Appeal Number TC/2009/12196

[2010] UKFTT 536 (TC)

TC00790

Appeal number TC/2009/12196

Partnership return, section 12AA Taxes Management Act 1970 (“TMA”) — late filing penalty, section 93A TMA — filing paper return after both paper and electronic deadline — failure of HMRC to provide free software for electronic filing of partnership return — appeal dismissed

FIRST-TIER TRIBUNAL

TAX

MR A R FAIRBURNAppellant

Representative partner in Mr A R Fairburn and Mr S A Fairburn

t/a Mr Cobbler

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMSRespondents

TRIBUNAL: Miss Rachel Perez (Judge)

Mr John Ritchie (Member)

Sitting in public in Colchester on 23rd April 2010

DECISION

Having heard Mr Leung of William Philip Partnership for the appellant and Mr Bruce Robinson of HMRC for the respondents

The tribunal decided–

(1)to extend time for appealing if such extension is needed; and

(2)that the two £100 penalty determinations are confirmed.

The appeal is dismissed

FULL FINDINGS AND REASONS

Introduction

The tribunal’s summary decision was issued on 28th June 2010. On behalf of the appellant, Mr Leung requested permission to appeal to the Upper Tribunal, by letter dated 14th July 2010. The Tribunals Service has notified Mr Leung that the request will be treated as a request for full findings and reasons (which, as stated in the summary decision, are needed in order to seek permission to appeal).
We heard this case with five others. We are issuing in each of the six cases an individual decision such as this, together with a common appendix containing findings and reasons common to the appeals.

Appeal

This was an appeal against a £100 penalty imposed under section 93A of the Taxes Management Act 1970 (“TMA”) on each partner for late delivery of the partnership return for the year ended 5th April 2008. We find that the deadline for a non-electronic return (which we shall call a “paper return”) was 31st October 2008 and for an electronic return was 31st January 2009. The paper return was received by HMRC on 13th May 2009.
Mr Leung contended (a) that no partnership return was required to be submitted and (b) that there was in any event a reasonable excuse.

A partnership return was required

We find that a partnership return was indeed required to be submitted, for the reasons below and in the appendix.
It appeared common ground that the blank partnership return was issued on 6th April 2008. We find that it was issued on that date.
But it was not common ground that the blank partnership return sufficed as a notice to complete a return for the purposes of section 12AA of the TMA. We find that it did.
Mr Leung argued that, in any event, the two individuals upon whom the penalties were imposed were not in partnership in the tax year in question. We find for the reasons in the common appendix that they were. We so find despite the letter dated 4th March 2009 from A R Fairburn and S Fairburn at page T24 of Mr Leung’s bundle. Our reasons in the common appendix refer to HMRC’s records of start and end dates of the businesses. Those records in this case are at pages 9 and 10 of the bundle specific to this case. They show that Mr Cobbler has been registered with HMRC as a partnership since its “Trade Start Date” of “01/04/2001”. There is no “End Date” shown on page 9. The details of the partnership on page 10 show that the partners are Mr A R Fairburn and Mr S A Fairburn, the individuals upon whom penalties have been imposed.
We find therefore that a partnership return was required to be submitted. The next question is: was it late?

The partnership return was late

We find that the return was submitted late, for the reasons below and in the appendix.
It was common ground that, in this case, the legislationon its face permitted the imposition of a deadline of 31st October 2008 for filing a paper return, and a deadline of 31st January 2009 for filing the return electronically (section 12AA(4), (4A) and (4B) TMA). It was also common ground that those were the respective deadlines expressly set out in the blank partnership return which was issued.
But it was not common ground that those were the actual deadlines. It appeared to be Mr Leung’s submission, although it was not entirely clear, that the deadline for the paper return was the same as the electronic filing deadline, 31st January 2009. We reject that submission. The paper deadline was, we find, 31st October 2008.
But in any event, the paper return was not submitted by the electronic deadline. Mr Robinson’s statement of facts says that the agent first submitted a partnership return on 24th April 2009. We find that was the date of the letter (page 25) which enclosed the return. The 24th April 2009 was a Friday. The letter and return were probably received on the following Monday, 27th April. We find that the first-time submission of the return was on 27th April 2009 for the tax year in question, nearly three months after the electronic deadline. It was common ground that it was returned by HMRC on 1st May 2009 because it was not signed by the representative partner. And it was common ground that the return was re-submitted and accepted by HMRC on 13th May 2009.
We find therefore that the paper return was received by HMRC on13th May 2009. This was after both the paper deadline of 31st October 2008andthe electronic deadline of 31st January 2009. Even the first-time submission of the paper return, on 27thApril 2009, was after that electronic deadline.
It was not clear whether Mr Leung was also arguing that, despite the appellant’snot meeting even the electronic deadline in filing the paper return, the paper return should nevertheless be considered to have been in time. We find that, even if (which we do not accept) the paper return deadline was later than 31st October 2008, the deadline was not as late as13th May 2009, nor as late as 27thApril 2009.
As the return was submitted late, the remaining question is: does it appear that there was a reasonable excuse for that lateness?

