[2010] UKFTT 537 (TC)

TC00791

Appeal number TC/2009/12199

Partnership return, section 12AA Taxes Management Act 1970 (“TMA”) — late filing penalty, section 93A TMA — filing paper return after both paper and electronic deadline — failure of HMRC to provide free software for electronic filing of partnership return — appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	MRS D BALGOBIN	Appellant
Representative partner in Mrs D Balgobin, Miss H Balgobin and Miss S  Balgobin
	t/a Sunny Lodge

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

TRIBUNAL: 	Miss Rachel Perez (Judge)
Mr John Ritchie (Member)										

Sitting in public in Colchester on 23rd April 2010

© CROWN COPYRIGHT 2010

DECISION

Having heard Mr Leung of William Philip Partnership for the appellant and Mr Bruce Robinson of HMRC for the respondents
The tribunal decided –
(1)	to extend time for appealing if such extension is needed; and
(2)	that the three £100 penalty determinations are confirmed.
The appeal is dismissed

FULL FINDINGS AND REASONS

Introduction

1.	The tribunal’s summary decision was issued on 28th June 2010.   On behalf of the appellant, Mr Leung requested permission to appeal to the Upper Tribunal, by letter dated 14th July 2010.  The Tribunals Service has notified Mr Leung that the request will be treated as a request for full findings and reasons (which, as stated in the summary decision, are needed in order to seek permission to appeal).
2.	We heard this case with five others.  We are issuing in each of the six cases an individual decision such as this, together with a common appendix containing findings and reasons common to the appeals.
Appeal
3.	This was an appeal against a £100 penalty imposed under section 93A of the Taxes Management Act 1970 (“TMA”) on each partner for late delivery of the partnership return for the year ended 5th April 2008.  We find that the deadline for a non-electronic return (which we shall call a “paper return”) was 31st October 2008 and for an electronic return was 31st January 2009.  The paper return was received by HMRC on 12th June 2009.
4.	Mr Leung contended (a) that no partnership return was required to be submitted and (b) that there was in any event a reasonable excuse.
A partnership return was required
5.	We find that a partnership return was indeed required to be submitted, for the reasons below and in the appendix.
6.	It appeared common ground that the blank partnership return was issued on 6th April 2008.  We find that it was issued on that date.
7.	But it was not common ground that the blank partnership return sufficed as a notice to complete a return for the purposes of section 12AA of the TMA.  We find that it did.
8.	Mr Leung argued that, in any event, the three individuals upon whom the penalties were imposed were not in partnership in the tax year in question.
9.	Mr Robinson accepted that the partnership had ceased on 29th February 2008, which was during the tax year in question.  He explained that HMRC’s records had been amended in March or April 2010 to reflect that.  However, he submitted that a partnership return was still due for the tax year ended 5th April 2008, because the partnership existed for part of that tax year.  We accept that a partnership return was due if the partnership existed for part of that tax year.  Section 12AA TMA does not exclude any income or gains of the partnership (while it was a partnership) in the tax year in question from being included in the return merely because the partnership did not exist for the whole year.  Neither does the notice to complete a tax return for year ended 5th April 2008 contain any such exclusion (C2 HMRC additional bundle).
10.	We find also, for the reasons in the common appendix, that the partnership did exist for part of that tax year.   We so find despite any retrospective declaration that it was not, prior to 29th February 2008, a partnership. (We were not pointed to any such declaration in this case, although we were in some of the other five appeals.)  Our reasons in the common appendix refer to HMRC’s records of start and end dates of the businesses.  Those records in this case are at appendix 2 to Mr Robinson’s skeleton and at page 11 of the bundle specific to this case.  They show that Sunny Lodge had been registered with HMRC as a partnership since its “Trade Start Date” of “01/03/2001”.  Its “End Date” is shown in that appendix 2 as “29/02/2008”.  The details of the partnership on page 11 of the bundle show that the partners include Mrs D Balgobin, Miss H Balgobin and Miss S Balgobin, the individuals upon whom penalties have been imposed.  
11.	We find therefore that a partnership return was required to be submitted. The next question is: was it late?
The partnership return was late
12.	We find that the return was submitted late, for the reasons below and in the appendix.
13.	It was common ground that, in this case, the legislation on its face permitted the imposition of a deadline of 31st October 2008 for filing a paper return, and a deadline of 31st January 2009 for filing the return electronically (section 12AA(4), (4A) and (4B) TMA).  It was also common ground that those were the respective deadlines expressly set out in the blank partnership return which was issued.
14.	But it was not common ground that those were the actual deadlines.  It appeared to be Mr Leung’s submission, although it was not entirely clear, that the deadline for the paper return was the same as the electronic filing deadline, 31st January 2009.  We reject that submission.  The paper deadline was, we find, 31st October 2008.
15.	But in any event, the paper return was not submitted by the electronic deadline.  Mr Robinson’s statement of facts says that the agent first submitted a partnership return on 24th April 2009.  We find that was the date of the letter (page 25) which enclosed the return.   The 24th April 2009 was a Friday.  The letter and return were probably received on the following Monday, 27th April.  We find that the first-time submission of the return was on 27th April 2009 for the tax year in question, nearly three months after the electronic deadline.  It was common ground that it was returned by HMRC with a letter dated 27th May 2009 because it was not signed by the representative partner.  And it was common ground that the return was re-submitted and accepted by HMRC on 12th June 2009.
16.	We find therefore that the paper return was received by HMRC on 12th June 2009.  This was after both the paper deadline of 31st October 2008 and the electronic deadline of 31st January 2009.  Even the first-time submission of the paper return, on 27th April 2009, was after that electronic deadline.
17.	It was not clear whether Mr Leung was also arguing that, despite the appellant’s not meeting even the electronic deadline in filing the paper return, the paper return should nevertheless be considered to have been in time.  We find that, even if (which we do not accept) the paper return deadline was later than 31st October 2008, the deadline was not as late as 12th June 2009, nor as late as 27th April 2009.
18.	As the return was submitted late, the remaining question is: does it appear that there was a reasonable excuse for that lateness?
No reasonable excuse
19.	Section 93A(7) TMA provides that the tribunal may set the penalty determination aside 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.
20.	By virtue of section 93A(8), the last day of the period of default was 11th June 2009 (the day before the return was received by HMRC).
21.	For the reasons in the appendix, we find that it does not appear 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.   Even if the last day of the period of default was 26th April 2009, the day before the first-time submission of the paper return, that does not alter our finding on reasonable excuse.
22.	The penalty determinations are therefore confirmed.
23.	This document and the appendix to it contain 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.

RACHEL PEREZ
TRIBUNAL JUDGE

RELEASE DATE:

Mr T W Farrow	TC/2009/12188
Mr O C Lam 	TC/2009/12193
Mr A R Fairburn 	TC/2009/12196
Mr D Balgobin  	TC/2009/12199
Mr R G McAlpin 	TC/2009/12238
Mr T W Rolton 	TC/2009/12252

Common Appendix

1.	These six appeals were heard together.  We did not designate a lead case.  We issued a separate summary decision in each of the six appeals.  The appellants have requested full findings and reasons.  We are issuing, in response to that request, an individual decision in each of the six appeals together with this common appendix.  This appendix contains common findings and reasons for all six appeals.  Although there were some slight differences of fact, the principles and arguments were identical.  We address any differences below and in the individual decisions.

