could be set aside on the basis of the short-term “reasonable excuse” which the Tribunal finds at 29 above.  However, this does not accord with the wording of s 93A TMA.  It is quite clear that in relation to both the first and second penalties, the “reasonable excuse” defence only applies if the reasonable excuse can be shown to cover the whole period of the default.  Accordingly the appeal must fail and both penalties must be confirmed.
31.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

Appendix

List of documents provided to the Tribunal

1.	Notice of appeal dated 1 October 2009, with the following attachments:
a.	Letter from HMRC to the Appellant dated 26 January 2009;
b.	Letter dated 28 January 2009 from HMRC to L N Stevenson, the Appellant’s co-partner in the partnership known as “The Potting Shed” (“the Partnership”);
c.	Penalty Notice dated 17 February 2009 addressed by HMRC to the Appellant;
d.	Penalty Notice dated 17 February 2009 addressed by HMRC to L N Stevenson;
e.	Appellant’s self assessment statement issued by HMRC dated 2 March 2009;
f.	Self assessment statement of L N Stevenson issued by HMRC dated 3 March 2009;
g.	Self assessment statement of the Appellant issued by HMRC dated 7 April 2009;
h.	Self assessment statement of L N Stevenson issued by HMRC dated 8 April 2009;
i.	Amount unpaid notification dated 24 April 2009 issued by HMRC to the Appellant;
j.	Amount unpaid notification dated 24 April issued by HMRC to L N Stevenson;
k.	Letter dated 6 May 2009 from HMRC to the Partnership, c/o the Appellant, rejecting her appeal against the penalty;
l.	Self assessment statement of the Appellant issued by HMRC dated 13 May 2009;
m.	Self assessment statement of L N Stevenson issued by HMRC dated 14 May 2009;
n.	Letter dated 19 June 2009 from HMRC to the Appellant confirming rejection of appeal against penalty
o.	Letter dated 24 June from HMRC to the Partnership, c/o the Appellant, confirming determination of the appeal;
p.	Letter dated 16 July 2009 from HMRC to the Appellant;
q.	Penalty notice dated 4 August 2009 for second fixed penalty of £100 addressed to the Appellant;
r.	Penalty notice dated 4 August 2009 for second fixed penalty of £100 addressed to L N Stevenson;
s.	Self assessment statement of HMRC to Appellant dated 12 August 2009;
t.	Self assessment statement of HMRC to L N Stevenson dated 13 August 2009;
u.	Letter dated 13 August 2009 from HMRC to the Appellant acknowledging request for review of penalty decision and sending a copy partnership return for filling out and filing;
v.	Partnership return of the Partnership dated 24 August 2009;
w.	HMRC letter to the Appellant dated 2 September 2009 confirming rejection of appeal in earlier 19 June 2009 letter.
2.	HMRC’s undated paper hearing submission (with annexures as stated) sent with their letter of 19 January 2010.

TRIBUNAL JUDGE
RELEASE DATE:  6 July 2010