This appeal is concerned with the proper construction of section 103 Finance Act 2020 and whether that section renders it unnecessary for the Respondents, His Majesty’s Revenue and Customs (“HMRC”), to prove the involvement of an “officer of the Board” in the giving of a notice requiring the submission of a tax return pursuant to section 8 Taxes Management Act 1970 (“TMA 1970”) and whether penalty assessments made pursuant to paragraph 18 of Schedule 55 Finance Act 2009, (“Schedule 55”) satisfy the relevant statutory requirements.

The underlying dispute between the Appellant, Mr Marano, and HMRC is about whether Mr Marano is liable under Schedule 55 to the penalty assessments made against him for the late submission of a self-assessment tax return for the tax year 2012/2013. On or after 6 April 2013, a notice to file a self-assessment tax return for the tax year 2012/2013 was sent to Mr Marano at his last known residential address. Mr Marano did not file a return before the filing date of 31 January 2014. As a result, on 18 February 2014, HMRC issued a late filing penalty of £100 under paragraph 3 of Schedule 55. This was followed by a daily penalty and a six month penalty under paragraphs 4 and 5, of Schedule 55, on 18 August 2014. Further, in November 2014, HMRC issued a determination based on the amounts shown in Mr Marano’s returns for earlier years and a late filing penalty based on that determination. A second late filing penalty was issued on 3 March 2015. In 2017, Mr Marano sought to file a tax return which was too late to be assessed as such but which enabled HMRC to calculate and issue a discovery assessment on 8 March 2017 in the sum of £5,744,219. On 14 March 2017, HMRC also issued a late filing penalty for £574,422 made up of a six month 5% tax-geared late filing penalty of £287,211 and a twelve month late filing penalty of the same amount.

Mr Marano appealed the penalties as well as the discovery assessment to the First Tier Tribunal, (Tax Chamber) (the “FTT”) and put HMRC to proof that the notice and assessments satisfied the requirements of the relevant statutes.

It has been common ground throughout that there can be no obligation to submit a return unless the taxpayer has previously been given notice requiring submission pursuant to section 8 TMA 1970. It is also common ground that a taxpayer who is not under a duty to submit a return pursuant to such a notice cannot be liable for a penalty for late filing.

In a decision dated 23 April 2020, (TC/2018/05611), the FTT dismissed Mr Marano’s appeal. Where relevant for the purposes of this appeal, the FTT held that the notice to file a return was issued by an “officer of the Board” for the purposes of section 8 TMA 1970 [114] – [132] and that the penalties were issued by HMRC for the purposes of paragraph 18 of Schedule 55 [133] – [147]. In particular, in relation to the question of whether the notice had been issued by an officer of the Board for the purposes of section 8 TMA 1970, the FTT held:

“126.

. . . the only reasonable conclusion from the evidence before us is that HMRC officers approved and authorised the issuance of Notices to File in 2012-13, using the parameters and machinery in existence at that time, and that the officers required that the issuance of the Notices be recorded within HMRC’s computer systems.

. . .

129.

We have found as facts that a full return, including a Notice to File, was issued to Mr Marano, and that its issuance and posting was recorded by HMRC’s systems. The only reasonable conclusions from that evidence are that the return was issued because HMRC’s system was programmed to carry out that task, and that the program was authorised by HMRC officers, as defined.

130.

As Mr Vallis said, the alternative would be that HMRC’s computer system had been either (a) programmed by persons other than HMRC staff, or (b) programmed without any human intervention. There is no evidence that HMRC’s computer system had been hacked, and it is not reasonable or credible to find that that in 2013 HMRC’s computer system was being controlled by some sort of artificial intelligence, capable of deciding its own parameters without the need for a human being to program it.”

In relation to whether Schedule 55 was satisfied, the FTT held as follows:

“141.

It is clear from Rogers and Shaw that the references to penalties being issued by HMRC do not mean that they have to be issued by an individual officer. The terms “HMRC” and “officers” are simply references to those at HMRC who are responsible for collecting tax. . . .

145.

