Josephine Mary Hayes v The Commissioners for HMRC

I will deal first with two submissions that were made but which I do not accept are relevant to the question of validity.

HMRC sought to suggest that because the emails made it clear that payment remained due by 31 January 2021, the time limit for filing returns cannot have been extended.

This is not correct. The deadline for making payment (in circumstances such as this one where the notice to file has been given in the normal time frame) is in section 59B(4) of TMA 1970 and is, specifically, the date of 31 January. It is not linked to the “filing date” (as defined), whether extended or not.

Therefore I do not take this submission into account in reaching my conclusion.

Ms Hayes suggested that the reasons for opening the enquiry were not valid because they related to matters that could be explained.

I do not accept this submission. HMRC has very wide powers to open enquiries, for any reason. If a matter can be easily explained, Ms Hayes has the opportunity to explain it by responding to HMRC with evidence to justify her position, such as business accounts and other documents that are requested by HMRC.

The enquiry process is one that, by its very nature, allows HMRC to ask questions and the taxpayer to explain their position. There are a great many enquiries that end with no amendments being made to a taxpayer’s return. The fact that there may be good reasons for the positions being submitted in the tax return is not a reason to suggest or conclude that the opening of the enquiry itself is invalid.

Therefore I do not take this submission into account in reaching my conclusion on validity.

Turning to the main submissions on the deadline, I consider that it is helpful to set out in full the contents of the emails sent to Ms Hayes:

“Dear customer,

Earlier this week, HMRC announced that customers will not receive a late filing penalty for completing their 2019-20 tax return after 31 January, as long as they file online by 28 February.

We are still encouraging customers to file by 31 January, if they can, as this will help to budget and plan for your January payment.

You'll still need to pay your Self Assessment tax bill by 31 January.

Interest will be charged from 1 February on any outstanding liabilities. If any tax remains outstanding on 3 March, you’ll be charged a late payment penalty of 5% of the amount still due.

If you’ve already sent us your return and paid, thank you. You don’t need to do anything else.

Still need to complete your tax return? There’s plenty of online support available including the following live webinar:

How do I complete my online tax return? Self-employment

We’ll cover signing in and starting your return, showing your self-employment details, submitting your return and paying anything you owe. You can ask questions throughout using the on-screen text box.

Register here

These short videos, available on HMRC’s YouTube channel, are part of a series to help you with your tax return:

•

Class 2 National Insurance contributions and your Self Assessment tax return

•

Viewing your Self Assessment tax return calculation

•

How do I pay my Self Assessment tax bill?

If you can’t pay in full

These are difficult times and we know that many of our customers are facing financial difficulties due to the coronavirus (COVID-19) pandemic.

If you can’t pay in full by 31 January, you may be able to set up an affordable plan where you can pay over time in instalments. You’ll still be charged interest, but if you set up the payment plan before 3 March you won’t be charged a late payment penalty as long as you keep to the terms of the payment plan.

Go to GOV.UK and search 'difficulties paying HMRC'.

Follow the National Cyber Security Centre’s six essential steps to keep you secure online by visiting CyberAware.gov.uk.

Yours sincerely

Alison Walsh

Head of Digital Communication Services”

A very similar email was then received by Ms Hayes on 23 February 2021. The text is as follows:

There are two parts to the question at hand:

HMRC’s submission was that the email correspondence did not extend the statutory deadline. HMRC has wide powers, including the discretion not to collect penalties, but the purpose of the email correspondence was not to provide an extension of time to file, only to suspend penalties for 1 month.

Ms Hayes on the other hand submits that the purpose of the emails was to give an extra month to file the returns and that it therefore extended time as set out in the first part of section 118(2). She argued that it was intended to help taxpayers by extending time.

As an initial question of fact, I considered whether there is anything in those emails that could be read as allowing extra time to file?

I note the following from the emails:

I do not consider that the emails were clear and unambiguous in providing an extension or change to the filing date. The concessions made in the emails relate to penalties rather than the filing deadline itself.

It was not cited to me by either party at the hearing, but the decision of the Court of Appeal in Raftopoulou [2018] EWCA Civ 818 is relevant to the question of extension of time, and written submissions were received from both parties, summarised above.

