Taxpayer who owed no tax wins £1.7k penalty appeal

Will Drysdale, Senior Reporter, Business & Accountancy Daily

The First Tier Tribunal concluded a taxpayer had a reasonable excuse to miss filing a tax return as she owed no tax and HMRC emails went straight to her junk

Denise Howarth appealed against £1,600 worth of penalties, plus £170 in interest, for filing a self assessment tax return for 2020-21 tax year late, but was late in appealing the decision to the First Tier Tribunal (FTT). 

Howarth has been a self assessment tax payer since 2004, and prior to the pandemic had filed her returns on time every year. She began filing online from 2013.

HMRC records showed Howarth had filed her return just one day late for the 2019-20 tax year which attracted an automatic £100 penalty. The FTT decided that Howarth filed this on time, going against HMRC’s computer records.

On the same day Howarth filed this she also signed up for HMRC to contact her electronically through her personal tax account (PTA). This emails the taxpayer when there is an update on their account for them, but does not indicate the level of urgency. Howarth had no recollection of signing up for electronic alerts.

When the £100 penalty was issued, the notifications were sent to Howarth’s personal tax account, which then prompted emails to be forwarded to her address.

However, there was evidence of these being sent direct to her junk mail inbox which the appellant regularly deleted. She also considered emails from HMRC were fraudulent, and phishing.

The tribunal found no extra steps were taken by HMRC to recover the original penalty, failing to notify her until March 2023 by post.

The submission date for the 2020-21 tax year came along for Howarth, and she did the same but was informed no income tax was due. Unfortunately, Howarth did not complete the process, leaving the web page before the 16-digit confirmation code was distributed to her.

Howarth said she was surprised by the lack of code as there had been one in previous returns, but she ‘had no reason to assume that the processes would be identical from year to year’, and she ‘was expressly told that she had no tax to pay’.

She also took a screenshot of the final screen as she noted it was not the same as usual.

A £100 penalty was then issued for this late filing, as well as 60 days of daily £10 penalties. By August 2022 HMRC had issued £900 in daily penalties, then a further £300 penalty. Another £300 was added in February 2023 with all these notifications being sent to her junk email folder.

It was not until 2023 until Howarth became aware of the penalties. She then queried the penalties and shared with the tribunal that HMRC had told her there was a ‘major issue with HMRC’s computer system around 28 February 2022’.

After this, she immediately filed the tax returns that HMRC considered to be late as an appeal could not be lodged until they were filed. By this time the full amount owed was £1,770.67, including interest and penalties.

HMRC received Howarth’s appeal on 8 September 2023, but failed to notify the appellant it had received anything until 17 January 2024, more than four months later. The appeals were rejected because they were made out of time, leading Howarth to turn to the FTT in June 2024.

Her main argument at the tribunal, where she represented herself, was that she did not receive any penalty notifications and was not aware she had opted into being notified through her personal tax account.

HMRC solicitor Nicola Shardlow said this was ‘no good reason for failing to appeal on time’.

Judge Keith Gordon said: ‘In some way, the appellant was the author of her own misfortune in two key respects. She had signed up to receive electronic communications from HMRC and, on at least three occasions, deleted genuine e-mails from HMRC which should have alerted her to check her PTA.

‘On the other hand, the appellant clearly strove to comply with her tax obligations over a number of years. There is nothing wrong with a taxpayer – particularly one with relatively simple affairs – routinely leaving the task of submitting a tax return to the evening of the deadline (or the previous day).’

Additionally, the tribunal found ‘the appellant had good reason to believe that the bland e-mail messages being sent by HMRC were spam and/or phishing exercises and that it was reasonable for her to promptly delete them’.

Judge Gordon added that HMRC would have known if Howarth had accessed her PTA account and seen the penalties.

Shardlow argued that HMRC would ‘suffer prejudice if the appeals were admitted in that they will have to divert resources to defend an appeal which they were entitled to consider closed’.

HMRC also relied on the fact a letter was sent to Howarth on 23 March 2023, notifying her of the penalties.

Despite these arguments the tribunal allowed the appeal to go ahead, then decided that Howarth had a reasonable excuse for not completing her return before midnight on 28 February 2022, citing the screenshot she took as evidence.

Judge Gordon said: ‘In the circumstances of the case, it was reasonable for the appellant not to have checked her PTA and to have remained unaware of the problem until March 2023.

‘It was only in March 2023 that the reasonable excuse ceased. However, the appellant then remedied the failure extremely quickly (and, thus, without unreasonable delay).

‘In short, we consider that, for someone in the appellant’s circumstances, she acted in an objectively reasonable way and her failure to submit the return until 31 March 2023 was also objectively reasonable.’

The appeal was allowed.