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Contact: michael.firth@taxbar.com
Procedure.Tax
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I-7: Compliance and non-compliance
Recipient must comply with reasonable specifications
"(1) Where a person is required by an information notice to provide information or produce a document, the person must do so—
(a) within such period, and
(b) at such time, by such means and in such form (if any),
as is reasonably specified or described in the notice.
(2) Where an information notice requires a person to produce a document, it must be produced for inspection—
(a) at a place agreed to by that person and an officer of Revenue and Customs, or
(b) at such place as an officer of Revenue and Customs may reasonably specify." (FA 2008, Sch 36, para 7(1) - (2))
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HMRC may not require production of a document at a place used solely as a dwelling
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“(3) An officer of Revenue and Customs must not specify a place that is used solely as a dwelling.” (FA 2008, Sch 36, para 7(3))
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HMRC may extend time for compliance
"A failure by a person to do anything required to be done within a limited period of time does not give rise to liability to a penalty under paragraph 39 or 40 if the person did it within such further time, if any, as an officer of Revenue and Customs may have allowed." (FA 2008, Sch 36, para 44)​
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Reasonable specifications
Option of personal production not necessary in all cases
“Paragraph 7(2) does not override paragraph 7(1) – it could not do so, as it makes no provision for compliance with a period in which or time at which the documents are to be produced – but operates only in relation to the means for compliance with the 25 notice by way of production of documents for inspection in circumstances where a physical location at which the documents are to be produced for inspection has been agreed or specified. If no such physical location is agreed or specified, paragraph 7(2) will have no application, and the compliance obligations by reference to which compliance with the notice is to be tested will be those compliance with which is 30 required by paragraph 7(1).” (TelNG Limited v. HMRC [2016] UKUT 363 (TCC), §33, Judges Berner and Powell).
Option of personal production may sometimes be required
“I agree with the observation made by the Judge in [42]: a failure to give the option of production of the documents rather than posting them may in some cases be unreasonable. It is a question of fact whether it was unreasonable in this case. Whether something is reasonable in any particular case requires the Tribunal to consider the specific facts of this case and so I proceed to do so.” (Qualapharm Ltd v. HMRC [2016] UKFTT 100 (TC), §78).
“In the present case, we were informed that the sum total of documents required under the notice was a bundle about 2cm thick, In such a case, HMRC might quite properly form the view that it was unnecessary to complicate the wording of the notice so as to provide for the option of personal production as referred to above, In the absence of anything to show that it was unreasonable to specify post or email as the means of production in the present case, we do not disagree with that view. We would however observe in passing that in different circumstances, a notice which failed to provide an option for physical production at a 'place' might be found invalid, on the basis that the requirement to post or email the documents involved was not, in all the circumstances, a reasonable one.” (Telng Ltd v. HMRC [2015] UKFTT 327 (TC), §42, Judge Poole).
HMRC may require electronic copies
“I find HMRC have specified a form. The records are to be produced electronically by being downloaded onto compatible media. As Paragraph 7 allows them to specify such a form, I find, that as long as the requirement was reasonable, they are entitled to demand downloaded copies of electronic information.” (Qualapharm Ltd v. HMRC [2016] UKFTT 100 (TC), §103).
Documents may be produced in copy form
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"(1) Where an information notice requires a person to produce a document, the person may comply with the notice by producing a copy of the document, subject to any conditions or exceptions set out in regulations made by the Commissioners." (FA 2008, Sch 36, para 8(1))
Unless otherwise requested
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"(2) Sub-paragraph (1) does not apply where—
(a) the notice requires the person to produce the original document, or
(b) an officer of Revenue and Customs subsequently makes a request in writing to the person for the original document.
(3) Where an officer of Revenue and Customs requests a document under sub-paragraph (2)(b), the person to whom the request is made must produce the document—
(a) within such period, and
(b) at such time and by such means (if any),
as is reasonably requested by the officer." (FA 2008, Sch 36, para 8(2) - (3))
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Only documents within recipient's possession or control
"An information notice only requires a person to produce a document if it is in the person's possession or power." (FA 2008, Sch 36, para 18)
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“In relation to the bank statements, we accept Mr Singh's explanation that he never had the unredacted statements and cannot now get them. It is unfortunate that was not explained clearly at the 2013 Hearing, but we accept it as a reasonable excuse for non-production of the unredacted bank statements.” (Singh v. HMRC [2014] UKFTT 299 (TC), §9, Judge Kempster).
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Burden of proof on taxpayer
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“…in an appeal against an information notice, the same position pertains: only the taxpayer can know what information he possesses and therefore the taxpayer has the burden of proof.” (EC Behague v. HMRC [2013] UKFTT 647 (TC), §20).
