Tuesday, 12 December 2017

Tax Penalty Invalidated Because Imposed by Computer

A company was late in filing its tax return. Result? You guessed right. It was fined £100. It appealed against the penalty to the first-tier tax tribunal. 

The tribunal judge wanted to be satisfied that the the Revenue's determination to impose a penalty had been validly made. It was for the revenue to prove this was so. The Taxes Management Act 1970 section 100(1) says that..."an officer of the Board authorised by the Board ...may make a determination imposing a penalty under any provision of the Taxes Act and setting it at such amount as, in his opinion, is correct or appropriate." 

From such documents as were produced to him in the case, the tribunal judge concluded that the penalty notice had been issued automatically by a computer as had been the covering letter sent out with it to the company. It appeared that the Revenue's computer was programmed to run checks shortly after the due date for filing a return that was entered into it. If it found no entry for the return being received, the computer caused an entry to be recorded that a determination was made for the imposition of a penalty and the computer issued a notice to this effect. All without any decision making by an officer of the Revenue. 

In a judgment just published, the judge ruled that the requirement in section 100(1) of the 1970 Act mentioned above was for a flesh and blood human being who is an officer of the Revenue to decide to impose the penalty and then give instructions in relation to it which could be executed by a computer.

The judge quashed the penalty but in doing so made the point that his decision was limited to the late company tax return penalty which was the subject of the appeal and should not be taken to apply to other penalties for different taxes under schedules 55 and 56 of the Finance Act 2009. Nevertheless, it is an argument which may well be run in cases involving other taxes but there different statutory wording may apply. Two other matters. The decision in the company's case was not an upper tribunal decision or higher and the Revenue did not address the issue of the determination's validity or engage in the appeal in a very active way. On another day, it may well have much more to say which is relevant.

If you are aggrieved by a penalty, you might ask the Revenue who decided to impose it and,if not a fleshed blood human being, why not.

The company's case was Khan Properties Ltd v Commissioners for HMR&C [2017] UKFTT 0830 (TC)