Preliminary

Request to exclude HMRC materials

Skeleton arguments and bundles

2.	Mr Leung asked us to exclude the skeleton arguments and bundles submitted by HMRC, received, he said, two days before the hearing.  He said that they should have been served 42 days before the hearing.  He asked us to allow the appeals on that ground alone.  Mr Leung declined an adjournment. But he asked us to take into account that it may have jeopardised his ability to prepare the case properly.
 
3.	Mr Leung said that the following were new in the bundles compared with the statements of case he had previously received: the references to “electronic lodgement”, to sections 12AA(5E) and 118(2) of the Taxes Management Act 1970 (“TMA”) and to section 132 of the Finance Act 1999, the two case reports at pages B1 and B4, regulations 1 to 3 of the Income and Corporation Taxes (Electronic Communications) Regulations 2003 and HMRC’s directions dated 4th April 2008.

4.	We decided to admit HMRC’s skeletons and bundles—

(a)	First, there was no deadline for their service;

(b)	Second, there is no suggestion that Mr Leung could not have collected them earlier than 21st April from the post office; delivery was attempted on Saturday 17th;  it was not suggested that the post office collection office was closed on Monday 19th;

(c)	Third, the appellants have not been prejudiced. It appeared from correspondence that Mr Robinson’s inclusion of legislation was in response to a request from Mr Leung: “I need you to state the case with all the legislations you rely on, for the issue of penalty, for the deadline of the penalty, for the on-line return legislation, for the authority penalising partners separately and everything else involving your alleged claim of non return, late returns etc.  Copies of these legislations will be in order for us and the Tribunal.” (letter 1.10.09).  It appears that the appellants have benefited from the materials submitted by HMRC. In particular, Mr Robinson’s inclusion of regulations 1 to 3 of the Income and Corporation Taxes (Electronic Communications) Regulations 2003, the 4th April 2008 directions and section 132 of the Finance Act 1999 provided the legislative peg for Mr Leung’s submissions of 21st April 2010 that HMRC did not have power not to provide free software.  The other legislative provisions were ones we would expect Mr Leung to be aware of if he was planning to make the lengthy submissions on points of law that he made to us.  As to the two case reports, they were decisions of the First-tier Tribunal and not binding on us.  Mr Robinson relied on only one of them.  We have not, in any event, found it necessary to have regard to either case report.

Telephone call transcripts

5.	We did however agree with Mr Leung that we should not admit transcripts produced by HMRC at the hearing.  Mr Leung had not time to check their accuracy.  In fairness to Mr Robinson, he had produced them only in response to a query from the tribunal;  he had not expected to produce them.  

Mrs Legg’s evidence for the appellants

6.	We agreed, with Mr Robinson’s consent, to Mr Leung’s request to serve a witness statement after the hearing from Mrs Legg.  To the extent that that statement referred to telephone calls for which we had excluded transcripts, Mrs Legg’s evidence has not assisted the appellant’s case.  We saw no need therefore to give HMRC the opportunity to cross-examine Mrs Legg.

FULL FINDINGS AND REASONS

7.	For the appellants, Mr Leung submitted that no penalty had been incurred.  He submitted that in any event there was a reasonable excuse for the late filing of the paper partnership returns.  We address each submission in turn.

(A) Appellants’ submission that no penalty had been incurred

8.	In support of his submission that no penalty had been incurred, Mr Leung argued that— 

(1)	HMRC did not issue a valid notice pursuant to section 12AA TMA;

(2)	submission of the individual returns amounted to submission of a partnership return;

(3)	no partnership return was due in any event; and

(4)	HMRC failed to exercise, or to exercise properly, their power to “prescribe” the form of the partnership return.

(1) Submission that HMRC did not issue a valid notice pursuant to section 12AA TMA

9.	Mr Leung’s first argument in support of his contention that no penalty had been incurred was that HMRC did not issue a valid notice.  He submitted that the phrase “using 3rd party commercial software” on page 1 of the blank paper return cannot amount to notice to the partner of what information needs to be contained in an electronically-submitted return.  Mr Leung argued that, for such notice properly to be given, HMRC must allow the taxpayer into HMRC’s website via free software provided by HMRC. This would be so that the taxpayer could see what electronic information must be provided pursuant to the notice.

10.	Mr Leung further submitted that “because HMRC did not provide an electronic format in electronic filing software, they have not complied with subsection (2) and (3) [of section 12AA] because they have not enclosed a return”.   Mr Leung explained that he meant that HMRC “have not specified the information by notice because they have not attached an electronic format, only a paper return.”.

11.	We reject those submissions for the following reasons.

12.	In our judgment, section 12AA does not require HMRC to enclose a return.  What section 12AA(3) requires HMRC to do in order to trigger the requirement to make the partnership return is—

“(3)…by notice...require the partner to make and deliver…a return containing such information as may reasonably be required in pursuance of the notice”.   [emphasis added]

13.	Mr Leung said in oral submissions: “I accept that the blank paper return is a notice in compliance with section 12AA”.  We agree that a blank paper return is a notice for the purposes of section 12AA.  We say this because that return indicates to the recipient what information must be provided.  There is nothing in section 12AA in our judgment which requires that the notice be different depending on whether the partner chooses to make an electronic or a paper return.  Indeed how could it, since that choice is exercised only after receipt of the notice.  We find that the blank paper return indicated to the recipient what information must be provided to HMRC, even if that information were to be provided electronically.  
14.	We find therefore that the issue of the blank return was issue of a notice in compliance with section 12AA, regardless of which method of filing Mr Leung then went on to choose for his clients.

(2) Submission of the individual returns amounted to submission of partnership return

15.	Mr Leung’s second argument in support of his contention that no penalty had been incurred was this: that the partners had complied with section 12AA by including in their individual returns the information required to be included in the partnership returns.  He said in his written submission that “In the absence of an electronic PDF submission, the taxpayers above choose to use a format for sole trader to make the return.  All information on the sole trader format and details required by the “partnership paper copy format” are almost identical in the sense that all information required would be fully submitted.”.  

16.	We find that supply of information required to be included in an individual return does not amount to supply of the information required to be included in a partnership return.  Our reasons for this finding are as follows.

17.	Mr Robinson drew our attention to page 4 of the paper partnership return where partnership turnover and detail of partnership expenses are required to be entered.  In contrast, he submitted, the individual return must show merely the profit from the partnership.  Mr Leung challenged this in his post-hearing submission; he said that the individual return does allow for inclusion of detail of expenses.  Mr Leung attached to that submission an example of the individual return. Mr Robinson clarified (last paragraph of his post-hearing submission) that he had been “referring to the supplementary partnership pages that attach to an individual’s self assessment return”. He in turn attached those specimen partnership pages.  Those partnership pages have no dedicated space for inclusion of partnership expenditure.  Mr Robinson submitted that a partnership return is still required in order for HMRC to see details of partnership income and expenditure leading to the partnership profit figure.  