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FTT reference to what would reasonably be expected to exist
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“Another reason is that the stated purpose of the trust was to satisfy constructive obligations of Mr Behague’s business and it is reasonable to expect that there would be some documentation relating to the existence of such an obligation and documentation showing the discharge of that obligation, yet none has been provided.” (EC Behague v. HMRC [2013] UKFTT 647 (TC), §21).
Document does not exist
“ However, those submissions became academic in the light of Mr Cheema’s subsequent evidence, which we accepted, that Harrydev did not complete certificates for dividends, or issue minutes relating to dividends. Mr Cheema said that as a small family company Harrydev did not need these formalities, whether or not they were required under the Companies Act…Where there are no documents in existence, they cannot be provided. We also note that Sch 36, para 18 reads “An information notice only requires a person to produce a document if it is in the person's possession or power”. It is of course true that a lack of documents can to some extent be remedied if HMRC require, in the alternative, that information be provided, but that is not always appropriate and no such alternative was specified in relation to this Item…Since there are no certificates, and no minutes, we set aside this Item.” (Harrydev v. HMRC [2017] UKFTT 616 (TC), §§37 – 39, Judge Redston).
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- Documents within the person's legal or de facto power
"[72] The parties agreed that the principles are set out by the Upper Tribunal in the case of Mattu. As noted therein the requirement for items to be in the possession or power of the recipient of the notices strictly only applies to documents and not information.
[73] The Upper Tribunal approved the approach set out in the case of Parissis [2011] TC 01083 where it was said that:
‘It seems to us that it is HMRCʼs application for a penalty and it is for them to satisfy us that the documents are in the respondentsʼ possession or power. We bear in mind it is hard to prove a negative. But, we think, although HMRC must raise a prima facie case that the documents are in the respondentsʼ possession or power then it is for the respondents to show that they are not.’
[74] The Upper Tribunal also confirmed that the term ‘power’ means both legal power and de facto power to obtain documents (or information). The approach taken in the case of Patel which concerned documents within the possession of a professional offshore trustee was also approved. In that case Judge Sinfield concluded that there had not been any serious attempt to obtain documents from the trustee and as a result the taxpayer was unable to show that the documents were not in their possession or power." (One Call Insurance Services Limited v. HMRC [2022] UKFTT 184 (TC), Judge Bowler)
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Documents held by persons subject to influence (e.g. trustees)
“It appears to me that, as Founders and Protectors, the Appellants must have power to influence the behaviour of the Trustee in relation to such things as the provision of documents or information. I do not accept that the Trustee does not respond to and take account of the wishes of the Appellants. The fact that the Appellants were able to ask for and obtain substantial loans from the Trustee in March 2010 shows that the Trustee does accede to the Appellants’ requests. The fact that the Trustee replied to the Appellants’ email of 16 October 2013 within two days shows that the Trustee responds promptly to communications from the Appellants and makes the lack of any response to the Appellants’ letter in October 2012 difficult to understand. I conclude that the Appellants can influence and, in practice, require the Trustees to comply with their lawful and reasonable requests. Nothing that I have seen in the Trust Deed or the letter from the Trustees shows that the provision of the documents and information would be unlawful or that it would be unreasonable to expect the Trustee to comply with the request.” (H A Patel & K Patel v. HMRC [2014] UKFTT 167 (TC), §14, Judge Sinfield).
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Serious effort to obtain required
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"[107] I therefore conclude that One Call has not made any serious attempt to obtain the items required by the Notice from the Trustee and has made no attempt to obtain the information and documents from others. As stated, I recognise that One Call may have no legal power to cause others to produce documents, but there has been no engagement with its de facto power - the power to obtain them by influence or otherwise from another person.
[108] Mr Howard asked for directions if it was concluded that the items are within One Call’s power. My conclusions should make clear that the law requires serious efforts to be made to obtain the documents from any relevant person involved with One Call’s use of the remuneration trust arrangements." (One Call Insurance Services Limited v. HMRC [2022] UKFTT 184 (TC), Judge Bowler)
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Right not to self-incriminate
Only relevant where there is a criminal matter (see XX).
Does not apply to documents having an existence independent of accused’s will
“[HMRC] relied on Saunders, where the EctHR said at [69]: “The right not to incriminate oneself is primarily concerned, however, with respecting the will of an accused person to remain silent. As commonly understood in the legal systems of the Contracting Parties to the Convention and elsewhere, it does not extend to the use in criminal proceedings of material which may be obtained from the accused through the use of compulsory powers but which has an existence independent of the will of the suspect such as, inter alia, documents acquired pursuant to a warrant, breath, blood and urine samples and bodily tissue for the purpose of DNA testing.”…This is entirely clear: the right not to self-incriminate does not allow a person to refuse to provide material “which has an existence independent of the will of the suspect.” Such material must encompass documents.” (Gold Nuts Ltd v. HMRC [2016] UKFTT 82 (TC) §§133…134).
