A case where HMRC rejected a paper NRCGT return because the property postcode had been omitted. Retired Judge Richard Thomas' analysis of this situation is copied below.
By richard thomas
16th Dec 2022 18:12
While I note that Fawltybasil thinks that the FTT might decide one way or the other whether HMRC had a valid reason for rejecting a CGT return without a postcode, so the point is not worth further debate, I am nonetheless setting out what I might well have decided had the issue come before me as a judge of the FTT.
The first interesting question is – on what basis would the question get before the Tribunal? The only one I can think of (assuming that payment of the tax on time was not an issue) is whether HMRC would impose a penalty for late filing that they would not have imposed had the postcode-less return been accepted. This is slightly tricky because SteveHa admits the original return was a few days late. I doubt they would, but HMRC might have still assessed a penalty of £100 under paragraph 3 Schedule 55 FA 2009 (Item 2A) if they had accepted it. But as it is now more than 3 months late, in addition to the £100 penalty, paragraph 4 (daily) penalties are, HMRC would say, accruing and could be assessed once the return was accepted or after the 90-day period expired. There is to my mind a very convincing reason why such penalties cannot be assessed in this particular situation, but that probably wouldn’t stop HMRC (they did stop issuing NRCGT daily penalties after I pointed the flaw out in some decisions).
If a penalty appeal came before the FTT and the issue of validity was put in question, then in my view any assessment to a daily or other penalty would not be valid, for the simple reason that paragraph 1 Schedule 55 says:
“(1) A penalty is payable by a person (“P”) where P fails to make or deliver a return … specified in the Table below on or before the filing date.”
and Steve’s client has not failed to deliver the return (if they had failed to deliver it HMRC could not have returned it, a crassly stupid thing to do).
“Ah, but” I can hear the presenting officer saying were I to make that point “look at paragraph 16(a) Schedule 2 FA 2019” (see MUL’s first post). The return must include information that HMRC have prescribed, and that includes the postcode”.
What the return says on this matter is:
“Enter the address of the property you disposed of”
in the box, which contains 3 lines for “address” and one line for “postcode”.
So the client has not complied with paragraph 16(a). That doesn’t mean they have not delivered a “valid” CGT return. Suppose in this case the client makes a return and self-assessment under s 8 TMA which omits the CG pages and does not disclose the gain, the tax on which exceeds that paid on account with the CGT return. They open themselves up to penalties under Schedule 24 FA 2007 for an inaccuracy in a return, just like any tax evader does. I may be wrong but I don’t recall that HMRC have ever argued that, where tax has been evaded because income or gains were omitted when HMRC have prescribed under s 113(1) TMA that the CG boxes must be completed, if there is a chargeable gain not only are Schedule 24 penalties due but £1,600 or more of Schedule 55 penalties are also due as no “valid” return, complete in every detail, had been submitted.
In my view it is only if something like the declaration of truth has not been signed or the entries relate to the wrong year (that has happened to me at the FTT) that a return is not valid as not being a return within s 8 TMA. The same applies to a CGT return.
Of course there is a difference between the evader and this case. HMRC may very well not know at the time a return is delivered that a box that should have been completed has not been. They might realise if the taxpayer had ticked that they need to complete supplementary pages but do not include them, and I believe they would reject a paper return that did this. But the address box for the property is one (the only?) case where HMRC can see that the entry is incomplete because they know that every address in the UK has a postcode.
But that difference does not justify HMRC taking a more drastic stand in this case than in the evader case.
There is also the good old Latin law dictum “de minimis non curat lex” to consider. Is the omission of a taxable gain important? Yes. Is the omission of a postcode from a unique address important? No. One because as has been pointed out you can use Royal Mail’s Postcode Finder to find it. Two because it doesn’t matter. It doesn’t affect how much tax is due. It is similar to putting in the UK Property pages that the business has 1 property when it has 2, so long as the income figures is correct.
It is also instructive to see how tax law relating to mistakes in assessments and other HMRC communications has developed. The relevant law is s 114(1) TMA:
“An assessment or determination, warrant or other proceeding which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding.”
The case law shows that s 114(1) only applies to a mistake if it is capable of misleading the person receiving the communication. The most recent authoritative statement is in Donaldson v CIR in the Court of Appeal. This approach is consistent with what is done in the interpretation of unilateral contracts such as notices to quit – see Mannai Investment Co Ltd v. Eagle Star Assurance  UKHL 19 and the speeches of Lords Steyn and Hoffmann particularly.
There is an argument that s 114(1) actually applies in this case, namely that “other proceeding” includes making a return.
So I would undoubtedly have thrown any penalties out.
Where there is an electronic return the issues are somewhat different. But it would be interesting to know whether omitting the postcode causes the return to be rejected.