We add that . . . the penalties are fixed by statute, and follow from the taxpayer’s failure to file. Parliament decided on the quantum and methodology of those penalties, and how they interact with particular periods of delay. There is no dispute that the penalties actually issued by HMRC’s computer system accurately reflect those statutory provisions. The only reasonable conclusion is that HMRC staff designed the computer programs which implement the legislation. As Mr Vallis said, the alternative would require us to find that HMRC’s computer had been hacked, or the computer was writing its own programs, but nevertheless still managed to ensure that the penalties actually issued reflect the statutory requirements.

146.

We therefore find that the penalties issued by the computer in accordance with the program were authorised by the HMRC staff who had designed and implemented the computer programs.”

Mr Marano appealed to the UT on four grounds. Only the ground relating to whether a valid notice to file a tax return had been issued pursuant to section 8 TMA 1970 and penalty assessments had been validly issued pursuant to Schedule 55 paragraph 18 is relevant on this appeal. The UT dealt, first, with the basis upon which the FTT had made its decision (the “Rogers and Shaw basis”) and then turned to the proper interpretation and application of section 103 FA 2020 which was enacted after the FTT’s decision but with retrospective effect (subject to transitional provisions) (“the section 103 basis”).

In HMRC v Rogers & Shaw [2019] UKUT 406 (TCC), [2020] 4 WLR 23 (“Rogers and Shaw”), the Upper Tribunal Tax and Chancery Chamber (the “UT”) had held at [32] that section 8 TMA 1970 does not impose a requirement that an officer of the Board is identified in the notice as the giver of the notice. Rather, “it imposes a substantive requirement that the giving of a notice must have been under the authority of an officer of HMRC” and that “the requirement is that whoever requires the notice to be given, whether identified or not, has the status of an HMRC officer”. The burden of proving that the requirement was met fell upon HMRC and the extent of the evidence necessary to discharge the burden depended upon the circumstances, including whether the taxpayer was disputing receipt [51] and [52]. As the UT put it in this appeal, at [6], “[P]revious decisions of the FTT and this Tribunal, culminating in Rogers and Shaw v HMRC. . . establish that there must be sufficient evidence of authorisation by an officer of HMRC. What is sufficient depends on whether the issue is disputed by the taxpayer.”

In this case, the UT noted that the evidence before the FTT in relation to the section 8 notice was limited to a microfiche record of sending of a full return and a record of Mr Marano’s tax affairs in HMRC’s self-assessment system [10]. The UT went on, also at [10], as follows:

“. . . The microfiche was described in the supplementary witness statement of Louise McGovern dated 7 January 2019 as a printed record of a computer output, and as being “maintained in all cases where a Notice to Complete a Tax return is issued automatically by the computer in line with default HMRC Retention of CY6+1”. The microfiche shows a date of 6 April 2013, Mr Marano’s name and residential address, and his unique taxpayer reference number. The computer record of Mr Marano’s self-assessment return for 2012/13 records a full return as having been issued on 6 April 2013. It was agreed that the full return was received by Mr Marano. Despite HMRC having been put to proof of officer involvement, nothing was said in the evidence on behalf of HMRC to explain in what way or ways any officer was involved in or authorised sending out the full return on 6 April 2013.”

The evidence in relation to the issue of the penalty assessments was said by the UT to be “essentially the same”. It was described at [11] as:

“. . . a microfiche record showing the addressee, the address and the amount of the assessment, and a screen shot of a computer record of Mr Marano’s 2012-13 self-assessment showing the assessed penalties. The evidence in Ms McGovern’s first witness statement was that the two 2017 “tax-geared” late filing penalties were “raised automatically in self-assessment” and “issued by the self-assessment system” based upon the discovery assessment issued by HMRC in March 2017. There was therefore no evidence of the involvement of any officer of HMRC in making the penalty assessments.”

Having set out the FTT’s conclusions at [126] and [129] and [130] to which I referred at [5] above, the UT noted at [13], that the FTT had inferred from the evidence before it “that computers had issued the full return and had recorded doing so, that HMRC’s computers were used and that HMRC officers programmed them so that the return was sent to Mr Marano.” In relation to the penalty assessments, having noted the FTT’s approach at [145] (set out above at [6]) the UT observed that in relation to both the notice to submit a return and the penalty notices, the FTT had assumed that it was HMRC’s computer systems which had sent out the notices which, in the light of the evidence of outsourcing in the Rogers and Shaw case, was not a safe assumption to make [15].