Compulsory powers may be used to obtain information prior to charge
“The right not to incriminate oneself is primarily concerned, however, with respecting the will of an accused person to remain silent in the context of criminal proceedings and the use made of compulsorily obtained information in criminal prosecutions. It does not per se prohibit the use of compulsory powers to require persons to provide information about their financial or company affairs (see the above mentioned Saunders judgment, where the procedure whereby the applicant was required to answer the questions of the Department of Trade Inspectors was not in issue). In the present case, therefore, the Court finds that the requirement on the applicant to make a declaration of his assets to the Inland Revenue does not disclose any issue under Article 6 §1, even though a penalty was attached to a failure to do so. The obligation to make disclosure of income and capital for the purposes of the calculation and assessment of tax is indeed a common feature of the taxation systems of Contracting States and it would be difficult to envisage them functioning effectively without it.” (Allen v. UK [2002] App 76574/01).
“Where there has been no criminal charge the position is clear: a person cannot refuse to answer questions on the basis that he might thereby incriminate himself. Article 6 is only engaged if there is a subsequent prosecution. The defendant can then challenge the use of any such information on the basis that it would be unfair to rely on it.” (Gold Nuts Ltd v. HMRC [2016] UKFTT 82 (TC) §160).
Compulsory powers may be used to obtain information after charge
"As the ECtHR said in IJL at [100]: “…whether or not information obtained under compulsory powers by such a body violates the right to a fair hearing must be seen from the standpoint of the use made of that information at the trial.”…From the foregoing, I find that the Jalloh approach to the Article 6 right against self-incrimination leads to the same conclusion as the Weh formulation: Mr Budhdeo does not have the right to refuse to provide information required by Sch 36.” (Gold Nuts Ltd v. HMRC [2016] UKFTT 82 (TC) §§199…200).
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Duty to correct
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"(1) This paragraph applies if—
(a) in complying with an information notice, a person provides inaccurate information or produces a document that contains an inaccuracy, and
(b) condition A, B or C is met.
[...]
(4) Condition C is that the person—
(a) discovers the inaccuracy some time later, and
(b) fails to take reasonable steps to inform HMRC.
(5) The person is liable to a penalty not exceeding £3,000.
(6) Where the information or document contains more than one inaccuracy, a penalty is payable for each inaccuracy." (FA 2008, Sch 36, para 40A)
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Duty to not to destroy or conceal
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Following issue of information notice
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"(1) A person must not conceal, destroy or otherwise dispose of, or arrange for the concealment, destruction or disposal of, a document that is the subject of an information notice addressed to the person (subject to sub-paragraphs (2) and (3)).
(2) Sub-paragraph (1) does not apply if the person acts after the document has been produced to an officer of Revenue and Customs in accordance with the information notice, unless an officer of Revenue and Customs has notified the person in writing that the document must continue to be available for inspection (and has not withdrawn the notification).
(3) Sub-paragraph (1) does not apply, in a case to which paragraph 8(1) applies, if the person acts after the expiry of the period of 6 months beginning with the day on which a copy of the document was produced in accordance with that paragraph unless, before the expiry of that period, an officer of Revenue and Customs made a request for the original document under paragraph 8(2)(b)." (FA 2008, Sch 36, para 42)
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Following informal notification that documents are likely to be the subject of an information notice
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"(1) A person must not conceal, destroy or otherwise dispose of, or arrange for the concealment, destruction or disposal of, a document if an officer of Revenue and Customs has informed the person that the document is, or is likely, to be the subject of an information notice addressed to that person (subject to sub-paragraph (2)).
(2) Sub-paragraph (1) does not apply if the person acts after—
(a) at least 6 months has expired since the person was, or was last, so informed, or
(b) an information notice has been given to the person requiring the document to be produced." (FA 2008, Sch 36, para 43)
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Consequences of non-compliance
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See penalties and criminal offences, below.
Non-compliance
Burden of proof on HMRC
"[34] However HMRC, on whom the burden of proof rests, did not provide the documents sent in by Mr Hussain on 17 September 2018. They did not file witness evidence from Ms Rafferty and/or Ms Walsh explaining why in their view the documents did not constitute compliance with the information requirements, especially given that there can be no failure to comply if the requested documents are not in a person’s “possession or power”. Ms Rafferty’s letter of 18 February 2019 is the only relevant evidence, and that does not assist HMRC: she was inviting further confirmation from Mr Hussain that the outstanding documents were not in Mr Ahmed’s “possession or power”." (Ahmed v. HMRC [2020] UKFTT 337 (TC), Judge Redston)
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“The burden is on HMRC to satisfy the Tribunal that the circumstances giving rise to the information notice and penalty have arisen in fact and law. This includes a requirement that HMRC has proved any failures by the appellant to comply with the information notices.” (Drinks Stop Cash and Carry Ltd v. HMRC [2016] UKFTT 730 (TC), §92, Judge Rupert Jones).
“The burden of proof falls on HMRC to demonstrate that PML had not complied with the Information Notice.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §55(a)).
