In Bennedy's Developments Ltd v HMRC  UKFTT 21 (TC), the First-tier Tribunal (FTT) has allowed the taxpayer's appeal against daily penalties for late filing of an Annual Tax on Enveloped Dwellings (ATED) return, issued under paragraph 4 of Schedule 55 to the Finance Act 2009 (FA 2009), but dismissed its appeal against a late filing penalty in respect of the same return, issued under paragraph 5 of Schedule 55.
Bennedy's Developments Ltd (BDL) was required to file an ATED return for the year ending 31 March 2019. This was the first ATED return due to be filed. BDL was unaware of its obligation to file an ATED return and it did not file a return by the filing deadline of 30 April 2018. In March 2019, BDL's accountant made it aware of its filing obligation and on 28 March 2019, HMRC received BDL's ATED return, under which no tax was due. The return was filed almost eleven months after the due date.
On 9 December 2019, HMRC issued an initial late filing penalty of £100 to BDL, which was appealed. BDL subsequently accepted that it was late in filing its ATED return and that it was liable to this penalty. On 18 February 2020, HMRC issued daily penalties (in the total sum of £900) to BDL, under paragraph 4 of Schedule 55 to the FA 2009 (the daily penalties) and issued a six month late filing penalty of £300 to BDL, under paragraph 5 of Schedule 55 (the late filing penalty). BDL appealed the daily penalties and the late filing penalty to the FTT.
The daily penalties
Paragraph 4(1)(c) of Schedule 55, provides that P is liable to a penalty under paragraph 4 only if HMRC gives notice to P specifying the date from which the penalty is payable. The FTT considered that the only document HMRC could rely on as constituting a notice for the purposes of paragraph 4(1)(c), was the notification of the initial late filing penalty sent to BDL, which stated that "If your return is more than 3 months late we'll charge you a penalty of £10 for each day it remains outstanding for a maximum of 90 days starting from 1 August 2018".
The FTT allowed BDL's appeal against the daily penalties on the basis that the notice given to it on 9 December 2019, was not a valid notice, for the purposes of paragraph 4(1)(c), in respect of the 90 days period which began on 1 August 2018. In reaching this conclusion, the FTT applied the reasoning in Heacham Holidays Ltd v HMRC  UKFTT 406, in which the FTT concluded that a paragraph 4(1)(c) notice must predate the 90 days period, in order that such a notice provided actual notification to the person affected. The FTT also referred to the decision in D&G Thames Ditton Ltd v HMRC  UKFTT 489 (TC), in which the FTT stated that the purpose of a paragraph 4(1)(c) notice "is to ensure that the taxpayer has been given due notice allowing him to take remedial action at any time during the daily penalty period".
The late filing penalty
The FTT was satisfied that the requirements of paragraph 5(1) of Schedule 55 were met and therefore BDL was liable to pay the late filing penalty, unless it was able to show that it had a reasonable excuse for its delay, in accordance with paragraph 23 of Schedule 55.
BDL argued that:
i) the £300 penalty was disproportionate to the error
when no tax was lost;
ii) HMRC is under a common law duty to act fairly and that the maximum penalty should be reserved for those who act deliberately;
iii) it acted in good faith throughout;
iv) it did not gain from the late filing;
v) the initial late filing penalty of £100 was paid promptly; and
vi) HMRC did not need to chase it for the ATED return.
The FTT dismissed all of the above arguments and upheld the late filing penalty. The FTT based its conclusion on the following:
i) the Upper Tribunal concluded in Edwards v HMRC  UKUT 131, that the late filing penalties in Schedule 55 were not disproportionate to the aim of Schedule 55, which is to incentivise timeous filing and this was the case even when no tax was due under the return that was late;
ii) if BDL considered that HMRC had unfairly applied the late filing penalty, because HMRC imposes such a penalty on all those who are late and not only on those who are deliberately late, it could challenge HMRC's decision by making an application to the Administrative division of the High Court for judicial review;
iii) acting in good faith does not constitute a reasonable excuse for late filing (see Garnmoss v HMRC  UKFTT 315);
iv) it is not relevant that BDL did not gain from the delay and HMRC did not suffer delayed payment of tax. If there had been delayed payment of tax due under BDL's ATED return then (in addition to the late filing penalties) HMRC would have imposed late payment penalties and interest in respect of the tax due;
v) prompt payment of one late filing penalty does not provide a reasonable excuse for delay in filing an ATED return; and
vi) until the ATED return was filed, HMRC was unaware that there was a filing obligation and so, logically, could not have chased BDL. Even if HMRC had been aware of BDL's filing obligation, there is no duty on HMRC to chase taxpayers to file their returns.
This decision provides helpful confirmation that in order to impose daily penalties under paragraph 4(1) of Schedule 55 in respect of the late filing of an ATED return, HMRC must issue a notice under paragraph 4(1)(c) prior to the 90 days period during which the daily penalty accrues. This may assist taxpayers, as in this case, where both the taxpayer and HMRC were unaware of the taxpayer's filing obligation prior to the filing of a late ATED return.
The decision also confirms that the position in relation to ATED returns is the same as the position in relation to Non Resident Capital Gains Tax (NRCGT) returns, in respect of which HMRC agreed, in 2017, to withdraw/no longer issue daily penalties to people who had filed late NRCGT returns in situations where the notice required by paragraph 4(1)(c) had not been issued until after the expiry of the 90 day period.
The decision can be viewed here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.