Having considered the effect of the decision in Rogers and Shaw, the UT went on to hold that the evidence was “insufficient where the fact of sending was challenged by the taxpayer” [20]. It concluded at [21] that the FTT’s inference at [126], that “the only reasonable conclusion from the evidence before us is that HMRC officers approved and authorised the issuance of Notices to File in 2012-13, using the parameters and machinery in existence at that time, and that the officers required that the issuance of the Notices be recorded within HMRC’s computer systems” could not properly be drawn from the evidence and was mere “speculation about how the automated system was set up and operated, or alternatively an assumption that HMRC officers had control over its own system and so had authorised what was done.” It concluded at [22], that there was no evidence before the FTT capable of justifying the inference that officers of HMRC decided the criteria on the basis of which computers were programmed to give effect to them, resulting in the service of a return on Mr Marano.

In relation to the penalty assessments the UT noted that the statutory provision was different and that for the purposes of paragraph 18 of Schedule 55 the assessment of a penalty and the notification of the assessment had to be proved to have been done under the authority of an officer (or Commissioner) of HMRC [25]. The UT described the question on appeal as whether it was proper for the FTT to infer from the primary facts that the penalties were assessed and notified under the authority of such an officer. It stated that the FTT did so “on the basis that it could be inferred that HMRC staff designed the computer programs, and that it was not reasonable to infer that the computer had been hacked or had written its own programme.” The UT also noted at [27] that “there was no evidence about whose computers produced the outputs that were recorded in HMRC’s data.” The UT concluded at [28] that “design of the relevant computer programs by an officer of HMRC was not the only reasonable inference to be drawn from the evidence. . . ” and concluded at [29] that the “very slight evidential material” was insufficient to enable the FTT to draw the inference it did.

The UT would have allowed the appeal, therefore, if it had turned on whether HMRC had satisfied the “Rogers and Shaw basis”. It went on, however, to address the effect of section 103 FA 2020. The UT described the nature of the dispute in relation to the effect of that section, as follows:

“32.

It can be inferred from the reference to the use of computers and the retroactive effect that the section has, that it was intended to validate existing or previous automated functions carried on by HMRC, and to remove the focus on whether an officer, or a specified kind of officer, carried out the function in question. How much further than that it goes is in dispute on this appeal. Mr Marano submits that it does not dispense with the need for HMRC to prove by evidence that the automated functions were carried out under the authority of an officer of HMRC. HMRC submit that there is no longer a requirement to prove the authority of an officer or Commissioner: all that is required is to prove that HMRC issued or sent the notice.”

The UT noted as part of the background to section 103 that there were a series of cases determined by the FTT in which taxpayers had challenged penalty notices on the basis that HMRC had failed to prove that an officer authorised the notice to file and that there were similar cases in which penalty notices issued by computer had been alleged to be invalid [33]. It went on to record the content of a written ministerial statement dated 31 October 2019, announcing the legislation later enacted in the form of section 103 [34], a technical note issued on the same day by HMRC [35] and the Explanatory Notes to the Finance Bill 2020 [36], before identifying the mischief which section 103 was intended to remedy at [38]. It concluded that it was directed at “the doubt about the validity of fully automated functions, as used by HMRC in 2019 and previously, on the basis that they were not functions performed by an officer of HMRC.”

The UT went on to consider the proper interpretation of section 103 in more detail:

“41.

We start by considering the natural meaning of the language of the section, bearing in mind the identified mischief. The following points arise.

i)

First, the intended effect of s.103 is very broad and general: HMRC may do “anything capable of being done by an officer of Revenue and Customs”. The examples given in subsection (2) are non-exclusive.

ii)

Second, there is to be no distinction between the effect of things done by HMRC and things done by an officer, or by an officer of a particular kind: subsection (3).

iii)

Third, subsections (1) and (3) draw a clear conceptual distinction between an officer (or officers) of Revenue and Customs and “HMRC” itself, and between an officer performing a function and HMRC doing it. If “HMRC” here means little more than the aggregate of the officers of HMRC it would be virtually meaningless.

42.