Follow up questions by HMRC does not mean non-compliance
“The fact that the answer gave rise to further questions, does not mean that the original question had not been answered.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §57).
Providing an alternative but related document is non-compliance
“Item 3 in the document section of the notice was a request for “(a) all bank statements held by PML Accounting Ltd for the collection of client fees for the period 6 April 2011 to 5 April 2012 and (b) all bank statements held by PML Accounting Ltd for the holding of client funds to meet contingent liabilities of its client companies such as corporation tax, value added tax, and PAYE reserves for the period 6 April 2011 to 5 April 2012”. What PML appear to have supplied was not bank statements, but summaries and calculations.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §60 – no submission that the taxpayer did not have the documents (§71)).
The taxpayer may not lay down conditions
“I find for the reasons given above that there was no compliance. In other words, the appellant had done no more that agree to permit an inspection subject to conditions which it had no right in law to impose. Even if the information notices had permitted compliance by inspection, the appellant would not have complied. In fact the information notices required the information and documents to be posted. None of the required information and documents had been posted. This is a clear case of total non-compliance.” (Qualapharm Ltd v. HMRC [2016] UKFTT 100 (TC), §113).
Not sufficient that other part of HMRC already has information
“The fact that other officers or departments may have information or documents does not absolve the person to whom the notice is given from providing the information or documents requested in the manner specified in the notice and to the HMRC officer specified in the notice. We appreciate that this may mean that some documents or information are provided several times to different parts of HMRC, but unfortunately this is unavoidable, not least because on some occasions (and this is one of them), the reason for the request is in order to attempt to reconcile ambiguous or inconsistent returns.” (Doshi v. HMRC [2016] UKFTT 5 (TC), §64).
Substantial compliance may be sufficient
"[11(3)] If the respondents satisfy the Tribunal on each of the two foregoing issues, then the Tribunal will look to see whether there has been substantial compliance with the Notice. We say “substantial” because although the jurisprudence of this Tribunal establishes that partial compliance is not compliance, that is plainly subject to a de minimis exception. It does not arise for consideration in the present appeal." (Anstock v. HMRC [2017] UKFTT 307 (TC), Judge Geraint Jones QC)
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See below on Partial Compliance
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Subsequent notice does not necessarily withdraw earlier notice
“the further notice does not supersede the earlier notice which, subject to any success the appellant might achieve before this tribunal, remains in effect as varied by the F-tT.” (Carmel Jordan v. HMRC [2015] UKUT 218 (TCC), §8, Judge Bishopp).
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Invalidity of notice may not be raised on penalty appeal
"[47]...It is therefore only after appeal rights in relation to the Notice have been exhausted (or not utilised) that any right to appeal against penalties can come into existence. This suggests very strongly that a tribunal considering an appeal against penalties has no jurisdiction to consider the validity of a notice which can only be determined by an appeal which has to be brought before any appeal against (or indeed any assessment of) a penalty can occur.
[69] In the first place, (as the judge decided and I have already held) a tribunal hearing a penalty appeal has no jurisdiction to consider the validity of a notice, which must already have been determined before a penalty is assessed, let alone appealed." (R (oao PML Accounting Ltd) v. HMRC [2018] EWCA Civ 2231, Longmore LJ)
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Penalties
Failure to comply
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"(1) This paragraph applies to a person who—
(a) fails to comply with an information notice
[...]
(2) The person is liable to a penalty of £300." (FA 2008, Sch 36, para 39(1), (2))
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Includes concealment, destruction or disposal of documents
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"(3) The reference in this paragraph to a person who fails to comply with an information notice includes a person who conceals, destroys or otherwise disposes of, or arranges for the concealment, destruction or disposal of, a document in breach of paragraph 42 or 43." (FA 2008, Sch 36, para 39(3))
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Daily penalty if failure continues after initial penalty
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"(1) This paragraph applies if the failure or obstruction mentioned in paragraph 39(1) continues after the date on which a penalty is imposed under that paragraph in respect of the failure or obstruction.
(2) The person is liable to a further penalty or penalties not exceeding £60 for each subsequent day on which the failure or obstruction continues." (FA 2008, Sch 36, para 40)
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Further default: increased daily penalty
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"(1) This paragraph applies if—
(a) a penalty under paragraph 40 is assessed under paragraph 46 in respect of a person's failure to comply with a notice under paragraph 5,
(b) the failure continues for more than 30 days beginning with the date on which notification of that assessment was issued, and
(c) the person has been told that an application may be made under this paragraph for an increased daily penalty to be imposed.
(2) If this paragraph applies, an officer of Revenue and Customs may make an application to the tribunal for an increased daily penalty to be imposed on the person.
(3) If the tribunal decides that an increased daily penalty should be imposed, then for each applicable day (see paragraph 49B) on which the failure continues—
(a) the person is not liable to a penalty under paragraph 40 in respect of the failure, and
(b) the person is liable instead to a penalty under this paragraph of an amount determined by the tribunal.