The Court of Appeal (Lord Justice Richards, with whom Lady Justice Arden agreed) considered the effect of section 118(2). The following paragraphs are most relevant here:

“67.

Looking at the context of TMA 1970 as a whole further supports, in my judgment, the construction of section 118(2) for which HMRC contends. Although many of the mandatory requirements formerly contained in TMA 1970 have been re-enacted in other legislation, it still contains a number of such provisions. Section 118(2) has a clear purpose to serve in relieving taxpayers of the consequences of failing to comply with those requirements in circumstances where the conditions for the application of the deeming provisions of the sub-section apply.

“68.

TMA 1970 also contains a number of time limits, including those in schedule 1AB. In some cases, those time limits are coupled with provisions enabling them to be extended. The UT suggested that in such cases the general effect of section 118(2) would cede to the conditions of the particular provision in question. That is a sensible reading of such provisions if it is assumed that section 118(2) has the general effect of extending time. However, it fails to take account of the improbability of specific time extension powers and a general time extension provision co-existing in the same enactment when the general provision contains no clear indication that it is indeed to take effect as a time extension provision. In other words, the presence of the specific provisions tells against section 118(2) having any time extension function at all. If section 118(2) had been intended to have this effect, it is likely in my judgment that it would have been clearly stated.”

Ms Hayes argues that the decision on section 118(2) is obiter dicta because it was not determinative of the case. However, Richards LJ expressly states, in paragraph 52 of his judgment that the issue arising under section 118(2) forms part of the ratio of their decision. He also recognised that the interpretation issue has wider ramifications beyond the scenario concerned in Raftopoulou. For the same reason, I do not consider that Raftopoulou can be distinguished purely on the grounds that it was dealing with a taxpayer claim rather than a self-assessment filing deadline.

Ms Hayes also argues that paragraph 68, quoted above, concerns only the second half of section 118(2). I cannot agree with that contention. Paragraph 68 is part of the wider discussion of the interpretation of section 118(2) as a whole. The part included in paragraph 68 is concerned with how extensions of time are dealt with in TMA. It is only the first half of section 118(2) that concerns extensions of time. Richards LJ notes in paragraph 65 that “if the purpose of the second part included extensions of time, it is surprising that the drafter included no similar words in that part”. In my view, it is not possible to read Richards LJ’s words as being in reference to the second part of section 118(2) regarding reasonable excuses only.

With regard to the reference in section 106F, there is, as Ms Hayes identifies, no explicit consideration of that section within the decision in Raftopoulou. I do not consider that HMRC’s submission on this issue resolves the point, which is one of principle, rather than specific to these particular circumstances.

Ms Hayes is arguing that section 106F is evidence that Parliament intended section 118(2) to grant a general time extension power, on the basis that it uses the phrase “Where a period of time is extended under subsection (2) of section 118 by HMRC, the tribunal or an officer”. Further, given that Raftopoulou does not consider this section, she invites us to conclude that it was wrongly decided.

While I understand the thrust of Ms Hayes’ argument, I consider that it is possible to interpret the words in section 106F in accordance with Richards LJ’s approach to the first half of section 118(2). The reference to extension of time in the first half of section 118(2) is a generic phrase intended to draw attention to the reader to the possibility of an extension of time having been granted elsewhere in statute in relation to the specific time limit being contemplated. By cross-referring in section 106F to that generic phrase in section 118(2), the draftsman has, admittedly in a manner that is far from easy to interpret, given themselves a shortcut. The new part inserted into sections 106A – 106H is an adjunct to already existing obligations, most of which have their own time limits and deadlines. By referring to section 118(2), the draftsman has allowed for any possibility of an extension of those time limits to be incorporated into the new sections without having to identify them specifically and allowed for the effect of section 118(2) to be applied to those extensions.

I am bound to follow the conclusion set out by the Court of Appeal – that section 118(2) does not give HMRC a generic power to extend time limits in any circumstances. It is instead referring back to specific powers to extend time that are set out elsewhere in statute. No such power to extend the filing deadline is identified in this case, therefore section 118(2) cannot be relied upon to allow extension.

