Peter Vaines considers two areas where the tribunals are continually telling HMRC it is wrong: Penalties for Non-Resident Capital Gains Tax returns, and HMRC's powers to decide it has discovered an underpayment of tax.
Non Resident Capital Gains Tax
It is possible that this unhappy episode could be coming to a conclusion.
It will be remembered that non residents must file a non-Residents Capital Gains Tax return within 30 days of completion of the sale of a UK residential property, even where there is a loss, and penalties have routinely been imposed by HMRC for failure to do so. This has given rise to a degree of dissatisfaction – and appeals to the Tribunal.
Some Tribunal judges have taken a firm view that being unaware of the requirement to submit a NRCGT return within the 30 days can (in appropriate circumstances) represent a reasonable excuse.
HMRC have argued that there can be no reasonable excuse because:
a) Non-residents have a duty to stay up to date with UK legislation.
b) Ignorance of the law is no excuse
c) The obligation to file the NRCGT return is neither obscure nor complex.
b) Ignorance of the law is no excuse
c) The obligation to file the NRCGT return is neither obscure nor complex.
One judge rejected these arguments as “claptrap” and “preposterous” – even pointing to the fact that the judge himself had difficulty understanding the position. He also drew attention to the fact that HMRC explained the requirements incorrectly in their published materials, which rather supported the suggestion that the law must be obscure or complex if HMRC did not get it right themselves.
On the other hand, another group of Tribunal judges have taken the opposing view - that ignorance of the law was no excuse and that failure to abide by these statutory obligations inevitably gave rise to a penalty.
There has been another case Kirsopp v HMRC [2019] UKFTT 0217 (TC) which might be thought to be just another one in the growing catalogue of conflicting decisions … but perhaps not. This case might just bring the debate to a close.
The distinguished Upper Tribunal Judge Charles Hellier (sitting in the FTT for this case) explained that there was a divergence of opinion among FTT Judges on the matter. However, he drew attention to the decision of the Upper Tribunal in Perrin v Revenue & Customs [2014] UKFTT 488 (TC) which held that it was a matter for the judgment of the FTT in each case whether it was objectively reasonable for the particular taxpayer to have been ignorant of the requirements in question.
Judge Hellier specifically rejected HMRC’s argument that a taxpayer has an obligation to keep up to date with the law. He held that there is no such obligation. A penalty may arise from an inexcusable breach of the law, but not from the failure to keep up to date.
In the circumstances of Mr and Mrs Kirsopp, Judge Hellier concluded that they had displayed a reasonable regard to complying with their tax obligations and remedied their failure within a reasonable time after they discovered the true position. They therefore had a reasonable excuse.
I would respectfully suggest that this must be right. It surely cannot be reasonable for HMRC to suggest that non-resident individuals have a duty to keep up to date with all aspects of UK tax legislation which could possibly affect them; and must regularly read all HMRC publications and be completely familiar with the HMRC website. It would follow from this reasoning that everybody in the world must have this duty. And there is no reason why this obligation not extend to all UK legislation – not just tax.
Can you imagine what the Chairman of HMRC would say if he went to Sweden and was immediately fined a large sum of money by the authorities there. Why have I been fined? Because you have contravened one of our rules. You have a duty to be up to date with Swedish law (and with all the materials published by the government – all in Swedish). So pay up. But that is just silly, he would say.
Well, yes.
Discovery Assesments
There is yet another case concerning discovery assessments which may have become stale: Hargreaves v HMRC [2019] UKFTT 244.
The facts were complex, and the case initially focused on whether there had been a discovery, but the key issue was whether the discovery had become stale, thereby invalidating the discovery assessments.
The delay between the discovery and the assessments in this case was at least three years and in the judgment of the FTT, the discovery had lost its essential quality of newness and had become stale by the time the assessment was made. It therefore could not stand. In the absence of the Court of Appeal saying that the Upper Tribunal decisions in Patullo, Tooth and Beagles are wrong, there cannot be any lingering doubt that a discovery can become stale. The challenge by HMRC in Beagles that all the cases with which HMRC did not agree were wrongly decided, was not repeated in Hargreaves, the question being confined to the exact period of the delay between the making of the discovery and the issue of the discovery assessments.
We do not yet know how quickly HMRC must issue an assessment following the making of a discovery, i.e. how long it is before the discovery loses its essential newness so that assessment is no longer valid. It seems clear that this will depend upon the circumstances of each case – although we know from Patullo that a period of 18 months will always be enough to make a discovery stale.
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