(4) The tribunal may not determine an amount exceeding £1,000 for each applicable day.
(5) But subject to that, in determining the amount the tribunal must have regard to—
(a) the likely cost to the person of complying with the notice,
(b) any benefits to the person of not complying with it, and
(c) any benefits to anyone else resulting from the person's non-compliance.
(6) Paragraph 41 applies in relation to the sum specified in sub-paragraph (4) as it applies in relation to the sums mentioned in paragraph 41(1)." (FA 2008, Sch 36, para 49A)
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"(1) If a person becomes liable to a penalty under paragraph 49A, HMRC must notify the person.
(2) The notification must specify the day from which the increased penalty is to apply.
(3) That day and any subsequent day is an “applicable day” for the purposes of paragraph 49A(3)." (FA 2008, Sch 36, para 49B)
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Pay within 30 days
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"(1) A penalty under paragraph 49A must be paid before the end of the period of 30 days beginning with the date on which the notification under paragraph 49B is issued.
(2) A penalty under paragraph 49A may be enforced as if it were income tax charged in an assessment and due and payable." (FA 2008, Sch 36, para 49C)
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Tax geared penalties (HMRC apply to Upper Tribunal)
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"(1) This paragraph applies where—
(a) a person becomes liable to a penalty under paragraph 39,
(b) the failure or obstruction continues after a penalty is imposed under that paragraph,
(c) an officer of Revenue and Customs has reason to believe that, as a result of the failure or obstruction, the amount of tax that the person has paid, or is likely to pay, is significantly less than it would otherwise have been,
(d) before the end of the period of 12 months beginning with the relevant date, an officer of Revenue and Customs makes an application to the Upper Tribunal for an additional penalty to be imposed on the person, and
(e) the Upper Tribunal decides that it is appropriate for an additional penalty to be imposed.
(2) The person is liable to a penalty of an amount decided by the Upper Tribunal.
(3) In deciding the amount of the penalty, the Upper Tribunal must have regard to the amount of tax which has not been, or is not likely to be, paid by the person.
(4) Where a person becomes liable to a penalty under this paragraph, HMRC must notify the person.
(5) Any penalty under this paragraph is in addition to the penalty or penalties under paragraph 39 or 40.
(6) In the application of the following provisions, no account shall be taken of a penalty under this paragraph—
(a) section 97A of TMA 1970 (multiple penalties),
(b) paragraph 12(2) of Schedule 24 to FA 2007 (interaction with other penalties), and
(c) paragraph 15(1) of Schedule 41 (interaction with other penalties).
(7) In sub-paragraph (1)(d) “the relevant date” means—
(a) in a case involving an information notice against which a person may appeal, the latest of—
(i) the date on which the person became liable to the penalty under paragraph 39,
(ii) the end of the period in which notice of an appeal against the information notice could have been given, and
(iii) if notice of such an appeal is given, the date on which the appeal is determined or withdrawn, and
(b) in any other case, the date on which the person became liable to the penalty under paragraph 39." (FA 2008, Sch 36, para 50)
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Deliberately obstructing HMRC during an inspection
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"(1) This paragraph applies to a person who—
[...]
(b) deliberately obstructs an officer of Revenue and Customs in the course of an inspection under Part 2 of this Schedule that has been approved by the tribunal.
(2) The person is liable to a penalty of £300." (FA 2008, Sch 36, para 39(1), (2))
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Further penalties for non-compliance
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See above
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Providing inaccurate information or documents (or failing to correct inaccuracy)
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"(1) This paragraph applies if—
(a) in complying with an information notice, a person provides inaccurate information or produces a document that contains an inaccuracy, and
(b) condition A, B or C is met.
(2) Condition A is that the inaccuracy is careless or deliberate.
(3) An inaccuracy is careless if it is due to a failure by the person to take reasonable care.
(3A) Condition B is that the person knows of the inaccuracy at the time the information is provided or the document produced but does not inform HMRC at that time.
(4) Condition C is that the person—
(a) discovers the inaccuracy some time later, and
(b) fails to take reasonable steps to inform HMRC.
(5) The person is liable to a penalty not exceeding £3,000.
(6) Where the information or document contains more than one inaccuracy, a penalty is payable for each inaccuracy." (FA 2008, Sch 36, para 40A)
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No double jeopardy
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"A person is not liable to a penalty under this Schedule in respect of anything in respect of which the person has been convicted of an offence." (FA 2008, Sch 36, para 52)
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Payment and collection of penalties
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"(1) A penalty under paragraph 39, 40 or 40A must be paid—
(a) before the end of the period of 30 days beginning with the date on which the notification under paragraph 46 was issued, or
(b) if a notice of an appeal against the penalty is given, before the end of the period of 30 days beginning with the date on which the appeal is determined or withdrawn.