18.	We accept that page 2 of the individual return specimen which Mr Leung supplied post-hearing provides space for listing business expenses.  However, that does not suffice in our judgment to counter Mr Robinson’s submission that a separate partnership return is required, for these reasons—

(a)	First, it is clear from the individual return specimen which Mr Leung supplied that the business expenses required to be listed at page 2 are those of the individual’s self-employment.  The partnership pages (supplied by Mr Robinson post-hearing) which are attached to the individual return do not provide boxes in which to record the business expenses of the partnership;

(b)	Second, although the headings for each category of expenditure are broadly similar in the individual return compared with the partnership return, they are not identical;

(c)	Third, the partnership return has a box on page 4 for stating the amount of “partnership charges” (which are to be included in “other expenses”).  There is no express provision in the individual return for inclusion of partnership charges.  Any such inclusion in the individual return would in any event be only of the individual’s share of the partnership charges;

(d)	Fourth, for HMRC to work out for themselves the information that they should have received in the partnership return, they would need to collate the individual returns of all the partners. They would then need to work out what the total partnership figures are by adding together the figures in the individual returns.  Even if this exercise would produce the exact figures which are required to be included in the partnership return, the fact remains that that exercise would have to be done. That in turn indicates in our judgment that the partnership return is required to contain information which is not in each individual return. That is to say, the partnership return requires that the adding up exercise be done not by HMRC, but by or on behalf of the partners and the resulting totals included in the partnership return.  Those totals are not included in each individual return;

(e)	Fifth, section 12AB requires the inclusion in a partnership return of “a partnership statement” of certain amounts which have accrued to the partnership.  Completion of an individual return, which is not required to include a partnership statement, cannot in our judgment satisfy the requirement in section 12AB.

19.	We reject therefore Mr Leung’s argument that submission of the individual return constitutes submission of all the information required to be contained in a partnership return.

20.	Mr Leung also however relied on section 113(1) of the TMA—

“Any returns under the Taxes Acts shall be in such form as the Board prescribe, and in prescribing income tax forms under this subsection the Board shall have regard to the desirability of securing, so far as may be possible, that no person shall be required to make more than one return annually of the sources of his income and the amounts derived therefrom.”. [emphasis added]

21.	We saw some force in that argument.  It could constitute an argument that, to the extent that the partnership return required duplication of details already submitted in the individual return, that requirement is ultra vires.

22.	However, that argument does not in our judgment assist the appellants.  We so find for two reasons—

(a)	First, section 113 requires HMRC merely to “have regard to the desirability” of securing so far as possible that no more than one return is required.  It does not expressly (which it could easily have done) limit the power to prescribe so that no duplication may be prescribed.  Mr Leung did not suggest that HMRC had not had such regard.  But in any event, we did not have before us evidence as to what HMRC did or did not have regard to in their exercise of the power conferred by section 113;

(b)	Second, in any event, the additional information required to be included in the partnership return compared with the individual return was not we find supplied to HMRC in the present case.  There was no suggestion that a separate communication had been made on behalf of the appellants to HMRC in which that additional information was included.  So, even if we were persuaded (which we were not) that the requirement for duplicated information was ultra vires, a finding to that effect would not assist the appellants.

(3) Submission that no partnership return was due in any event

23.	Mr Leung’s third argument in support of his contention that no penalty had been incurred was this: that no partnership return was due in any event because of declarations that the partners had ceased to be partners.  We reject that submission, for the following reasons.

24.	First, we asked Mr Leung whether, at the time they were required to file the returns, his clients were partners or not.  Mr Leung replied “yes and no.  No for the purposes of this argument”.  Mr Leung relied on letters in three of the six appeals.  The letters were all to the effect that the author had decided to trade as a sole trader for 2007/2008.  All three letters post-date the end of the tax year in question.  Mr Leung told us “This is a backdated rectification of what I did, to give me authority to submit figures as sole trader”.  

25.	We do not accept that such backdated rectification can undo the true historical position.  We so find especially given that Mr Leung’s submissions amounted in our judgment to an admission that these letters did not reflect the true historical position but were prepared merely to assist the appeals.  

26.	We were not pointed to specific letters to this effect in the appeals of Mr T W Farrow and Mrs D Balgobin.  But given our finding that the retrospective declarations in the other three appeals did not assist those three appeals, any similar retrospective declarations would not have assisted Mr Farrow or Mrs Balgobin either.

27.	In the case of Mr Rolton, Mrs Rolton and Mr Bryan, Mr Robinson accepted that Mrs E F Rolton was no longer a partner in the tax year in question.  He withdrew her penalty determination at the hearing.  In relation to the penalty determinations for Mr T W Rolton and Mr B J Bryan, we were not pointed to specific letters declaring that Mr T W Rolton and Mr B J Bryan had not been in partnership in the tax year in question.  But given our finding that the retrospective declarations in the other three appeals did not assist those three appeals, any similar retrospective declarations would not have assisted Mr T W Rolton’s appeal either.

28.	Our second reason for rejecting the submission that no return was due because the individuals had ceased to be partners was this:  HMRC’s records specific to each appeal showed that the businesses had been registered with HMRC as a partnership with “Trade Start Dates” which preceded the tax year in question. There was no “End Date” preceding the tax year in question.

29.	Our third reason for rejecting that submission was that it was common ground that partnership returns had been submitted in the past for each of the six businesses.

30.	Our fourth reason for rejecting that submission was this:  the agents’ dealings were we find based on the premise that the business was a partnership and that a partnership return was due.   For instance, Mr Leung’s letter of 24th April 2009 in each of the six cases stated “I found out today that the Revenue had in fact extended the paper deadline for partnership [sic] to the 31.1.09 due to the failure of their on-line facility.  Nobody told us about this throughout January…”.  And for instance, paragraphs 5 to 9 of Mrs Legg’s witness statement (quoted above) were based on the premise that partnership returns were due.  The firm would not have made those statements, in our judgment, if there was no partnership.

(4) Submission that HMRC had failed to exercise, or to exercise properly, their power to “prescribe” the form of the partnership return

31.	Mr Leung’s fourth argument in support of his contention that no penalty had been incurred appeared to be this:  that HMRC have not, or have not properly, exercised their powers in sections 12AA(5E) and 113(1) TMA in relation to prescribing the form of a return.   Mr Leung said in oral submissions that—

“in the format issued by HMRC, section 12AA and 113 were not complied with by HMRC, therefore the notice and all the “forms” are defective and therefore invalid.”.

32.	Mr Leung’s overall submission under this heading was that HMRC were required to provide free software for electronic filing.  

33.	Mr Leung relied on the following arguments in support of that submission—

(a)	that “‘prescribe’ [in section 12AA(5E)] means not only made clear to taxpayers the format of information required by (2) and (3), coupled with the words ‘containing and in pursuance’ would definitely imply a reasonable provision for taxpayers to lodge electronically. This is clearly illustrated by the provisions for sole traders portal in the website”;

(b)	that subsection (5E)(b) “required” HMRC “to make different provisions for different cases or circumstances” and “purchase of commercial software is not a provision”;

(c)	that asking taxpayers to buy software elsewhere is not prescribing a form of return as required by section 113(1), is contrary to the duty in Schedule 3A paragraph 5 TMA, and is not authorised by the TMA or by directions under it; 

(d)	that section 132(1) of the Finance Act 1999 says “’Regulations (Directives) may be made…..to facilitate the use..’  “It is claimed that merely asking people to buy software when the partnership portal is not functioning is not ‘facilitate’.”;

(e)	that the “blanket authority to prescribe a format”, as Mr Leung put it, is constrained by the Human Rights Act 1998 and the Taxpayer’s charter; and

(f)	that HMRC have breached their duty of care to the partners by not providing free software for online filing.

34.	We find that HMRC did not have an obligation to provide free software for filing online.  We find too that HMRC have not failed properly to exercise their power or duty to prescribe what constitutes an electronic return or to prescribe what the form of the return shall be.  We reject the contentions listed at (a) to (f) above for the following reasons.

(a) “‘Prescribe’ in section 12AA(5E) implies a reasonable provision for taxpayers to lodge electronically”

35.	We disagree that “prescribe” in section 12AA(5E) implies making reasonable provision for taxpayers to lodge electronically.  

