No software

KEY POINTS

• Partnership returns can be submitted online or on paper.
• No HMRC software is available for partnership returns.
• Lack of consistency in tribunals.
• The only alternative is to buy commercial software.

Is it unreasonable to expect HMRC, a public department, to provide taxpayers with the means to file tax returns?

Paper returns are freely available: if they are not sent in the post, they can be downloaded from the HMRC website. In addition, the department offers various electronic forms, such as the personal self-assessment return SA100 together with most of the supplementary pages.

The forms for corporation tax and VAT returns are also provided, but not the partnership return SA800, or the trust and estate return SA900. This is unhelpful and curious, particularly as the partnership supplementary pages for the SA100 are produced.

The deadline for paper personal self-assessment and partnership returns is 31 October. After that date, the form must be submitted online by 31 January.

The lack of HMRC-provided partnership return software is sometimes cited as reasonable excuse for late filing, although not always successfully.

However, tribunal judges take varying views as to what it is reasonable for taxpayers to expect from HMRC when filing online, as the following cases show.

Unreasonable burden

In Mike’s News (TC1683), the taxpayer partnership, assisted by an unpaid 83-year old volunteer, tried to file its 2009/10 partnership return online just before 31 January 2011.

However, by the time the partnership realised HMRC did not provide an online filing facility for partnerships, it was too late to register, purchase third-party software and file electronically, so it submitted a paper return which HMRC received on 1 February 2011.

The return was not rejected, but a penalty for late filing was imposed, against which the partnership appealed.

The tribunal judge, Geraint Jones QC, considered whether it was a reasonable excuse to file a return late when the authority requiring the return had not provided a comprehensive online filing facility.

He asked whether it was...

‘...reasonable to require this appellant to undertake the task of searching out and paying for third-party software, if available, which it may or may not have the skill and ability to deploy. I do not consider it remotely reasonable that the respondent should proceed in that way absent express authority from Parliament that it can and should do so. Upon my perusal of the relevant statute, there is no statutory basis for the respondent failing to provide a comprehensive online filing facility and/or providing that the respondent can require an appellant to search out and purchase software, if available, to allow an appellant to file online. Indeed, that further pre-supposes that any such person or partnership has the technical skill and knowledge to manipulate such software in such a way as to persuade it to allow online filing.’

He said it was ‘not objectively reasonable’ for HMRC to impose such a burden on partnerships, bearing in mind that comprehensive online filing facilities were provided for other categories of taxpayers.

Mr Jones referred to the paper return which states that to file online the taxpayer ‘will need to use commercial software which you may have to buy’.

He considered that this ‘brief statement’ did ‘nothing to assist’ a partnership which having known it had until 31 January to file online may well have left filing close to that date.

The decision was that the taxpayer had a reasonable excuse.

Different judges, different decision

The beauty or trouble with the First-tier Tribunal is that each case is decided on its own facts and no precedents are set.

As mentioned earlier, much will depend on the tribunal judge’s attitude. In Astrid Koyeni-Efreeitems (Partnership) (TC1712), the partnership filed a paper return for 2009/10 on 2 February 2011. HMRC imposed late filing penalties.

The partnership’s agent said the paper return had been filed by 31 January 2011 and that no online filing facility was available to allow the return to be filed online. Furthermore, the partnership had no tax liability for 2009/10, so penalties should be reduced to nil.

HMRC argued that the taxpayer could have purchased third-party software to enable the return to be filed online and that the department was not obliged to provide free software to taxpayers.

The First-tier Tribunal judge, Michael Connell, in this instance, agreed with HMRC that the taxpayer did not have reasonable excuse for not filing the paper return by 31 October 2010.

Furthermore, online filing was possible using commercially provided software. Finally, the legislation reducing the penalty to nil where there was no tax liability did not apply to partnerships.

In another appeal, Brian Peck and Jennifer Wilson (Partnership) (TC1693), the circumstances were similar to those in Astrid Koyeni-Efreeitems.

