The First-tier Tribunal has held, in Hannah and another v HMRC [2019] UKFTT 342 (TC) (30 May 2019), that an SDLT scheme seeking to rely on section 52 of the Finance Act 2003 (calculation of chargeable consideration in the case of annuities) failed because the annuity did not, on the facts, constitute the true chargeable consideration for the land transfer.
In HMRC v MCX Dunlin (UK) Ltd [2021] EWCA Civ 186 (17 February 2021), the Court of Appeal overturned the High Court’s decision that interest was due on repayments of liabilities to petroleum revenue tax (PRT) dating from the 1980s which had been met by crediting advance PRT (APRT), holding both that the company’s claim was an abuse of process and that it failed on the merits.
This was a decision of HMRC to disallow input tax claimed by the Appellant in relation to purchases of scrap metal. The FTT decided that although the due diligence carried out by the Appellant left something to be desired the number of transactions where they had purchased stock and which had led to a failure to declare Vat was 403 from 7 suppliers meaning that the number of deals in question represented 2% of the company’s total deals and that as the deals were very similar to the other 98% the Appellant had a justification for failing to rigidly apply the due diligence protocols that were put in place with their accountants.
Although HMRC are highly successful in these “Kittel” appeals, this case does demonstrate that there is high burden on them to prove their case, which is to be expected when they say that transactions in question are “connected to fraud”.
The Appellant was a UK non-resident who prior to leaving the UK had received a dividend payment of £320,000. He submitted his tax return showing the dividend but the return stated he had not been resident in the UK for the year in question. This was an error on the Appellant’s part as he had not realised non-resident rules had changed. After investigation HMRC charged for the tax and a penalty based on their belief that the error was deliberate. The Appellant contested this and the First-tier Tribunal agreed with the Appellant that his prior knowledge which was out of date had led him to make the mistake he had. Instead of a deliberate error it was decided that the error was careless.
This case shows that although HMRC appear to have an automatic assumption that every error is deliberate, if you are convinced that the error that has arisen was not deliberate then you should challenge that penalty decision.
This was a case where the appellant had contested HMRC’s decision to charge Capital Gains Tax. The Appellant disagreed with the decision saying that they qualified for principal private residence relief. The Appellant had bought the house, whilst previously renting and had intended to refurbish the property and then move in with his family. However, another buyer came along and offered a price, more than the Appellant had paid for the house. HMRC viewed this as a Capital Gain, but the Appellant was able to show that he actually moved into the house, albeit briefly, and that his original intention in buying was as a family home.
This case highlights that if you can show your intention and exactly what happened then HMRC will have to accept the PPR relief will be applicable.
There have been many decisions released in the last few weeks in relation to late filing penalties and the various reasons why this has occurred. I will not set out any one case, but would seek to remind our readers, that excuses such as a reliance on an accountant or lack of knowledge or any similar reason, will only have a chance of success if you decide to appeal the penalty, if you have specific and documented evidence. For example reliance on an accountant does not reduce the taxpayers obligation to ensure returns are made and are correct. However, if reliance on the accountant was because the taxpayer had been incapacitated in some way and could not provide the required oversight, then if that incapacitation could be evidenced then there may be a chance the taxpayer has a reasonable excuse. It is likely as the COVID-19 crisis continues that late-filing penalty appeals by taxpayers will become common. Again, if late filing or late payments are directly linked to the pandemic the Court will wish to see direct evidence of COVID’S effect.