In the recent case of Robert Don Hunter Dougan v HMRC [2022] UKFTT 00140 (TC), the First Tier Triunal (FTT) cancelled certain discovery assessments issued to a taxpayer by HMRC on the basis that they were issued out of time because the taxpayer’s behaviour was careless rather than deliberate. FTT also cancelled various late filing penalties and late payment surcharges issued by HMRC on the basis that the notices were not validly served on the taxpayer.
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Background of the case
Mr Dougan was an Australian national who lived and worked in the UK under the terms of a visa and was a successful music composer/producer who operated a music business as a sole trader in the relevant tax years. At all material times, Mr Dougan was resident in the UK for income tax purposes and carried on business as a musician, first as a sole trader and then through an incorporated business. He was also a partner in a partnership known as Partnership Lindfield.
Mr Dougan failed to file various tax returns on time. HMRC issued discovery assessments to Mr Dougan in respect of the 2004/05, 2005/06, 2006/07 and 2007/08 tax years, pursuant to section 29 of Taxes Management Act 1970 (the discovery assessments), as well as various late filing penalties and late payment surcharges (the Penalties). Mr Dougan appealed the discovery assessments and the penalties to the FTT.
Judgement of the FTT
The FTT found that Mr Dougan did not address his tax responsibilities and that his focus was on his new wine business, young family and litigation in relation to his music business. Although Mr Dougan had a history of late filing, he had periodically caught up with his UK tax filing in the past and the FTT found that this was his intention in relation to the years under appeal.
In the view of the FTT, Mr Dougan’s claim that he did not receive the penalties was supported by his credible and consistent evidence that he had not received notice of the Penalties. Mr Dougan had identified several discrepancies in HMRC’s records of his address and although the FTT accepted that other documents had been received and actioned, it considered that given his method of dealing with demands from HMRC, he would have paid the penalties as and when they were received.
What does this case highlight?
This decision provides an interesting discussion of the important issue of when a taxpayer’s behaviour is careless or deliberate. The decision is also notable for its discussion of what constitutes valid service of a penalty notice. Both these issues are of general significance to many taxpayers.
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