Again, the 2009/10 partnership return was filed on paper after 31 October 2010 and a penalty was imposed by HMRC.

The taxpayer’s agent argued that the cost of purchasing commercial partnership return software was ‘not warranted’ because the firm has only ‘a few cases’ which would require its use. T

he agent said further that it had not been possible to file a return by the end of October. He added that the same situation arose for 2008/09, and the appeal had been allowed.

The tribunal judge, Miss J Blewitt, said it was widely publicised by HMRC that to file a partnership return online, third-party software had to be purchased.

The partnership was not obliged to file electronically, so ‘the lack of the necessary software cannot amount to a reasonable excuse’.

She went on: ‘The issue of cost for the appellant’s agent in purchasing the software is a matter for the agent.’

With regard to the leniency shown by HMRC in the previous year, this was irrelevant, and the judge found there was no evidence to show an inconsistency in HMRC’s decision making. The appeal was dismissed.

Cunning plan

The ingenuity of the taxpayer in Fitzpatrick & Co Solicitors (TC1932) has to be applauded. As in the previous cases mentioned in this article, the taxpayer partnership appealed against a penalty for filing its partnership return late.

In this instance, however, the return had been attached as a PDF document to the partners’ personal returns and all had been submitted by 31 January 2011. The taxpayer claimed that this met the requirement to file online. HMRC disagreed.

The tribunal judge, Charles Hellier, reviewed the information provided by HMRC with regard to online filing and concluded that this did ‘not prescribe the use of third-party software as the only way to make an electronic return’.

Looking at the legislation, Mr Hellier said TMA 1970, s 12AA(2) and (3) enabled an HMRC officer to require a partner to ‘make and deliver’ a return. The subsections did not give the officer the power ‘to prescribe the means of delivery’.

He noted that the partnership return had been filed in the same way for the previous two years, but that HMRC had cancelled the late filing penalties for each year without saying that the pdf practice was unacceptable.

In conclusion, the judge allowed the appeal, saying:

‘Taking together an ill advertised prescription of what constitutes an electronic return, the real possibility that the notice on the front of the return might reasonably be read as permitting online filing of a pdf (since it did not require the use of third-party software), and the absence in the letter of acceptance of the 2009 appeal of a mention of reasonable excuse or comment on the manner of delivery of the return, it seems to me that the appellant would have a reasonable excuse if the return had been late.’

On your own

These cases show, as do others not reviewed here, that there is no guarantee that a First-tier Tribunal will agree that not being able to send the form electronically because HMRC do not provide free partnership return software is a reasonable excuse for not filing a paper return by 31 October.

The idea of filing a pdf return as an attachment may have some appeal, but is risky as it may be that other tribunal judges will not reach the same conclusion as Mr Hellier.

The lack of an HMRC online offering for partnerships has cropped up before in Taxation: a tax adviser was nearly caught out but managed to purchase the requisite software in time.

In their response, HMRC were unapologetic and, when asked again recently whether they had plans to introduce partnership return filing software, they confirmed they did not.

This seems partly to be another case of HMRC failing to understand the realities of running a small entity cost-effectively.

If the department only provided the SA100 tax return software, it could, perhaps, defend the lack of a partnership tax return online facility on the ground that it is unreasonable to expect individuals to buy software to submit their personal tax return.

However, they do provide online facilities for PAYE, VAT and corporation tax, so why not partnerships?

It is beside the point to argue that it is not compulsory to file a partnership return online so this lets HMRC off the hook. What about providing a service for their so-called customers or making it easier for taxpayers (and agents) to comply with their tax obligations.

As they already provide various other tax return software for businesses, HMRC could surely produce a partnership return facility. Instead they choose not to, and pass the cost of acquiring appropriate software to the taxpayer.

In the meantime, we have a confused situation where some tribunal judges will find HMRC’s failure to provide software constitutes a reasonable excuse for not filing a paper return by 31 October, and others will not.

This kind of lucky dip is hardly conducive to a tax system that is transparent and, dare I say it, fair.

Issue: 4356 / Categories: Comment & Analysis , Admin