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The basic facts were the taxpayer business received a £400 late-filing penalty notice for failing to submit its employer’s end-of-year return for 2009/10.
It had believed it did not need to submit a return because its only employee had ceased employment part-way through the year.
The firm later admitted its mistake and agreed a penalty was due – but it argued it could have rectified the situation sooner had the notification of late filing been sent before the end of September, which would have resulted in a smaller penalty rather than the five months’ worth imposed.
The First-tier Tribunal allowed the appeal. HMRC appealed to the Upper Tribunal.
The Upper Tribunal judge, Mr Justice Warren, gave a detailed decision, beginning with a look at how the First-tier Tribunal was set up, largely to decide whether or not it had the power of judicial review.
The judge reasoned that the only avenue to the taxpayer was to seek judicial review, per Lord Justice Nicholls’ decision in Asplin v Estill [1987] STC 723, on the basis the company accepted the penalty was lawfully imposed but claimed the delay to the reminder should negate at least some of the fine.
In essence, Nicholls LJ said the challenges to administrative practices could be challenged only by way of judicial review.
In the Upper Tribunal’s judgment in this case, there was “no room for doubt that the First-tier Tribunal does not have any judicial review jurisdiction [sic]”.
On this alone, the taxpayer’s case was lost – but Mr Justice Warren also said the fact the Revenue had changed it practice in waiting four months before issuing penalty notices did not carry necessary implication that the practice had been unfair.
He added there was “insufficient before us from which we could properly say… more” and criticised the reasoning of First-tier Tribunal judge, Geraint Jones QC, that the taxman’s practice was deliberate and designed to ensure a defaulting employer paid a minimum of £500 in penalties.
“There was no evidence before the tribunal from which [it] could draw such a conclusion,” said Mr Justice Warren.
“It was based entirely upon the judge’s perception… that because, as he assumed… a penalty notice could have been sent out within a month, the fact that it was sent later meant that HMRC deliberately delayed [sic].
“[Mr Jones] appears to have made no enquiry of HMRC about the justification or reasons for the practice and simply dismissed the explanation – which we acknowledge was somewhat opaque – given in the statement of case.”
HMRC’s appeal was allowed, and the penalty was reinstated in full.
