Taxpayer’s appeal allowed: HMRC cannot refresh penalty time limit by reissuing information notices

The First Tier Tribunal allowed the taxpayer’s appeal against a penalty for failing to comply with an information notice because the penalty notice was not issued within 12 months of the taxpayer becoming liable to a penalty. HMRC could not refresh the time period by issuing a subsequent information notice which repeated earlier information notices.

HMRC’s investigation into taxpayer’s personal affairs

In or around July 2017, the taxpayer, Mr Salim Ahmed, wrote to HMRC informing him that they had received information about a number of properties he had purchased and sold and had failed to declare to HMRC.

After the taxpayer did not respond, HMRC commenced an investigation and sent an information notice to the taxpayer requiring him to produce certain documents by 20 November 2017 (the First Notice). On 20 December 2017, after the taxpayer failed to provide the information, HMRC issued a penalty notice for non-compliance with the First Notice. This penalty notice was later cancelled after HMRC realised it had been sent to the wrong address.

In January 2018, the taxpayer’s accountant provided HMRC with some of the documentation required.

HMRC issued further notices to the taxpayer on 30 July 2018 (the Second Notice) and 23 January 2019 (the Third Notice) and during this period the taxpayer’s accountant continued to liaise with HMRC in relation to its request for documents.

The taxpayer’s accountant sent HMRC all of the information requested in HRMC’s second notice following which he did not hear from HMRC for four months and assumed the case was closed.

HMRC’s penalty notice issued over a year after notice

On 19 March 2019, HMRC issued a penalty notice to the taxpayer pursuant to paragraph 39, Schedule 36, Finance Act for the taxpayer’s failure to comply with the Third Notice. The taxpayer’s accountant appealed against the notice explaining that he had sent all of the requested documents to HMRC and did not know what else was required. HMRC refused the appeal and the taxpayer appealed to the First Tier Tax Tribunal.

Tax Tribunal upholds taxpayer’s appeal

The Tribunal allowed the taxpayer’s appeal and cancelled the penalty notice issued on 19 March 2019.

1. Time limits: The Tribunal held that a penalty can only be issued within 12 months after a person becomes liable to a penalty. The First Notice was issued on 20 November 2017 and therefore the penalty notice was issued more than twelve months after this, on 19 March 2019. The second and third notices issued later were repeated requests and the Tribunal held that this would not refresh the twelve month time limit. Where the penalty notice related to information requests which were in the Second and Third notices, the penalty notice was issued in time.
2. Burden of proof: It is for HMRC to show that the taxpayer did not comply with the requests for information and paragraph 18, Schedule 36, provides that t notice can only require a person to produce a document if “it is in the taxpayer’s possession or power“. The taxpayer had filed evidence that all of the relevant documents had been provided to HMRC other than those which were no longer in his possession. HMRC had failed to file any witness evidence and therefore failed to meet its burden of proof.

Read the full judgment for Salim Ahmed v HMRC [2020] UKFTT 337 (TC) here.

What is an information notice?

Schedule 36 of the Finance Act 2008 allows HMRC to issue a formal notice containing a request for information from the taxpayer during the course of an investigation. This may be a request for bank statements, copies of loan agreements, sale and purchase agreements or any other information required by HMRC to investigate and assess a taxpayer’s position.

What is a HMRC penalty notice?

If you fail to provide requested information to HMRC, notify HMRC of any changes in your tax position or file a tax return late, you may receive a penalty from HMRC issued under the Finance Act 2008.

How is HMRC’s penalty calculated?

If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. For example:

• If a penalty arises because of a lack of reasonable care, the level of the penalty will depend on the amount of the extra tax due and the reasons for the error. If the error is careless, the penalty will be between 0 and 30% of the extra tax due.
• If the error is deliberate, the penalty will be between 20 and 70% of the extra tax due.
• If the error is deliberate and concealed, the penalty will be between 30 and 70% of the extra tax due.

How do I appeal a penalty?

If a taxpayer disagrees with HMRC, the taxpayer has the following options:

Stage 1: Request a HMRC review: A taxpayer can appeal in writing within 30 days of HMRC’s notice of their decision. HMRC can offer an internal review of the disputed decision (or the taxpayer can request this procedure at any time). The review is an entirely internal procedure completed not by the original HMRC decision maker but by a different HMRC officer.

Stage 2: Appeal to the Tax Tribunal: A taxpayer can appeal to the First Tier Tax Tribunal if the taxpayer cannot agree their position following the review. The independent tribunal will make a determination on the case. A further appeal is permitted if a taxpayer does not agree with the decision. There are strict time limits for appealing to the Tax Tribunal and you should seek legal advice as soon as possible.

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Have you been unfairly charged a penalty by HMRC? Our Tax Disputes professionals are here to help and are able to provide clear advice and information to assist you. We regularly negotiate and defend the application of penalties on behalf of our clients. Just call us on 0207 1830 529, or email [email protected].