Fighting off a computer-generated penalty
headline news
Every now and again tax gets into the mainstream news. It’s usually to do with the latest celebrity being named and shamed for partaking in one avoidance scheme or another, but there are occasionally less inflammatory articles too.
One such piece reported on the implications of the First-tier Tribunal (FTT) decision in Khan Properties Ltd v HMRC [2017] TC06225 (see Follow up ). The article implied that the decision could pave the way for millions to reclaim automatic penalties where they have filed their personal tax return late. Unfortunately this is not correct, although the decision could still be relevant to your clients.
A closer look
The Khan Properties (KP) case was actually concerned with a corporation tax return, rather than a personal one. The FTT judge explicitly stated that the comments he made were not to be read as applying to penalties for personal taxes.
The case concerned a £100 penalty issued to KP for late filing of its company tax return by the due date. Part of the reason that the appeal was successful appears to be the references to HMRC’s COTAX manual , which specifically refers to late filing penalties for corporation tax returns as “determinations”.
The power to make a determination of a penalty is governed by s.100 Taxes Management Act 1970 which states that “...an officer of the Board authorised by the Board for the purposes of this section may make a determination imposing a penalty...”
The wording here was the crux of the argument for KP. The letter informing it of the penalty did not specify any particular officer that had made the determination. In addition, HMRC’s internal guidance at COM101020 (see Follow up ) indicates that penalties for a late corporation tax return are issued automatically.
The FTT therefore said that it was down to HMRC to show that there had been some human decision making by an officer of the board, otherwise it would not be in keeping with the wording of s.100 .
Basis for appeal?
It is important to note that as an FTT decision, the case does not set a precedent.
Pro advice. Having said that, we think that it could add weight to your argument if you cite it when appealing against a corporation tax penalty if your client’s circumstances are the same, i.e. their penalty determination is not from an officer but from a “compliance centre” or similar. Ask HMRC to show evidence of its human decision making - it might just back down.
Using this argument appears to require the penalty to be issued by determination (under s.100 ), and so if that section is not in point, the argument won’t work. This may not always be apparent, but another decision by the same judge in Trent Personnel Ltd v HMRC [2018] TC06319 (see Follow up ) found that a penalty for late filed P11Ds was issued under s.100 . It was also cancelled because HMRC couldn’t show that the determination was made by one of its officers rather than by the computer.
Khan Properties Ltd v HMRC [2017] TC06225
COM101020
Trent Personnel Ltd v HMRC [2018] TC06319
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