A number of cases were published in October following the decision of the Upper Tribunal in HMRC v Hok Ltd (reported by us on 9 November). In Hok, the tribunal stated that it is not their role to dismiss late filing penalties on the grounds that they are unfair. The decision also confirmed that the FTT only has the jurisdiction conferred on it by statute and that it is not within the remit of the FTT to override statute and apply common law principles, nor is it the role of the FTT to supervise the conduct of HMRC. Broadly, if the penalties charged are correct and the taxpayer has no reasonable excuse for the delay, the FTT cannot change the fixed penalty on the basis of fairness.
The Hok decision was applied in a number of cases in October and a late filing penalty was upheld in each instance. The case of TRM Electronics Ltd TC01526 (published on 1 November 2013) stands apart from the others, however, because although the decision in Hok was once again applied (and the penalty could not simply be discharged or adjusted on the grounds of unfairness), the tribunal found that the taxpayer has a ‘reasonable excuse’.
There were a number of mitigating factors which prevented the company from filing on time. These were largely based around the fact that a submission was made well in advance of the deadline but it later became apparent (to the appellant) that this submission had been made in ‘test’ rather than ‘live’ mode.
The FTT found on the balance of probabilities that the test mode had been used and the submission not received by HMRC. Two days following the test submission, the company then began to experience a number of difficulties as detailed by the appellant:
On 22 April 2012 we received the resignation without notice of a programmer …….who worked for us for 3 years. Sadly we discovered he had destroyed files on his computer, taken up front wages, had sabotaged code and been negligent. This had resulted in my working late almost every night, the loss of 1,000,000 pounds of new work. We are a small company and this is a devastating blow.
The fact is that TRM now has 3 members of staff and all are very overloaded. On top of this an apprentice left, another member of staff absconded without notice, we later discovered he had been arrested and his trial is next month. Dealing with the absconder alone is a major liability alone.
The Tribunal decided that the number of setbacks experienced by the company during this period were sufficient to qualify as a ‘reasonable excuse’ for the failure to submit the return on time. It was also found that the company acted without unreasonable delay once the excuse ended in submitting the return correctly.
This new case highlights the difference between the concept of an ‘unfair’ penalty and one that may be discharged on the grounds of reasonable excuse. The Tribunal has no authority to decide on the unfairness or otherwise of a penalty, but may consider the grounds for reasonable excuse.