36.	“Prescribe” is used throughout legislation, not just tax legislation, to confer power to make subordinate legislation or rules.  That usage accords with the ordinary meaning of “prescribe” as appears from its definition in the full Oxford English Dictionary.  The OED broadly defines it, for non-medical contexts, as “to make an authoritative ruling, to lay down rules, laws etc.; to dictate, direct”, “to write or lay down as a rule or direction to be followed”, “to limit, restrict, circumscribe”.

37.	In some provisions in the TMA, “prescribed” is defined for the purposes of a provision; for instance in sections 17, 18, 18B, 18E, 59E and 115.  The TMA provisions for the purposes of which “prescribed” is defined limit “prescribed” to mean doing by regulations or, in some cases, by order.  “Prescribe” is not so defined for the purposes of section 12AA(5E).  In our judgment, that contrast is deliberate.  In addition, “prescribe” is not defined at all for the purposes of section 12AA(5E), either in the TMA or in the Income and Corporation Taxes Act 1988 (by virtue of section 119(3) of the TMA, the TMA shall be construed as one with the Income and Corporation Taxes Act 1988).  The lack of such definition or limitation of “prescribe” does not in our judgment mean that “prescribe” should be given a meaning beyond its ordinary meaning.  Rather, it may retain its ordinary meaning.  It means in our judgment that HMRC are not constrained to prescribe by means of regulations or an order.  Instead, it is open to them to choose the method by which they “prescribe”, that is, to lay down rules as to, or to dictate or direct, what constitutes an electronic return for the purposes of section 12AA(5E).

38.	It was therefore open to HMRC to choose, as they have, to prescribe by means of directions what constitutes an electronic return.  They have done so in directions dated 4th April 2008 entitled “Directions under regulation 3 of the Income and Corporation Tax (Electronic Communications) Regulations 2003 (S.I. 2003/282) and prescribing of electronic returns under sections 8(1H), 8A(1F) and 12AA(5E) of the Taxes Management Act 1970 (c. 9)”.  

39.	The last direction in those directions provides—

“Electronic Returns
The Commissioners further direct that the electronic return prescribed for the purposes of each of sections 8, 8A and 12AA of the Taxes Management Act 1970 is an electronic return delivered using the Self Assessment Online service.”.

40.	The next question is this:  By giving the direction cited at paragraph 39 above, have HMRC failed properly to exercise their power or fully to discharge their duty under section 12AA(5E)(a) to prescribe what constitutes an electronic return for the purposes of section 12AA?  In our judgment, the answer is “no”.  There is nothing express in subsection (5E)(a) specifying the level of detail to which HMRC must descend in prescribing what constitues an electronic return.  That subsection therefore gave room in our judgment for HMRC to prescribe as they did in the last direction of the directions dated 4th April 2008.  

41.	If we are wrong on that, then we find that regulation 3 of the Income and Corporation Taxes (Electronic Communications) Regulations 2003 (S.I. 2003/282, “the 2003 regulations”) does the job.  That is to say, regulation 3 discharges the duty to prescribe what constitutes an electronic return for the purposes of section 12AA.  In addition, to the extent that that duty included a duty to prescribe the form of the return, regulation 3 discharged that part of the duty too in our judgment.  We so find for the reasons set out below under our discussion of section 113(1) TMA.

42.	The above sets out why we find that HMRC have not failed in their duty under section 12AA(5E)(a).  We address next why they have not in our judgment acted in breach of section 12AA(5E)(b) either.

(b) “Subsection (5E)(b) “required” HMRC “to make different provisions for different cases or circumstances”,  and “purchase of commercial software is not a provision”

43.	Mr Leung’s second argument in support of his submission that HMRC were required to provide free software for electronic filing was this: that section 12AA(5E)(b) imposed on HMRC a duty to “make different provision for different cases or circumstances”.  He argued that this meant that HMRC had a duty to provide free software for online filing of partnership returns.

44.	We reject that argument, for two reasons.  First, section 12AA(5E)(b) uses the word “may” not “shall” or “must”.   It therefore confers on HMRC a power not a duty.  Second, the power to “make provision” clearly means “make provision by prescribing”.  We say that because paragraph (b) clearly informs in our judgment what is said in paragraph (a) which refers to “prescribe”.  In any event, this power to make provision for different cases and circumstances is common; it is trite law that it confers a power to make provision by prescribing.  It does not include the provision of facilities.

(c) Appellants’ argument that asking taxpayers to buy software elsewhere is not prescribing a form of return as required by section 113(1), is contrary to the duty in paragraph 5 of Schedule 3A TMA and is not authorised by the TMA or by directions under it

45.	Mr Leung’s third argument in support of his submission that HMRC were required to provide free software for electronic filing was this: that “asking taxpayers to buy software elsewhere” is not prescribing a form of return as required by section 113(1), is contrary to the duty in paragraph 5 of Schedule 3A TMA and is not authorised by the TMA or by directions under it.  This argument does not assist the appellants.  We so find on two grounds: (i) there was in our judgment no breach of duty, (ii) in any event, any such breach does not in our judgment assist the apppellants where the paper return was filed after the online filing date.  We address these two grounds in turn below.

(i) No breach of duty

Section 113(1) TMA

46.	Mr Leung’s first contention as to breach of duty was that section 113(1) had been breached.   We reject that contention.  Section 12AA(5E) TMA imposed on HMRC a duty to “prescribe what constitutes an electronic return for the purposes of this section”.  If and to the extent that section 113(1) imposed an additional duty to prescribe the form of the return in the case of an electronic return, we find that that section 113(1) duty was also discharged by HMRC.  We so find for the following reasons.

47.	Regulations 2 and 3 of the 2003 regulations provided, so far as relevant—

“2.—(1)     These Regulations apply to—
(a)     the delivery of information, to or by the Board, the delivery of which is authorised or required by or under—
(i)     any provision of section 8, 8A, 9, 9A, 9B, 9C, 9D, 12AA, 12AB 12AC, 12AD, 12AE, 59DA or 59E of the Management Act,”.

“3.—(1) […]

(2) A person other than the Board may only use electronic communications in connection with the matters referred to in regulation 2(1) if the conditions specified in paragraphs (3) to (6) are satisfied.
(3)     The first condition is that the person is for the time being permitted to use electronic communications for the purpose in question by an authorisation given by means of a direction of the Board.
(4)     The second condition is that the person uses—
(a)     an approved method for authenticating the identity of the sender of the communication;
(b)     an approved method of electronic communications; and
(c)     an approved method for authenticating any information delivered by means of electronic communications.
(5)     The third condition is that any information or payment sent by means of electronic communications is in a form approved for the purpose of these Regulations.
Here “form” includes the manner in which the information is presented.
(6)     The fourth condition is that the person maintains such records in written or electronic form as may be specified in a general or specific direction of the Board.
(7)     In this regulation “approved” means approved, for the purposes of these Regulations and for the time being, by means of a general or specific direction of the Board.”.

48.	The reference to “the Management Act” in regulation 2 was, by virtue of regulation 1(2), a reference to the TMA.  The reference to section 12AA of the TMA in regulation 2(1), together with regulation 3(4)(b) and (5), has the following effect: information required to be contained in a partnership return may be submitted to HMRC using electronic communications only by a method and in a form approved by HMRC.  By virtue of regulation 3(7), “approved” meant approved by a direction of HMRC.  

49.	The relevant directions are those dated 4th April 2008 entitled “Directions under regulation 3 of the Income and Corporation Tax (Electronic Communications) Regulations 2003 (S.I. 2003/282) and prescribing of electronic returns under sections 8(1H), 8A(1F) and 12AA(5E) of the Taxes Management Act 1970 (c. 9)”.   