We are unimpressed by Mr Gordon’s argument that the purpose of referring to HMRC was to import the definition in s.4 CRCA and thereby extend the range of those on whom statutory functions are conferred so as to include the Commissioners. It seems to us that the Commissioners would impliedly have the necessary authority to act in any event, but there is nothing in the background to this enactment to suggest that problems were being caused by challenges to the ability of Commissioners to discharge functions of officers. If indeed that was the intended purpose of the section, it is obvious that very much clearer and simpler language would have been used to achieve it. In our view, HMRC is being referred to here as the body or department itself, albeit a body comprised of the Commissioners and officers of Revenue and Customs. That is because it is recognised that notices, determinations and assessments are sent out on a fully automated basis in the name of HMRC, not in the name or with the specific authority of an officer. The words in parenthesis, “whether by means involving the use of a computer or otherwise” indicate the intended effect of the legislative change. They are obviously not there merely to permit an officer of HMRC to use a computer to assist them with their work.

43.

A fourth point is that the section goes further than stating that an act capable of being done by an officer may be done by HMRC and that it has the same effect: it also provides that something only capable of being done by an officer of a particular kind may be done by HMRC and has the same effect. Even on Mr Gordon’s argument, that would mean that officers and Commissioners of Revenue and Customs generally and not only specified officers are capable of authorising that action. The section on any view therefore makes a more far-reaching change than merely precluding an argument that fully-automated functions are unauthorised by statute. That conclusion suggests that a restrictive interpretation of the section – which would leave HMRC having to prove in every appeal that an officer of Revenue and Customs provided the criteria for and authorised the establishment and use of the automated function – is unlikely to be the right interpretation. The more likely interpretation is that Parliament intended to validate the exercise of functions by HMRC in its own name, including its fully automated functions.”

At [46], the UT stated that it refused to depart from its decision in Assem Allam v HMRC [2021] UKUT 291 (TC) which was concerned with the validity of enquiry notices which had been challenged on the basis that they had been required by automated notices to file. The UT concluded, also at [46], that “the effect of that decision and our own preferred construction of s.103 is that a notice issued by HMRC, whether by automated computer function or otherwise, is as valid as if issued by an officer of HMRC.” The UT concluded, therefore, that it was “no longer necessary for HMRC to adduce evidence that an officer of HMRC authorised the criteria for and the establishment and use of an automated computer to send notices to file or penalty assessments.” Instead, it was necessary for HMRC to prove that the notice was its notice.

Permission to appeal was granted on the ground that the UT erred in deciding that in a situation in which a statutory function must be carried out by an officer of HMRC, the enactment of section 103 FA 2020 removed the need for HMRC to prove the involvement of an officer in the process. The narrow question on this appeal, therefore, is whether section 103 removes the need for that proof as long as the notice in question is a notice sent by HMRC. We are not concerned with whether section 103 would allow for a fully automated process in which there is no human involvement.

If we are minded to allow the appeal in relation to the proper interpretation of section 103, HMRC contends by way of a Respondent’s Notice, that the appeal should be dismissed, in any event, on an additional ground. It is said that the UT erred in interfering with the FTT’s conclusion that the section 8 notice was validly issued and in deciding that the FTT was not entitled to reach the conclusions it did, as a matter of inference from the evidence before it.

Section 8(1) TMA 1970 provides, where relevant, that a person “may be required by a notice given to him by an officer of the Board– (a) to make and deliver to the officer, a return containing such information as may reasonably be required in pursuance of the notice; . . .” The important phrases for these purposes are that the notice is “given . . . by an officer of the Board” and the person to whom the notice is sent must “make and deliver” a return “to the officer”.

As I have already mentioned, liability for penalties is provided for in Schedule 55. Schedule 55, paragraph 18(1) provides that where a person is liable for a penalty, “HMRC must” assess the penalty, notify the person and state in the notice, the period in respect of which the penalty is assessed. The term “HMRC” is expressly defined for the purposes of Schedule 55, in paragraph 27(3) as “[His] Majesty's Revenue and Customs”. Mr Gordon also referred us to the definition of that term in Schedule 1 to the Interpretation Act 1978, which states that it has the meaning given by section 4 of the Commissioners for Revenue and Customs Act 2005 (“CRCA 2005”). Section 4(1) of that Act provides that “[T]he Commissioners and the officers of Revenue and Customs may together be referred to as [His] Majesty's Revenue and Customs.” Accordingly, Mr Gordon submits that the term “HMRC” where it appears in section 103 FA 2020 should be interpreted as a reference to the Commissioners and officers of HMRC.