Considering Ms Hayes’ submissions regarding taxpayer safeguards, I agree that the normal 12 month enquiry window is intended to give taxpayers certainty and to protect them from enquiries being opened years later.

Equally, section 9A(2)(b) is a protection for HMRC – preventing late filing of returns from eroding their period for opening enquiries.

It may be that this consequence of failing to file by 31 January was not understood by most taxpayers. However, I do not consider that this is sufficient to tip the balance towards concluding that the email correspondence should be interpreted as allowing extra time.

Having made that decision, it isn’t strictly necessary to consider the second point regarding the consequence of section 118(2) but given that Ms Hayes argued it, I provide a decision on it for completeness.

Again, this matter was considered by the Court of Appeal in Raftopoulou:

“66.

Second, the deeming effect of the second part is of central importance. It does not deem anything to have been done, either within a time limit or at all. It provides only that the person in question shall be deemed “not to have failed to do it”. It relieves the person of the consequences of failing to do the thing, which in the context of the TMA 1970 is a financial penalty, but does not go further and provide the benefits of having in fact done the thing which the person has failed to do.”

On this basis, even if there had been an extension of time, the effect would not have been to deem Ms Hayes to have filed her return on time for the purposes of the time limits for enquiries.

Having made the decision that the enquiry was validly opened, I must now consider the application to close the enquiry.

I agree with HMRC that they have reasonable grounds not to issue a closure notice at this time.

HMRC has wide powers to open enquiries and does so for a number of reasons, including risk profiling, random opening of enquiries and tip offs of non-compliance. Which one of these triggered an enquiry does not alter the outcome of a decision on closure.

HMRC has requested information from Ms Hayes that has not been forthcoming.

Ms Hayes objects to the breadth of the information, in particular that it requires her to disclose all of her personal financial affairs.

HMRC express that they have not issued a formal information notice under Schedule 36 to FA 2008 because they consider Ms Hayes would have been unlikely to comply with it due to her “attitude”.

Ms Hayes vehemently refuted that suggestion.

I strongly criticise HMRC’s inclusion of this statement in their statement of reasons. It adds nothing to their submissions on the question at hand regarding closing the enquiry at this time. Ms Hayes has responded to all correspondence issued to her by HMRC and has asked appropriate and clear questions of HMRC. Some of those questions were not answered to Ms Hayes’ satisfaction and this has given rise to this application to the Tribunal. She queried the validity of the enquiry and therefore did not respond to the information requests until that question was resolved, which has only occurred on the making of this decision.

The correspondence I have seen and her demeanour within the hearing did not suggest an “attitude” of refusal to comply, but rather a person wishing to exercise her statutory rights.

If HMRC issued a formal information notice, Ms Hayes may choose to exercise a right of appeal concerning the contents of that notice.

However, no such notice has been issued and there is no right of appeal to this Tribunal on an informal information request. Therefore I do not consider the scope of the information request further.

It was not disputed that Ms Hayes has not complied with the informal information request.

I therefore accept that HMRC do not have the full facts on which to make a reasonable assessment of whether the tax included on the self-assessment tax return is correct.

I am therefore satisfied that there are reasonable grounds for not issuing the closure notice at this time.

This Tribunal has wide case management powers, in particular, has powers under the Tribunal Procedure Rules (SI 2009/273), Rule 5(3)(d) to require a party to disclose information to the Tribunal or a party.

The extent of this power in relation to Ms Hayes request was not fully argued before me, in fact neither party referred to that power at all and neither party were certain whether the Tribunal had the power to order the disclosure requested by Ms Hayes.

When exercising any of its powers, the Tribunal must give effect to the overriding objective in rule 2 of the TPR, which provides that cases must be dealt with fairly and justly.

I note that HMRC has a general duty of confidentiality under section 18 of the Commissioners for Revenue and Customs Act 2005, but that this can be overridden by an order for disclosure.

In this case, I have decided not to order such disclosure for the following reasons:

For the reasons set out above:

This document sets out our decision following a review that we performed under Rule 41 of the Tribunal Rules and contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.