50.	The question is whether those directions did enough to approve a method and form for submitting electronically the information required to be contained in the partnership return.  In our judgment they did do enough, for the following reasons.

51.	The directions are separated into three parts:  The first part relates to individuals, trustees and partnerships.  The second part relates to agents.  The third part is headed “Electronic Returns” (and prescribes for the purposes of section 12AA(5E) as set out above). 

52.	Under both the first and second parts, the directions state—

“The Commissioners further direct that— 

(a) the methods approved by them for— 
(i) authenticating the identity of the person sending the relevant information, and 
(ii) the delivery of the relevant information; and 
(b) the form approved by them in which the relevant information is to be delivered;

are the methods and form set out, at the time of, and for the purposes of, the delivery of the relevant information, in the terms and conditions for use of the Self Assessment Online service, on the HMRC website (www.hmrc.gov.uk).”.

53.	Mr Robinson produced a copy of the terms and conditions on that website as at 7th April 2010 (page E1 in HMRC’s “Additional bundle of legislation and authorities”).  He said he could not find the 2008 terms and conditions to put before us.  However, he explained to us how the 2008 terms and conditions set out, for the purposes of the directions dated 4th April 2008, the method and form of electronic filing of the partnership return.

54.	Mr Robinson told us—

“Once someone attempts to register online, they find themselves in an area where the terms and conditions are set out. And they are required to agree to the terms and conditions.  By accepting the terms and conditions and clicking on the steps, you are directed to using third party software.  For example, the document starting at page D2 in the additional bundle, is a guide for tax agents from March 2008.  At page D6, it says, in the third paragraph from the bottom, “Currently we do not offer an online product for Partnership or Trust and Estate Tax Returns though these can be filed online using some commercial products as above.  And at D8 it says, in the last paragraph, “HMRC does not provide a free online product for filing a partnership return.  However there are low-cost, commercial products available.  Follow the link below for a full list.”.

55.	The document containing page D6 to which Mr Robinson referred is headed “Changes to Self Assessment (SA) – a guide for tax agents.  Published March 2008.”.   The document containing page D8 to which Mr Robinson referred is headed “Completing your tax return (partners and partnerships)”.

56.	The four paragraphs on page D6 under the heading “SA Online - software products” said—

“A range of online filing-enabled software and forms is available from commercial (third party) software suppliers to enable online filing of returns, supplementary pages and attachments. These products offer a variety of different features – for example some allow Partnership (SA800) and Trust and Estate (SA900) Tax Returns to be filed online.

All the products listed on our Software Development pages [this was a link] have been successfully tested to ensure that their forms and supplementary pages can be sent to us over the internet.  Further products will be added to the list once they have tested successfully.

HMRC also provide a free online filing product, ‘Online Tax Return – Self Assessment’.  This will allow you to file the main SA Tax Return (SA100) and a selection of supplementary pages. You can find it as one of the available options when you have logged on to our Online Services. Currently we do not offer an online product for Partnership or Trust and Estate Tax Returns though these can be filed online using some commercial products as above.

We have tested all the features of our online filing service, and provide support to users through our Online Services helpdesk [this was a link].”.

57.	Page D8 to which Mr Robinson referred said, under the heading “The benefits of filing online”—

“You can fill in and file partnership returns using either paper or online versions.  For the tax year 2007-08 and later years you’ll have to file paper returns earlier than online returns. The usual filing deadlines are:
•	31 January after the end of the tax year for online filing
•	31 October after the end of the tax year for filing paper returns

As well as a later filing date, if you use online filing your tax will be worked out for you automatically. And you’ll get immediate confirmation that we’ve received your return.

HMRC does not provide a free online product for filing a partnership return.  However there are low-cost, commercial products available.  Follow the link below for a full list.

[There followed the following links]
See a list of commercial tax return software.
Get information about filing Self Assessment returns online
See a demonstration of Self Assessment Online for partnerships”.

58.	When Mr Robinson referred to “clicking on the steps”, we took him to mean “clicking on the links”.  We say that because he pointed us to the link in the current terms and conditions (divider E of his bundle), to illustrate his point, as an example of how the link would have appeared in the 2008 terms and conditions.

59.	Mr Leung did not seek to cross-examine Mr Robinson on that evidence.  Mr Leung did however appear, in his post-hearing submission, to challenge Mr Robinson’s evidence: “We dispute that by going through the process of registering to go on-line, one would know about the “3rd party software”.  Sandra Legg’s witness statement will support this claim”.  

60.	However, Mrs Legg’s witness statement dated 26th April 2010 does not in fact challenge what Mr Robinson said about the registration process.  Mrs Legg merely says, as regards that process—

“4. Prior to 31.10.08 I had attempted to register the 2 firms and get authorisation codes for all clients including the partnerships and we had succeeded after getting help from the helpline.”.

61.	The rest of Mrs Legg’s statement addresses not that initial registration process, but the process she went through when she came to make the actual submission online. 

62.	We accept Mr Robinson’s evidence that the 2008 terms and conditions contained links similar to those seen in the 2010 terms and conditions which were before us.  In article 37.1 of the 2010 terms and conditions before us, under the heading “Article III. Agents”, there is the following sentence including a link: “You will find full details of the services that are currently available on the Online Services page.”.  We accept that the 2008 terms and conditions contained a link entitled “Online Services” or “Online Services page”.  We accept also Mr Robinson’s evidence that clicking on that link in the 2008 terms and conditions would ultimately take the user to the 2008 pages D6 and D8 referred to above.  

63.	The reasons we accepted Mr Robinson’s evidence on these two points were three-fold.  First, we found him to be a credible witness.   Second, that part of his evidence was not disputed in Mrs Legg’s witness statement. Third, we were not pointed to other evidence to counter Mr Robinson’s evidence on those two points.

64.	What is relevant in Mr Robinson’s evidence about the process of registration is not whether the person registering is automatically taken to the terms and conditions.  The terms and conditions are mentioned in HMRC’s directions of 4th April 2008; so for the purposes of ascertaining what form was prescribed, we may go direct to the terms and conditions. 

65.	What does matter is whether the terms and conditions “set out” the method and form of delivery of the return sufficiently for the purposes of HMRC’s directions of 4th April 2008.  If the method and form of delivery are “set out” sufficiently for the purposes of those directions, then that method and that form are “approved” by those directions.  If the method and form of delivery are “approved” by those directions, then that method and form are the approved form in which information is required by regulation 3(5) of the 2003 regulations to be sent by means of electronic communications to HMRC.

66.	We have already accepted Mr Robinson’s evidence as to the steps by which the user is taken from the online terms and conditions to the webpages which say that the free software is not available for partnership returns.   We have accepted too that the user is taken from the online terms and conditions to a list of software providers whose software HMRC permit to be used for online filing of partnership returns.  And page D8 mentioned above said “All the products listed on our Software Development pages [this was a link] have been successfully tested to ensure that their forms and supplementary pages can be sent to us over the internet.”.

67.	We find that the points at paragraph 66 above suffice to mean that HMRC have “set out” the method of delivery of the information required to be contained in the partnership return.  That is to say, HMRC have set out that delivery by electronic means is by using certain specified software products which are not provided free of charge by HMRC.  They have done this by means of the content of pages D6 and D8 mentioned above, and the incorporation, by links, of those pages into the terms and conditions.  In addition, HMRC have, in that page D8 and on the software development pages, in our judgment set out the form of delivery of the information required to be contained in a partnership return.  They have done this by specifying particular software products in the list accessed by the link on page D8 to the software development pages, and by saying that the products have been tested.

