Peter Vaines considers recent developments on some of the tax topics we love to hate.
I am always on the lookout for discovery assessment cases with interesting aspects. Discovery assessments are so prevalent and so important that it is useful to know what arguments you might be faced with from HMRC. The case Adam Cooke v HMRC TC 6239 is a goodie.
HMRC argued that they were able to raise a discovery assessment in connection with an excessive double taxation relief claim because the taxpayer (or his accountant) had been careless in not noticing the point. OK, he missed it, but what about the tax officer dealing with the matter – or the hypothetical officer. Should not he have noticed it? Oh no, said HMRC. The tax officer could not be expected to have picked the point up!
The FTT were wonderfully restrained (I can think of some tribunal judges who might not have been) and merely said that HRMC had not established that the conditions for a discovery assessment were satisfied.
We can (and should) laugh at this - but it is not right or fair. In this case Mr Cooke had the good fortune to be expertly represented pro bono, but few taxpayers are so fortunate. Other taxpayers have to go to a lot of trouble, expense and anxiety to take such issues to the FTT, and they will not get any reimbursement for their costs unless it is on the Complex Track.
NR CGT Return Penalties
Some clarification would seem to be necessary regarding the obligations for submitting Non Residents Capital Gains Tax returns and the penalties for failing to do so.
It may be remembered that in the case of Patsy-Anne Saunders v HMRC TC 6173 (and in Rachel McGreevy v HMRC TC 6109) HMRC failed to impose penalties for the late submission of Non Residents CGT returns.
Patsy-Anne Saunders sold a UK residential property at a loss. She was not resident in the UK and although she was aware that capital gains tax can now be charged on non-residents who sell UK residential property at a profit, she did not know that it was necessary to submit a CGT return even if she made a loss. HMRC charged her a penalty of £1300.
The Tribunal said that she had no obligation to submit a Non-Residents CGT return at all – but even if she had, Miss Saunders would have had a reasonable excuse to relieve her from the penalty.
HMRC said she had no excuse, because:
non-resident individuals have an obligation to stay up to date with legislation in the UK.
Ignorance of the law is no excuse and she should have been aware of the changes effected by section 12ZB TMA 1970.
The obligation to file a Non Residents CGT return within 30 days of completion of the sale is not obscure or complex law.
The Tribunal rejected all these arguments in extraordinarily strong terms – including the words “claptrap” and “preposterous”.
The Tribunal even pointed to the fact that in their published materials on this subject, HMRC explained the requirements incorrectly – which rather supports the proposition that the law must be obscure or complex if HMRC did not get it right themselves.
An appeal would seem to be likely, but in the meantime, there has been a further decision from the FTT - Hesketh v HMRC TC 6266 - where the Tribunal upheld a penalty for the non submission of a NRCGT return, taking the view that the cases of Rachel McGreevy and Patsy-Anne Saunders were wrongly decided. This might be said to be further evidence that the law is obscure or complex if even Tribunal judges get it wrong.
It is difficult to know what the taxpayer (or non-taxpayer) is supposed to do when diligently trying to fulfil their tax obligations, when they are faced with these conflicting decisions. The imposition of penalties in such circumstances does nothing to enhance the public perception of the fairness of the tax system or of those who are responsible for its operation. Some clarification or a sensible practice statement would clearly be welcome.
Tax Returns: Penalties
I have previously referred to the case of Kaczmarczyk v HMRC TC 5744 when HMRC claimed that they could send tax returns to people who had no UK tax liabilities and impose serious penalties for not submitting them. The Tribunal upheld their view – and the penalties.
Mr Kaczmarczyk was resident in the UK but I am aware from personal experience that HMRC believe they are entitled to send tax returns to non residents with no income chargeable to UK tax and to impose penalties just the same.
I suggested that this was questionable and referred to the recent case of Jiminez v FTT and HMRC  EWHC 2585 (Admin) where Charles J held that a Schedule 36 information notice issued to a person resident in Dubai was unlawful because it was issued to a person outside the jurisdiction. His Lordship referred to the presumption that Parliament does not enact statutes to operate on its subjects beyond the territorial limits of the UK.
There seems to be no reason why this analysis should not apply equally to section 8 TMA 1970 in connection with tax returns.
This view has now received a degree of support from the case of Newton v HMRC TC6269 in which the judge suggested that where the individual was not liable to UK tax at all, it was arguable that he would not be legally obliged to complete a UK tax return issued to him by HMRC.
These are clearly helpful judgments offering some relief for taxpayers pursued by HMRC in their increasing quest for penalties.