(2) A penalty under paragraph 39, 40 or 40A may be enforced as if it were income tax charged in an assessment and due and payable." (FA 2008, Sch 36, para 49)
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"(1) A penalty under paragraph 50 must be paid before the end of the period of 30 days beginning with the date on which the notification of the penalty is issued.
(2) A penalty under paragraph 50 may be enforced as if it were income tax charged in an assessment and due and payable." (FA 2008, Sch 36, para 51)
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Reasonable excuse for non-compliance
"(1) Liability to a penalty under paragraph 39 or 40 does not arise if the person satisfies HMRC or (on an appeal notified to the tribunal) the tribunal that there is a reasonable excuse for the failure or the obstruction of an officer of Revenue and Customs.
(2) For the purposes of this paragraph—
(a) an insufficiency of funds is not a reasonable excuse unless attributable to events outside the person's control,
(b) where the person relies on any other person to do anything, that is not a reasonable excuse unless the first person took reasonable care to avoid the failure or obstruction, and
(c) where the person had a reasonable excuse for the failure or obstruction but the excuse has ceased, the person is to be treated as having continued to have the excuse if the failure is remedied, or the obstruction stops, without unreasonable delay after the excuse ceased." (FA 2008, Sch 36, para 45)
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Burden of proof on the taxpayer
“The onus of proof that there was a reasonable excuse for the failure falls upon PML.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §57).
Same as test for VAT default surcharge
“We consider that the approach taken in The Clean Car Co Ltd should also be followed in relation to Schedule 36.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §82).
Objective approach
“It has been said before in cases arising from default surcharges that the test of whether or not there is a reasonable excuse is an objective one. In my judgment it is an objective test in this sense. One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?” (The Clean Car Co Ltd v. CEC [1991] VATTR 235).
The excuse must have caused the non-compliance
“The point to note is that Mr Hazell managed to get the boxes of documents to HMRC by the extended deadline of 8 March 2013, notwithstanding the accident. The problem was that the boxes did not contain all of the information requested by HMRC…Can the fact that there was information omitted from the boxes be put down to the accident suffered by Mr Hazell’s daughter? In other words, absent the accident, would the boxes have been complete? The fact that some of the requested information is still missing as at the date of the hearing – long after the accident - indicates that the answer to this question is “no”. We find that it was not the accident that caused information or documents to go missing or delayed their production to HMRC.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §§92…93).
Reliance on another requires proof of reliance
“But what was it that PML relied upon Hazell Minshall to do? There is very little evidence before us as to how – if at all – PML relied upon Hazell Minshall.” (PML Accounting Ltd v. HMRC [2015] UKFTT 440 (TC), §100).
See also
Reasonable excuses
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Reasonable excuse examples
Ignorance not a reasonable excuse
"Moreover, to the extent that this proffered excuse is made on the basis that the appellant did not understand the law and in particular did not understand that it was not able to seek to impose the conditions on inspection which it sought to impose, as a matter of policy such ignorance cannot amount to a reasonable excuse. Ignorance of the law cannot be a reasonable excuse as that would result the law in favouring persons who chose to remain in ignorance of the law over those who sought to know the law in order to obey it." (Qualapharm Ltd v. HMRC [2016] UKFTT 100 (TC), §121).
Genuine and reasonable belief that information notice had ulterior motive can be reasonable excuse
“Its belief in HMRC's ulterior motive for enquiry and information notices: If this belief were reasonably and honestly held I accept that it could be a reasonable excuse because HMRC only have the right to open and enquiry and issue an information notice where their purpose is to check the taxpayer’s tax position. Any other reason would be unlawful and taxpayers are not obliged to comply with unlawful information notices.” (Qualapharm Ltd v. HMRC [2016] UKFTT 100 (TC), §122).
“BWL suggest that HMRC’s actions, including the issue of the Information Notice, were vexatious. Certainly it is the case that I should allow the appeal if the appellant can show that the information is not reasonably required.” (EC Behague v. HMRC [2013] UKFTT 647 (TC), §22, emphasis original).
Serious medical condition
“We are satisfied on the basis of the evidence before us that Mr Doshi was diagnosed with a serious heart condition when he visited India in February 2014. He had major surgery at the beginning of March 2014. We are satisfied that Mr Doshi was in no fit state to attend to business matters (including responding to the information notices) from the beginning of February 2014 until he returned to work (on a part time basis) in May 2014 (we note that he wrote to HMRC on 28 May 2014, so would have been able to deal with correspondence by then). To the extent that there were failures in compliance with the information notices for this period, we are satisfied that Mr Dosh had a reasonable excuse for these failures (and so find).” (Doshi v. HMRC [2016] UKFTT 5 (TC), §52).