68.	We found above that a link in the 2008 online terms and conditions led to pages D6 and D8 referred to above.  In view of that finding, the setting out of both form and manner is in our judgment incorporated by reference into the terms and conditions.  We so find even though such inclusion is not as clear, in our judgment, as inclusion on the face of the terms and conditions.  We accept that those terms and conditions were the terms and conditions for use of the self assessment online service on HMRC’s website.  We find therefore that those terms and conditions set out the method and form of delivery of the information required to be contained in a partnership return.  That in turn means that the method and form thereby set out are the method and form approved by HMRC in their directions of 4th April 2008 for delivery of that information.   That method and form approved in the directions is, by virtue of regulation 3(7) of the 2003 regulations, the form which the information required to be contained in the partnership return must take in order for a person other than HMRC to be permitted by regulation 3 of the 2003 regulations to send the information by means of electronic communications.

69.	The result, in our judgment, is that regulation 3(2) of the 2003 regulations provides that the only way in which the information required to be contained in a partnership return may be supplied to HMRC electronically is by using the third party software listed on HMRC’s website.
70.	The 2003 regulations are not expressed to be made under any provision of the TMA; the preamble cites the powers in sections 132 and 133(2) of the Finance Act 1999.  That does not in our judgment preclude the regulations from validly prescribing the form of the partnership return for the purposes of section 113 TMA, or indeed for the purposes of any other section (including section 12AA(5E)(a)).  What matters is whether the content of the regulations is within the power conferred by, or within the duty imposed by, the section in question.  In our judgment, regulation 3, together with the directions, terms and conditions, links and webpages cited above, discharges the duty to prescribe the form of the partnership return and to prescribe what constitutes an electronic return for the purposes of section 12AA.
Schedule 3A, paragraph 5 TMA
71.	Mr Leung’s second contention as to breach of duty was that paragraph 5 of Schedule 3A had been breached.  Paragraph 1 of Schedule 3A to the TMA provided, so far as relevant—
“The basic rule
1.—(1)	Sub-paragraph (2) below applies where a person is—
(a)	required by a notice to which this Schedule applies, or
(b)	subject to any other requirement to which this Schedule applies, to deliver or make a return to an officer of the Board or to the Board.
(2)	The requirement to deliver or make the return shall be treated as fulfilled by the person subject to the requirement if—
(a)     information is transmitted electronically in response to that requirement; and
(b)     each of the conditions in Part III of this Schedule is met with respect to that transmission.”.

72.	Paragraph 5 of Schedule 3A provides—

“Approved manner of transmission

5.—(1)     The second condition applies if the person who makes the transmission is notified by the Board of any requirements for the time being applicable to him as to the manner in which transmissions are to be made by him or as to the manner in which any description of transmission is to be made by him.

(2)     The second condition is that the transmission must comply with the requirements so notified.

(3)     The requirements referred to include in particular requirements as to—
(a)     the hardware or type of hardware, or
(b)     the software or type of software,
to be used to make transmissions or a description of transmissions.”.
73.	Mr Leung submitted that—
“This requires the Revenue to notify the taxpayer the manner, hardware and software of transmission of information electronically.  No such notification is written on the return form (S12AA notice).  Notification outside the form in the website, is not notification in this sense.  It must accompany the notice.  One does not have to seek information if one is notified, especially before one is authorised to go into the partnership page.  This section requires a clear notice on the return form, as to costs and as to the failure of the partnership portal.”.
74.	We disagree.  The first 6 lines in column 1 on page 1 of the blank return issued to the partners stated (page T16 of the appellants’ common bundle)—
“This Notice requires you by law to send us a Tax Return, and any documents we ask for, for the year from 6 April 2007 to 5 April 2008. Give details of all the income and disposals of chargeable assets on which the partners may be charged to tax using:
-	The Internet (using 3rd party commercial software).
An instant online acknowledgement will tell you that your Tax Return has been safely received. Go to https://online.hmrc.gov.uk/ssoin to register and enrol for Self Assessment Online for Partnerships; OR
-	This form and any supplementary Pages you need.”.
75.	It is not disputed that this blank form was issued by HMRC in all six cases in April 2008.   The blank form was the notice under section 12AA, as we have already found above.  That statement in column 1 on page 1 of the form in our judgment clearly notified the requirement to use third party commercial software if filing online.  The fact that the only alternative to that (the second bullet point) was to submit the paper form itself made clear in our judgment that the only way in which to file electronically was to use third party commercial software.  The reference to using third party commercial software in conjunction with the reference to going to HMRC’s website to file electronically also made clear in our judgment that going to HMRC’s website was not an alternative to using third party commercial software.
76.	Paragraph 5 of Schedule 3A to the TMA did not in our judgment require HMRC to notify a requirement in relation to hardware if there was no such requirement.  It merely conferred on HMRC power to include, in the requirements they may impose, requirements as to the hardware or type of hardware, and requirements as to the software or type of software, that must be used for electronic lodgment of returns.  This is the effect in our judgment of the phrase “any requirements” in paragraph 5(1) of Schedule 3A to the TMA.  
77.	For the above reasons, HMRC did in our judgment give sufficient notification for the purposes of paragraph 5 of Schedule 3A to the TMA.
78.	We find therefore that not providing free software for online filing of partnership return was not a breach of any duty imposed by section 113(1) of the TMA or by paragraph 5 of Schedule 3A to the TMA.

“Asking taxpayers to buy software elsewhere is not authorised by the TMA or by directions under it” 
79.	Mr Leung’s third contention as to breach of duty was that asking taxpayers to buy software elsewhere is not authorised by the TMA or by directions under it.   For the above reasons, it was in our judgment within powers conferred by the TMA, and within the scope of what the directions were permitted to do, for HMRC (a) not to provide free software and (b) to permit electronic submission of the information required to be contained in a partnership return only by using 3rd party commercial software.
80.	But in any event, section 132(5)(c) of the Finance Act 1999 conferred such power in our judgment.  Section 132 provides, so far as material—
“Power to provide for use of electronic communications
132.—(1)     Regulations may be made, in accordance with this section, for facilitating the use of electronic communications for—
(a)     the delivery of information the delivery of which is authorised or required by or under any legislation relating to a taxation matter;
			[…]
(5)     Regulations under this section may—
			[…]
 (c)     allow a person to refuse to accept delivery of information in an electronic form or by means of electronic communications except in such circumstances as may be specified in or determined under the regulations;”. [emphasis added]
81.	We set out earlier in this decision the route by which the requirement is arrived at that only the software listed on HMRC’s website as having been tested for the purpose may be used.  That route included provision specified in or determined under the 2003 regulations.
82.	In our judgment, the “circumstances” which are “specified in or determined under” the 2003 regulations, for the purposes of section 132(5)(c), are that software has been used which is listed on HMRC’s website has having been tested for the purpose.
83.	For these reasons, section 132 in our judgment conferred power on HMRC to prescribe that electronic submission of the information required to be contained in a partnership return would be accepted only in circumstances where such software had been used to make that submission.
84.	This means that it was not in our judgment ultra vires for HMRC to refuse to accept electronic submission of such information in other circumstances.
85.	In addition, we find that HMRC did not “ask taxpayers to buy software elsewhere”.   Taxpayers could choose to submit a paper return by the paper return deadline.
86.	Above are our reasons for finding that there was no breach of the TMA in HMRC’s failure to provide free software for electronic filing of partnership returns.  Nor was there a lack of authorisation for HMRC to fail to provide such software.  But if we are wrong on that, any breach by HMRC does not in event assist the appellants, in our judgment, for the reasons set out below.
(ii) Breach no help where paper return filed after online filing date
87.	It is not disputed that, in all six cases, the paper partnership return was filed after the online filing date of 31st January 2009.  Even if, by not providing free software, HMRC had failed in a duty to prescribe the form of the return, that could only (if at all) be relied on to argue that submission of the return other than by using third party commercial software was permitted within the online filing deadline. That argument (which we do not say would succeed) is not available in our judgment where, as here, the return was submitted after the online filing deadline.