No reasonable excuse

Section 93A(7) TMA provides that the tribunal may set the penalty determination aside if it appears that, throughout the period of default, the person for the time being required to deliver the return had a reasonable excuse for not delivering it.
By virtue of section 93A(8), the last day of the period of default was12th May 2009 (the day before the return was received by HMRC).
For the reasons in the appendix, we find that it does not appear that, throughout the period of default, the person for the time being required to deliver the return had a reasonable excuse for not delivering it. Even if the last day of the period of default was 26thApril 2009, the day before the first-time submission of the paper return, that does not alter our finding on reasonable excuse.
The penalty determinations are therefore confirmed.
This document and the appendix to it contain full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

RACHEL PEREZ

TRIBUNAL JUDGE

RELEASE DATE:

Mr T W FarrowTC/2009/12188

Mr O C LamTC/2009/12193

Mr A R Fairburn TC/2009/12196

Mr D Balgobin TC/2009/12199

Mr R G McAlpin TC/2009/12238

Mr T W Rolton TC/2009/12252

Common Appendix

These six appeals were heard together. We did not designate a lead case. We issued a separate summary decision in each of the six appeals. The appellants have requested full findings and reasons. We are issuing, in response to that request, an individual decision in each of the six appeals together with this common appendix. This appendix contains common findings and reasons for all six appeals. Although there were some slight differences of fact, the principles and arguments were identical. We address any differences below and in the individual decisions.

Preliminary

Request to exclude HMRC materials

Skeleton arguments and bundles

Mr Leung asked us to exclude the skeleton arguments and bundles submitted by HMRC, received, he said, two days before the hearing. He said that they should have been served 42 days before the hearing. He asked us to allow the appeals on that ground alone. Mr Leung declined an adjournment. But he asked us to take into account that it may have jeopardised his ability to prepare the case properly.

Mr Leung said that the following were new in the bundles compared with the statements of case he had previously received: the references to “electronic lodgement”, to sections 12AA(5E) and 118(2) of the Taxes Management Act 1970 (“TMA”) and to section 132 of the Finance Act 1999, the two case reports at pages B1 and B4, regulations 1 to 3 of the Income and Corporation Taxes (Electronic Communications) Regulations 2003 and HMRC’s directions dated 4th April 2008.

We decided to admit HMRC’s skeletons and bundles—

(a)First, there was no deadline for their service;

(b)Second, there is no suggestion that Mr Leung could not have collected them earlier than 21st April from the post office; delivery was attempted on Saturday 17th; it was not suggested that the post office collection office was closed on Monday 19th;

(c)Third, the appellants have not been prejudiced. It appeared from correspondence that Mr Robinson’s inclusion of legislation was in response to a request from Mr Leung: “I need you to state the case with all the legislations you rely on, for the issue of penalty, for the deadline of the penalty, for the on-line return legislation, for the authority penalising partners separately and everything else involving your alleged claim of non return, late returns etc. Copies of these legislations will be in order for us and the Tribunal.” (letter 1.10.09). It appears that the appellants have benefited from the materials submitted by HMRC. In particular, Mr Robinson’s inclusion of regulations 1 to 3 of the Income and Corporation Taxes (Electronic Communications) Regulations 2003, the 4th April 2008 directions and section 132 of the Finance Act 1999 provided the legislative peg for Mr Leung’s submissions of 21st April 2010 that HMRC did not have power not to provide free software. The other legislative provisions were ones we would expect Mr Leung to be aware of if he was planning to make the lengthy submissions on points of law that he made to us. As to the two case reports, they were decisions of the First-tier Tribunal and not binding on us. Mr Robinson relied on only one of them. We have not, in any event, found it necessary to have regard to either case report.

Telephone call transcripts

We did however agree with Mr Leung that we should not admit transcripts produced by HMRC at the hearing. Mr Leung had not time to check their accuracy. In fairness to Mr Robinson, he had produced them only in response to a query from the tribunal; he had not expected to produce them.

Mrs Legg’s evidence for the appellants

We agreed, with Mr Robinson’s consent, to Mr Leung’s request to serve a witness statement after the hearing from Mrs Legg. To the extent that that statement referred to telephone calls for which we had excluded transcripts, Mrs Legg’s evidence has not assisted the appellant’s case. We saw no need therefore to give HMRC the opportunity to cross-examine Mrs Legg.

FULL FINDINGS AND REASONS

For the appellants, Mr Leung submitted that no penalty had been incurred. He submitted that in any event there was a reasonable excuse for the late filing of the paper partnership returns. We address each submission in turn.