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Challenging information notice through appeal: query whether by itself a reasonable excuse
“But I cannot agree that this is right. There is nothing in the legislation which would delay the imposition of penalties until an appeal was concluded and indeed the legislation expressly provides in paragraph 39 that the initial penalty can be imposed at any time where there is non-compliance with an information notice and in paragraph 40 that daily penalties can be imposed if the non-compliance continues after the imposition of the initial penalty.” (Spring Capital Ltd v. HMRC [2016] UKFTT 232 (TC), §84).
But well-founded concerns may provide a reasonable excuse even if ultimately wrong
“In my view, well-founded but ultimately wrong concerns might amount to a reasonable excuse, but otherwise that is a risk a taxpayer is exposed to if it chooses to challenge an information notice without compliance. The alternative scenario cannot have been intended by Parliament: the logical outcome of the appellant’s submission is that penalties for and compliance with an information notice can be avoided for years while hopeless appeals are taken to the Tribunal.” (Spring Capital Ltd v. HMRC [2016] UKFTT 232 (TC), §86).
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Broader view
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"I am reassured that my conclusion is not out of line with day to day practice in the FTT by Sokoya v Revenue and Customs Commissioners [2009] UKFTT 163 (TC); [2009] SFTD 480, a decision of Judge Roger Berner, to the effect that a taxpayer had a reasonable excuse for non-payment of a penalty while the notice of penalty was being challenged in the courts, in circumstances where no evidence to that effect was submitted and the FTT simply drew the necessary inferences (see [23])." (Archer v. HMRC [2023] EWCA Civ 626, Whipple, Simler, Falk LJJJ)
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“[23] It must be reasonable for a recipient of a s 19A notice not to comply with such a notice whilst that notice is being challenged in the tribunal or in the courts. Otherwise any such appeals would be rendered nugatory. For this reason, even if the penalty notice were to have been valid, I find that at the date of issue of the penalty notice Mr Sokoya would have had a reasonable excuse for failure to comply with the s 19A notice, and that accordingly he is deemed by s 118(2) TMA not to have failed to comply with it at that time." (Sokoya v. HMRC [2009] UKFTT 163 (TC), Judge Berner)
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Partial compliance
Partial compliance will only reduce the penalty if there was a good reason for the partial non-compliance related to the partial compliance (e.g. large volume required)
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“The appellant suggested that the level of the penalty should reflect a percentage of how much information was outstanding out of the total requested. A moment’s reflection would indicate that, while it may well be appropriate for the penalty to reflect partial compliance in some way, partial compliance should not really be measured by a count of the items actually provided. What if the notice only required two items and one was outstanding? Should the penalty be 50%? But what if the notice required 10 items and only one was outstanding? Should the penalty only be 10%? Yet both taxpayers would be equally culpable in that one item was outstanding. It seems to me that what is really relevant to the amount of the penalty is the number of items outstanding and the reason why they are outstanding. I do not suggest partial compliance is irrelevant; for instance, if the information notice was onerous and asked for a lot of information in a short time frame, this may explain why the taxpayer only managed partial compliance by the due date. In other words, a reduction in penalty may be justified where there is a good reason for partial compliance; but the mere fact some of the requested items have been provided does not of itself justify a reduction. Why should the fact a taxpayer has provided some of the documents required justify a reduction in the penalty when the law requires that all must be provided? There must be a good reason for the partial non-compliance if a penalty is to be reduced or avoided. It seems to me, that without good reasons, even one item outstanding could, in appropriate circumstances, justify the maximum penalty whether the original information notice had required just that one item or 100 items.” (Spring Capital Ltd v. HMRC [2016] UKFTT 232 (TC), §100).
“In Spring Capital Judge Mosedale also considered whether partial compliance could be grounds for a reduction in the penalty. She held that it could, but that there would have to be something special about the circumstances to justify a reduction on that ground, since partial compliance is non-compliance. We respectfully agree with Judge Mosedale…Taking into account all the matters referred to above we would have varied the penalty to be £10 per day. In so doing we have taken into account the fact of what was effectively partial compliance in registering for VAT. Because the appellant had not informed Mr Adams that it had registered then we would normally not have made any such reduction, but given Mr Adams’ failure to attempt contact despite the guidance in the Compliance Handbook, we regard the effective partial compliance as a special circumstance justifying a reduction.” (Mumbai Kitchen (Bromley) Ltd v. HMRC [2016] UKFTT 313 (TC), §§54…57).
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Assessing and appealing penalties
Assessment within 12 months
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"(1) Where a person becomes liable for a penalty under paragraph 39, 40 or 40A
(a) HMRC may assess the penalty, and
(b) if they do so, they must notify the person.
(2) An assessment of a penalty under paragraph 39 or 40 must be made within the period of 12 months beginning with the date on which the person became liable to the penalty, subject to sub-paragraph (3).
(3) In a case involving an information notice against which a person may appeal, an assessment of a penalty under paragraph 39 or 40 must be made within the period of 12 months beginning with the latest of the following—
(a) the date on which the person became liable to the penalty,
(b) the end of the period in which notice of an appeal against the information notice could have been given, and
(c) if notice of such an appeal is given, the date on which the appeal is determined or withdrawn.
