Does HMRC correspondence need to come from a ‘flesh & blood’ officer?

HM Revenue & Customs has won an appeal at the Upper Tribunal (UT) against a previous appeal that saw a taxpayer’s penalties struck out because a computer system had issued the penalties instead of a “flesh and blood” officer of HMRC.

In the case of Nigel Rogers v HMRC, self-employed taxpayer Mr Rogers had been self-employed since 1988.  He had previously submitted four self-assessment tax returns using HMRC’s online portal.

For the financial year 2015-16, Mr Rogers submitted his self-assessment online – however, the tax return was filed over eight months late, on 23 October 2017.  HMRC duly fined him £1,300 in late filing penalties: a late filing penalty of £100, a “daily penalty” of £10 per day for the subsequent ninety days, and a six month penalty of £300.

Mr Rogers appealed the penalties, first to HMRC, from whom he said he received no reply, and then at the First-Tier Tribunal (FTT).  The FTT considered the law which provides for HMRC to issue penalties, and the law states that HMRC can only issue penalties in respect of late tax returns if the taxpayer was informed of their obligation to submit said tax return “by an officer of the board”.

In the FTT appeal, the judge considered the evidence submitted to the tribunal.  The appeal was determined without a hearing (a “paper case”), so the tribunal’s decision was based on the documents submitted by both parties.  HMRC had submitted a copy of a stock letter that is sent out to notify taxpayers of their obligation to file a tax return, but it had no addressee and was not signed.  They also sent copies of their computer records that indicated that a notice to file was issued in April 2016 and that the computer had Mr Rogers’ address on file.

The FTT then decided that, because the letter informing Mr Rogers of his obligation to file a tax return in 2015-16 had been effectively sent out by HMRC’s computer systems, and without any evidence that his letter had been signed by an HMRC officer, HMRC had not met their obligations under the law and the tribunal accepted the appeal accordingly: Mr Rogers’ penalties were struck out, because a “flesh and blood” officer of HMRC had not informed him that he had to submit the tax return.

HMRC were incandescent at this decision, and issued a technical note in October 2019 making it clear that they would be changing the law regarding “automated decisions” in this year’s Finance Bill, and that the new law would have retrospective effect for all non-settled cases.  Many observers at the time questioned the retrospective nature of the technical note, and it has since been labelled “clumsy”.

At the same time, HMRC also appealed the FTT’s decision to the Upper Tribunal.  That decision has since come back in their favour, overturning the FTT’s view.  The UT referred to the Commissioners of Revenue & Customs Act 2005 in coming to the conclusion that statues refer to “an officer” and “HMRC” somewhat interchangeably, inferring therefore that no “clear distinction” could be made between the terms.  Accordingly, they allowed HMRC’s appeal: notices to file tax returns issued by HMRC need not come from a “flesh and blood” officer of HMRC; letters sent out automatically are equally valid.

As side issues, and indicative of HMRC’s ire towards the FTT’s original decision, the UT were also asked to consider the FTT’s jurisdiction in considering whether penalty notices were valid, and whether the FTT had shown HMRC “procedural unfairness” in considering whether the notice to file was valid in the first place, as Mr Rogers had not raised point this in his grounds for appeal.

The jurisdiction argument was dismissed by the tribunal.  This argument had been raised to the UT before by HMRC in the case of HMRC vs David Goldsmith where it had also been dismissed.  In the Rogers case, HMRC tried it again, asserting that the decision of the UT in Goldsmith was “plainly wrong”.  Again, the UT were having none of it: the job of the FTT was to determine whether the penalties were valid, and in doing so they were perfectly entitled to therefore examine whether the tax return to which the penalties applied was also valid.

However, on the procedural unfairness issue, the UT ruled in favour of HMRC: as the FTT’s judgement was based on the validity of the notice to file a tax return, which was not part of Mr Roger’s argument, and HMRC were not given an opportunity to speak on the issue, due to the case being a paper case.  The UT accordingly upheld HMRC’s complaint and issued detailed guidance to the FTT to avoid future unfairness.

The UT’s decision will now bind the FTT, effectively changing the law and rendering HMRC’s petulant technical note of October redundant.  Commentators have noted the irony of this, as the technical note drew much criticism from the accountancy and tax professions.

25^th February 2020.