(d) “Breach of section 132(1) of the Finance Act 1999”

88.	Mr Leung’s fourth argument in support of his submission that HMRC were required to provide free software for electronic filing was that not to do so was a breach of section 132(1) of the Finance Act 1999.  Section 132(1) provides, so far as relevant—

“Power to provide for use of electronic communications
132.—(1) Regulations may be made, in accordance with this section, for facilitating the use of electronic communications for—
(a)     the delivery of information the delivery of which is authorised or required by or under any legislation relating to a taxation matter;”.

89.	Mr Leung submitted that “It is claimed that merely asking people to buy software when the partnership portal is not functioning is not ‘facilitate’.”.

90.	That is not in our judgment the effect of section 132.  First, section 132 says “may” not “must” so confers a power not a duty.  Second, the power conferred is to make regulations.  It is not a duty “to facilitate” in isolation (by, as Mr Leung argues, providing free software), but a power to make regulations to facilitate.

(e) “Authority to prescribe a format is constrained by the Human Rights Act 1998 and the Taxpayer’s charter”

91.	Mr Leung’s fifth argument in support of his submission that HMRC were required to provide free software for electronic filing was this: that the authority to prescribe a format is constrained by the Human Rights Act and by the Taxpayers’ Charter.

Human Rights Act 1998

92.	Mr Leung submitted that requiring the purchase of third party software amounts to—

(a)	an interference, contrary to article 1 of the first protocol to the European Convention on Human Rights, with the partners’ enjoyment of their money; and

(b)	discrimination, contrary to article 14, against poor people who cannot afford third party software.

93.	We disagree, on both counts.  We find that there is no breach of section 6 (or other provisions) of the Human Rights Act 1998 by HMRC’s failure to provide free software for electronic filing of partnership returns.

94.	First, HMRC did not “require” the purchase of third party software.  The appellants had the choice of filing a paper return by the paper return deadline.  There was therefore no requirement to spend money on software and so no interference with enjoyment of money contrary to article 1 of the first protocol.  

95.	Second, as to article 14, that article is not free-standing (see for example Belgian Linguistics Case (No. 2) (1968) 1 EHRR 252).  Mr Leung did not say which substantive article he relied on in conjunction with article 14.  Even if he were to rely on article 14 in conjunction with article 8 or with article 1 of the first protocol, there was in our judgment no discrimination contrary to article 14, in conjunction with either article, against “poor people who cannot afford third party software”.  Although there was a shorter deadline for submission of a paper return, that did not in our judgment materially discriminate against those who chose to make a paper return.  The taxpayer still had over 6 months from 6th April to 31st October in which to submit the paper return.  That is in our judgment sufficient time for a reasonable taxpayer acting with reasonable promptness in relation to his tax affairs.

96.	If there were discrimination, it may well be objectively justified.  But given our finding that there was no discrimination, it is not necessary to make a finding as to objective justification. In addition, we did not receive submissions as to objective justification so do not have sufficient basis on which to make a finding on that point.

97.	We find therefore that the appellants’ reliance on the Human Rights Act 1998 does not assist their case.

Taxpayers’ Charter

98.	Mr Leung argued that the Taxpayers’ Charter had been breached in a number of ways.  He did not however explain what basis in law any such breach gave to the tribunal to set aside the penalties.

99.	In any event, we were not persuaded of the breaches argued by Mr Leung.

100.	Mr Leung argued that point 2 of the taxpayer’s rights listed in the charter was breached.  Point 2 in the version of the charter supplied by Mr Leung says—

“2 Help and support you to get things right
We want to give you as much certainty as we can that you are paying or claiming the right amount.
We will:
i.	provide information that helps you understand what you have to do and when you have to do it
ii.	provide information that clearly explains the taxes, duties, exemptions, allowances, reliefs and tax credits that we are responsible for
iii.	process the information you give us as quickly and accurately as we can
iv.	put mistakes right as soon as we can.”.

101.	Mr Leung submitted that “By missing out the cost on the notice and do not provide free software and make public expenditure to get their partnership portal running the same way as the sole trader portal, this charter is breached.”.

102.	We disagree.  First, the promise to provide information that helps the taxpayer understand what the taxpayer has to do does not in our judgment include telling the taxpayer how much it would cost to buy software to submit electronically a partnership return.  Indeed, there would be a risk of the information becoming inaccurate, and therefore misleading, as prices change.  Second, in any event, buying the software is not something that the taxpayer “has to do”; he could submit a paper return instead.  Third, the promise is to provide and process information.  It is not a promise to provide free software.

103.	Mr Leung also argued that point 4 of the taxpayer’s rights listed in the charter was “clearly breached”.  Point 4 in the version of the charter supplied by Mr Leung says—

“4 Treat you even-handedly
We will be even-handed in the way we deal with you.  We will take into account your circumstances and provide a consistent service.  If you need help we will also give you the appropriate support so you can meet your obligations.
We will:
•	act within the law and our published guidance
•	help you understand your legal rights
•	explain what you can do if you disagree with our decisions or want to make a complaint
•	provide you with information in a way that meets your particular needs
•	consider any financial difficulties you may be having”.

104.	Mr Leung submitted that the promises in the last two bullet points in point 4 are “clearly breached for not informing the taxpayers of the cost of software and of the defunct partnership portal from the outset.”.

105.	We disagree.  First, the promise to provide information in a way that meets the taxpayer’s particular needs is not a promise as to the content of the information, but about the way in which the information will be provided.   Second, the promise to consider any financial difficulties a taxpayer may be having cannot in our judgment be breached by not giving a taxpayer information; or at least, it cannot be breached by not giving the particular information to which Mr Leung refers.

106.	Mr Leung argued that point 9 of the taxpayer’s rights listed in the charter was breached.  Point 9 in the version of the charter supplied by Mr Leung says—

“9 Do all we can to keep the cost of dealing with us as low as possible
We aim to take up as little of your time and money as we can.
We will:
•	try to make our services straightforward and easy to access
•	make it as cheap as we can for you to contact us
•	explain clearly what we need from you
•	do our best to give you complete, accurate and consistent advice
•	do our best to get things right first time.”.

107.	Mr Leung submitted that “By forcing taxpayers to buy commercial software at £399-£500 disregarding the financial capabilities, is a breach.  Saving the Revenue’s money by not preparing a workable partnership portal and not buying the software to overcome the problem, are a clear breach.”.

108.	We disagree.  First, we find, for reasons given earlier in this decision, that HMRC did not force taxpayers to buy commercial software.  Second, Mr Leung’s argument about HMRC’s failure to provide free software appears to rely on a contrast with HMRC’s provision of free software for sole trader electronic submission of returns.   But that contrast does not in our judgment operate to confer on HMRC, by virtue of their promise to keep the cost as low as possible, an obligation to provide free software at all, whether to sole traders or to partners. 

