Court rules against HMRC for incorrect evidence of late filing
In two recent cases at the First-tier Tribunal involving appeals against late filing penalty notices, the judge ruled in favour of the taxpayers and against HMRC. Significantly, the rulings were based on the fact that HMRC had fallen at the first hurdle by providing evidence that was probably unreliable.
The cases are of interest, as the judge (the same for both cases) was critical of the evidence produced to demonstrate that the client was served with a notice to file a return. In fact, the judge highlighted that the ‘Return Summary’ that HMRC relied on as proof of service probably contained ‘a fiction’ and that it was ‘inherently improbable’ the notice was issued on the date shown (6 April 2017), as HMRC normally staggers the posting of the notices.
In the cases of Jonathan Hulbert v HMRC and William Hutchings v HMRC, the judge determined that HMRC had failed to meet the burden of proof that the penalties were calculated correctly and the appellants were liable to pay a penalty.
The judge highlighted that the European Court of Human Rights had recognised that Article 6 of the European Convention on Human Rights (right to a fair trial) applies to penalty cases. Therefore the burden of proof rests with HMRC, as the respondent, to prove ‘each and every fact necessary for liability to a penalty to arise’. It was not acceptable for HMRC to provide the court with evidence which was likely to be incorrect.
Why is this important? With appeals against penalties, the respondents (HMRC) bear the responsibility of satisfying the court that a penalty liability arose. The judge specifically stated that adequate evidence was a necessity, not a luxury.
There are numerous appeals listed for late filing penalties. The two cases mentioned establish that HMRC cannot rely on the computerised ‘Return Summary’ to show that HMRC had met all of their obligations for a late filing penalty to apply.
If you have clients who might be affected by the above and need tax dispute resolution advice, contact John Hood for a no-obligation conversation.