(4) An assessment of a penalty under paragraph 40A must be made—
(a) within the period of 12 months beginning with the date on which the inaccuracy first came to the attention of an officer of Revenue and Customs, and
(b) within the period of 6 years beginning with the date on which the person became liable to the penalty." (FA 2008, Sch 36, para 46)
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Penalty not invalidated by late appeal
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"[45] The scheme of the legislation itself indicates that Mr Hanan’s argument based on paragraph 46(3)(c) is not correct. On Mr Hanan’s argument whenever the FTT grants permission to make, or notify, a late appeal against an information notice the result of that decision is automatically to invalidate any penalties previously issued irrespective of whether the appeal is successful (or even pursued)...
...
[53]...Therefore, for the reasons we have given, we consider that the better view is that the question whether the penalty was issued within the paragraph 46 time limits is to be determined in the light of circumstances existing at the date of issue of that penalty. As we have explained at [40], judged at the time of its issue, the penalty was issued within the paragraph 46 time limits..." (Hanan v. HMRC [2020] UKUT 194 (TCC), Judge Richards and Judge Brannan)
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Right of appeal
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"A person may appeal against any of the following decisions of an officer of Revenue and Customs—
(a) a decision that a penalty is payable by that person under paragraph 39, 40 or 40A, or
(b) a decision as to the amount of such a penalty." (FA 2008, Sch 36, para 47)
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Procedure for appeal
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"(1) Notice of an appeal under paragraph 47 must be given—
(a) in writing,
(b) before the end of the period of 30 days beginning with the date on which the notification under paragraph 46 was issued, and
(c) to HMRC.
(2) Notice of an appeal under paragraph 47 must state the grounds of appeal.
(3) On an appeal under paragraph 47(a), that is notified to the tribunal, the tribunal may confirm or cancel the decision.
(4) On an appeal under paragraph 47(b), that is notified to the tribunal, the tribunal may—
(a) confirm the decision, or
(b) substitute for the decision another decision that the officer of Revenue and Customs had power to make.
(5) Subject to this paragraph and paragraph 49, the provisions of Part 5 of TMA 1970 relating to appeals have effect in relation to appeals under this Part of this Schedule as they have effect in relation to an appeal against an assessment to income tax." (FA 2008, Sch 36, para 48)
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HMRC cannot restart penalty time limit by issuing another notice
"[28] I considered whether HMRC had the power to extend that twelve month time limit by the simple device of issuing a new notice which repeated the text of the out-of-time notice. It is clear that the answer to that question must be no. It would entirely defeat the purpose of the statutory provision." (Ahmed v. HMRC [2020] UKFTT 337 (TC), Judge Redston)
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Criminal offences
Concealment or destruction etc. following information notices
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"(1) A person is guilty of an offence (subject to sub-paragraphs (2) and (3)) if—
(a) the person is required to produce a document by an information notice,
(b) the tribunal approved the giving of the notice in accordance with paragraph 3 or 5, and
(c) the person conceals, destroys or otherwise disposes of, or arranges for the concealment, destruction or disposal of, that document.
(2) Sub-paragraph (1) does not apply if the person acts after the document has been produced to an officer of Revenue and Customs in accordance with the information notice, unless an officer of Revenue and Customs has notified the person in writing that the document must continue to be available for inspection (and has not withdrawn the notification).
(3) Sub-paragraph (1) does not apply, in a case to which paragraph 8(1) applies, if the person acts after the expiry of the period of 6 months beginning with the day on which a copy of the document was so produced unless, before the expiry of that period, an officer of Revenue and Customs made a request for the original document under paragraph 8(2)(b)." (FA 2008, Sch 36, para 53)
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Concealment or destruction etc. following informal notification
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"(1) A person is also guilty of an offence (subject to sub-paragraph (2)) if the person conceals, destroys or otherwise disposes of, or arranges for the concealment, destruction or disposal of a document after the person has been informed by an officer of Revenue and Customs in writing that—
(a) the document is, or is likely, to be the subject of an information notice addressed to that person, and
(b) an officer of Revenue and Customs intends to seek the approval of the tribunal to the giving of the notice under paragraph 3 or 5 in respect of the document.
(2) A person is not guilty of an offence under this paragraph if the person acts after—
(a) at least 6 months has expired since the person was, or was last, so informed, or
(b) an information notice has been given to the person requiring the document to be produced." (FA 2008, Sch 36, para 54)
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Sentence
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"A person who is guilty of an offence under this Part of this Schedule is liable—
(a) on summary conviction, to a fine not exceeding the statutory maximum, and
(b) on conviction on indictment, to imprisonment for a term not exceeding 2 years or to a fine, or both." (FA 2008, Sch 36, para 55)
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