109.	We find therefore that the appellants’ reliance on the Taxpayers’ Charter does not assist their case.

(f) “HMRC have breached their duty of care to the partners by not providing free software for online filing”

110.	Mr Leung’s sixth argument in support of his submission that HMRC were required to provide free software for electronic filing was that not to do so was a breach of duty of care to the partners.  He submitted that—

 “The common law of torts forbids civil wrongs, in particular in statutory torts that impose duty on public parties to be fair (see breach of S.132 FA 1999 below).  Economic torts protect people from interfering with trade and business with unfair requirements (the purchase of 3rd party software). The duty of care may ask how the HMRC answers to those taxpayers who could not afford the fees to buy the software or perhaps internet access or computers. The provision for sole trader portal and not the partnership will be seen as a lack of duty of care.  It cannot be argued that the Revenue did not see problems arising from the non-provision of partnership portals for small and poor taxpayers.”.

Mr Leung explained in oral submissions that a “sole trader includes MPs, big people, but partnerships are small people”, and that it was “a breach of duty of care not to provide a portal for partners”.

111.	It was unclear which statutory duty or economic tort Mr Leung relied on, in relation to duty of care, that had not already been covered by his other submissions. Our reasons under the other headings in this decision therefore dispose of the duty of care point as put to us by Mr Leung.

112.	For all of the above reasons, we find that, unless it appears that there was a reasonable excuse for the late submission of the returns, the penalties must stand.

(B) Reasonable excuse

113.	Section 93A(7) of the TMA provides, so far as relevant—

“(7) On an appeal against a determination…of a penalty under subsection (2) or (4) above…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.”. 

114.	We find that it does not appear that, throughout the period of default, any of the six appellants had a reasonable excuse, for the following reasons.

115.	First, as set out earlier in this decision, the requirement to use “3rd party commercial software” as the only alternative to filing the tax return form itself, was stated on the front of the notice sent to the appellants in April 2008.  The appellants therefore knew, or should have known, that such software was required for online filing.  There is no suggestion that Mr Leung did not see those notices.  We find that he did see those notices and that, from those alone, he too knew or should have known that such software was required for online filing of partnership returns.

116.	Second, Mr Leung relied on an email from HMRC’s online services helpdesk dated 24th September 2008.  That email included this— 
“HMRC does not have the facility to accept copies by e-mail.  Electronic returns can only be accepted through our secure online portal using either commercially available software or our own free software.”.
That was a response to question 1 in Mr Leung’s letter dated 3rd September 2008 which was—
“1. Will the Revenue receive scanned copies of tax returns through the website as bona fide returns made?”.
That letter of 3rd September 2008 is headed “SELF ASSESSMENT SUBMISSIONS 2007/08”.  There is no suggestion anywhere in that letter that the questions in it are limited to partnership returns. (Indeed, other correspondence before us suggested that this was a letter about online filing generally.)  We asked Mr Leung “did you think that applied to partnership returns”.  He replied “I thought you go onto the portal and all is explained”.
117.	In view of Mr Leung’s reply to our question, we find that he did not believe that the email dated 24th September 2008 meant that he could use HMRC free software for electronic submission of partnership returns.  
118.	Third, in any event, it is evident from Mr Leung’s written submission and from the statement of Mrs Legg (an employee of Mr Leung’s firm), that Mr Leung and Mrs Legg knew that free HMRC software was not available for partnership returns.  It is also evident that they knew this in advance of the online filing deadline.  Mr Leung’s submission dated 21st April 2010 said—

“We had telephoned the HMRC in December or early January about the difficulties and lack of funds, and by letter too.  The helpline and the people do not know anything about the above “amnesty”.

Having not been in fund [sic], we were unable to purchase software and there was no other alternative but to use the sole trader to make the return in full compliance with S12AA.  This is something “outside our control”.  Having not known about the non-working of the partnership website and the need for money, we had no alternatives.  This is “outside our control”.”.
Mrs Sandra Legg’s statement, received after the hearing, and dated 24th April 2010, included the following—
“3. We did not make any return prior to 31.10.2008.  All electronic returns were made or attempted to make after 31.10.08. [..]
5. When I did the submission on-line, I first went to the home page of the HMRC website and then clicked the “tax agents” portal.  Entering the agents portal I would choose the “self assessment on line for agents” portal. Then we would go through the “security log in portal”.  Choosing “view clients” we will see all our clients names.  When I came to choose a client who was a partnership (before we did the sole trader return), it would not be available (could not go in).  Instead there is a small window saying “you CAN file or amend tax returns by using commercial software”.  At this final stage the HMRC still used the word “can” which is misleading.  After several phone calls, this “can” is in fact “must”, for you can go no further.  A list of commercial software is flagged up as a portal.  In the “sole trader portal” there was a message saying “alternatively you can file your tax return using commercial software – view list”, but you can proceed without using commercial software.  This is quite correct because it was an alternative which was practised since 2004.
6. I discussed with Mr. Leung about the problem.  He enquired about the cost of some and concluded they are very expensive because some of them are used for accounts preparation as well.
7. I had made several complaints to the helpline concerning the unavailability of the partnership portal.  We were treated with indifference.
8.  The expenditure, if incurred, together with the time to install, to download and to sort out any software problems (there would be a lot normally for new software) and the time to learn the software, would increase the charges to clients many-fold.  Some of our clients are “scrapping through” and not rich.  They were under the impression that making returns was a simple and easy task. If we raised the charges to our clients, not only some of them may find it difficult to pay (Newton Home Improvement) or dispute the fees. We do not think it is fair for the HMRC to put us in such a position.  We would have been effectively the collector for the HMRC.
9. Mr Leung and I decided to use the sole trader portal to fill in all the information required on the “partnership returns”, declaring their correct profits or loss and asked the clients to pay the calculated amounts.  In choosing the sole trader portal, there is a question asked “sole trader or partnership”. We had declared with full authority that the partnerships were no more.”.
119.	Mr Leung’s reference to telephoning HMRC about the “lack of funds” shows in our judgment, and we find, that he knew that he would have to buy (or otherwise obtain) software to submit the returns.  His evidence that the date of his telephone call was in December or early January shows too, and we find, that he knew this nearly a month at least in advance of the deadline.
120.	Mrs Legg’s statement shows in our judgment, and we find, that she and Mr Leung simply chose not to purchase the software. There is no suggestion that they did not know, until it was too late to purchase the software, that they could not use HMRC free software.
121.	A choice by the appellants’ agent not to purchase the necessary software does not in our judgment confer on the appellants a reasonable excuse.  In any event, the circumstances surrounding Mr Leung’s making that choice mean in our judgment that there is no reasonable excuse.  There was no suggestion that Mr Leung was prevented by circumstances outside his or his clients’ control from meeting the paper deadline.  We find that he chose not to meet that deadline.  If Mr Leung, or at least, his firm, had acted with the diligence to be expected of a professional representative, he would have made sure, before the paper deadline, that he was going to be able to file the partnership returns electronically, before choosing not to file by the paper deadline.
Reliance on case where penalty withdrawn
122.	Mr Leung produced grounds of appeal, and a letter from HMRC, in another case, Maldon Lodge (pages T1 and T2 of his bundle).  In that case, HMRC accepted that there was a reasonable excuse.  Even if that appeal were identical to the present appeals, that does not in our judgment justify our reaching a conclusion which we consider would be wrong in law.

RACHEL PEREZ
TRIBUNAL JUDGE

RELEASE DATE: 3rd November 2010