Section 103 FA 2020 which was enacted on 22 July 2020, provides as follows:

“(1)

Anything capable of being done by an officer of Revenue and Customs by virtue of a function conferred by or under an enactment relating to taxation may be done by HMRC (whether by means involving the use of a computer or otherwise).

(2)

Accordingly, it follows that HMRC may (among other things) –

(a)

give a notice under section 8, 8A or 12AA of TMA 1970 (notice to file personal, trustee or partnership return);

(b)

amend a return under section 9ZB of that Act (correction of personal or trustee return);”

(c)

make an assessment to tax in accordance with section 30A of that Act (assessing procedure);

(d)

make a determination under section 100 of that Act (determination of penalties);

(e)

give a notice under paragraph 3 of Schedule 18 to FA 1998 (notice to file company tax return);

(f)

make a determination under paragraph 2 or 3 of Schedule 14 to FA 2003 (SDLT: determination of penalties).

(3)

Anything done by HMRC in accordance with subsection (1) has the same effect as it would have if done by an officer of Revenue and Customs (or, where the function is conferred on an officer of a particular kind, an officer of that kind).

(4)

In this section—

“HMRC” means Her Majesty's Revenue and Customs;

references to an officer of Revenue and Customs include an officer of a particular kind, such as an officer authorised for the purposes of an enactment.

(5)

This section is treated as always having been in force.

(6)

However, this section does not apply in relation to anything mentioned in subsection (1) done by HMRC if—

(a)

before 11 March 2020, a court or tribunal determined that the relevant act was of no effect because it was not done by an officer of Revenue and Customs (or an officer of a particular kind), and

(b)

at the beginning of 11 March 2020, the order of the court or tribunal giving effect to that determination had not been set aside or overturned on appeal.”

The contemporaneous materials which are said to be an aid to construction were referred to at [34] – [37] of the UT decision. First, on 31 October 2019, the Financial Secretary to the Treasury made a written ministerial statement in the following form:

“The Government is committed to doing what is necessary to protect the Exchequer, maintain fairness in the tax system and give certainty to taxpayers. Therefore, the Government is announcing today that legislation will be brought forward in the next Finance Bill to put the meaning of the law in relation to automation of tax notices beyond doubt. Specifically, that legislation will put beyond doubt that HMRC’s use of large-scale automated processes to give certain statutory notices, and to carry out certain functions is, and always has been, fully authorised by tax administration law. This measure will have effect both prospectively and retrospectively.”

The legislation was introduced as clause 100 of the Finance Bill 2020. In this regard, Ms Choudhury, who appeared on behalf of HMRC, referred us to a short extract from Hansard in which the Financial Secretary to the Treasury explained the clause in much the same terms as the Explanatory Notes to the clause to which I refer below. The extract also records that the long-standing practice of issuing notices to file tax returns and penalty notices through an automated process, had been “challenged in the courts on the basis that the legislation states that some tasks are to be carried out by “an officer of the Board””. Mr Gordon questioned the admissibility of the extract but submitted that, in any event, it was of no assistance to HMRC.

Amongst other things, the Explanatory Notes to clause 100 state:

“Summary

1.

This clause puts beyond doubt that functions given to an officer may be carried out by HM Revenue & Customs (HMRC) using automated processes or other means. It affirms long standing and widely accepted operational practice.

. . .

Background note

8.

HMRC has historically used automated processes to carry out repetitive, labour intensive administrative tasks, including issuing certain statutory notices. This reduces costs and creates efficiencies.

9.

To avoid any doubt, this clause confirms that the rules already in place work as they are widely understood to work and as they have been applied historically over many years.

10.

It makes clear that any function capable of being done by an individual officer may be done by HMRC, using a computer or other means, with the same legal effect.

11.

Action resulting from, and as a consequence of, automated notices can therefore take place without ambiguity.

12.

The clause will help to ensure that the tax system applies fairly to all and that tax payers will have certainty over their tax affairs.”