(A) Appellants’ submission that no penalty had been incurred

In support of his submission that no penalty had been incurred, Mr Leung argued that—

(1)HMRC did not issue a valid notice pursuant to section 12AA TMA;

(2)submission of the individual returns amounted to submission of a partnership return;

(3)no partnership return was due in any event; and

(4)HMRC failed to exercise, or to exercise properly, their power to “prescribe” the form of the partnership return.

(1) Submission that HMRC did not issue a valid notice pursuant to section 12AA TMA

Mr Leung’s first argument in support of his contention that no penalty had been incurred was that HMRC did not issue a valid notice. He submitted that the phrase “using 3rd party commercial software” on page 1 of the blank paper return cannot amount to notice to the partner of what information needs to be contained in an electronically-submitted return. Mr Leung argued that, for such notice properly to be given, HMRC must allow the taxpayer into HMRC’s website via free software provided by HMRC. This would be so that the taxpayer could see what electronic information must be provided pursuant to the notice.

Mr Leung further submitted that “because HMRC did not provide an electronic format in electronic filing software, they have not complied with subsection (2) and (3) [of section 12AA] because they have not enclosed a return”. Mr Leung explained that he meant that HMRC “have not specified the information by notice because they have not attached an electronic format, only a paper return.”.

We reject those submissions for the following reasons.

In our judgment, section 12AA does not require HMRC to enclose a return. What section 12AA(3) requires HMRC to do in order to trigger the requirement to make the partnership return is—

“(3)…by notice...require the partner to make and deliver…a return containing such information as may reasonably be required in pursuance of the notice”. [emphasis added]

Mr Leung said in oral submissions: “I accept that the blank paper return is a notice in compliance with section 12AA”. We agree that a blank paper return is a notice for the purposes of section 12AA. We say this because that return indicates to the recipient what information must be provided. There is nothing in section 12AA in our judgment which requires that the notice be different depending on whether the partner chooses to make an electronic or a paper return. Indeed how could it, since that choice is exercised only after receipt of the notice. We find that the blank paper return indicated to the recipient what information must be provided to HMRC, even if that information were to be provided electronically.
We find therefore that the issue of the blank return was issue of a notice in compliance with section 12AA, regardless of which method of filing Mr Leung then went on to choose for his clients.

(2) Submission of the individual returns amounted to submission of partnership return

Mr Leung’s second argument in support of his contention that no penalty had been incurred was this: that the partners had complied with section 12AA by including in their individual returns the information required to be included in the partnership returns. He said in his written submission that “In the absence of an electronic PDF submission, the taxpayers above choose to use a format for sole trader to make the return. All information on the sole trader format and details required by the “partnership paper copy format” are almost identical in the sense that all information required would be fully submitted.”.

We find that supply of information required to be included in an individual return does not amount to supply of the information required to be included in a partnership return. Our reasons for this finding are as follows.

Mr Robinson drew our attention to page 4 of the paper partnership return where partnership turnover and detail of partnership expenses are required to be entered. In contrast, he submitted, the individual return must show merely the profit from the partnership. Mr Leung challenged this in his post-hearing submission; he said that the individual return does allow for inclusion of detail of expenses. Mr Leung attached to that submission an example of the individual return. Mr Robinson clarified (last paragraph of his post-hearing submission) that he had been “referring to the supplementary partnership pages that attach to an individual’s self assessment return”. He in turn attached those specimen partnership pages. Those partnership pages have no dedicated space for inclusion of partnership expenditure. Mr Robinson submitted that a partnership return is still required in order for HMRC to see details of partnership income and expenditure leading to the partnership profit figure.

We accept that page 2 of the individual return specimen which Mr Leung supplied post-hearing provides space for listing business expenses. However, that does not suffice in our judgment to counter Mr Robinson’s submission that a separate partnership return is required, for these reasons—

(a)First, it is clear from the individual return specimen which Mr Leung supplied that the business expenses required to be listed at page 2 are those of the individual’s self-employment. The partnership pages (supplied by Mr Robinson post-hearing) which are attached to the individual return do not provide boxes in which to record the business expenses of the partnership;

(b)Second, although the headings for each category of expenditure are broadly similar in the individual return compared with the partnership return, they are not identical;

(c)Third, the partnership return has a box on page 4 for stating the amount of “partnership charges” (which are to be included in “other expenses”). There is no express provision in the individual return for inclusion of partnership charges. Any such inclusion in the individual return would in any event be only of the individual’s share of the partnership charges;

(d)Fourth, for HMRC to work out for themselves the information that they should have received in the partnership return, they would need to collate the individual returns of all the partners. They would then need to work out what the total partnership figures are by adding together the figures in the individual returns. Even if this exercise would produce the exact figures which are required to be included in the partnership return, the fact remains that that exercise would have to be done. That in turn indicates in our judgment that the partnership return is required to contain information which is not in each individual return. That is to say, the partnership return requires that the adding up exercise be done not by HMRC, but by or on behalf of the partners and the resulting totals included in the partnership return. Those totals are not included in each individual return;