UPW Invest Inc v The Commissioners for HMRC

This appeal concerns late filing penalties, charged under Schedule 55 to the Finance Act 2009 (“Schedule 55”), in respect of the late filing of an Annual Tax on Enveloped Dwellings (“ATED”) return. Schedules 33, 34 and 35 of the Finance Act 2013 (“FA 2013”) extend the penalty provisions in Schedule 55 and Schedule 56.

The Appellant (‘UPW Invest Inc.’) appeals against penalties that HMRC have imposed in respect of the late filing of ATED returns, as required by s 159 FA 2013. The penalties charged on the Appellant arose in respect of the years ending 31 March 2017 to 31 March 2023 (inclusive), as follows:

With the consent of the parties, the form of the hearing was V (video). Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.

Having carefully considered the evidence and the submissions made by both parties, we dismiss this appeal. In this Decision, the legislation and case law are cited so far as relevant to the issues in dispute. Our conclusions regarding the key submissions made by the parties are set out below.

The issues under appeal are:

Two further questions arise in determining this appeal. They are, if the Appellant is in default of an obligation imposed by statute:

The above matters are to be considered in light of all the circumstances of the case.

There is a shifting burden of proof.

In Perrin v R & C Comrs[2018] BTC 513 (‘Perrin’)(Judges Herrington and Poole), at [69], the Upper Tribunal (‘UT’) explained the shifting burden of proof as follows:

“Before any question of reasonable excuse comes into play, it is important to remember that the initial burden lies on HMRC to establish that events have occurred as a result of which a penalty is, prima facie, due. A mere assertion of the occurrence of the relevant events in a statement of case is not sufficient. Evidence is required and unless sufficient evidence is provided to prove the relevant facts on a balance of probabilities, the penalty must be cancelled without any question of “reasonable excuse” becoming relevant.”

The factual prerequisite is therefore that HMRC have the initial burden of proof to demonstrate that the penalties are due: see also Burgess & Brimheath v HMRC [2015] UKUT 578 (TCC) (in the context of a discovery assessment).

Once this is discharged, the burden of proof is upon the Appellant to demonstrate that there is a reasonable excuse.

The standard of proof is the ordinary civil standard; that of a balance of probabilities.

The documents to which we were referred included: (i) the Documents Bundle consisting of 127 pages; (ii) the Legislation & Authorities Bundle consisting of 166 pages; (iii) HMRC’s Statement of Reasons dated 24 December 2024; and (iv) letter from Mr Steel’s doctor, dated 13 March 2025.

Mr Steel is the director of the Appellant company.

In 2014, the Appellant purchased an apartment in the United Kingdom.

The filing date for the ATED relief return for the year ending 31 March 2017 was 30 April 2016.

On 21 June 2022 the Appellant’s return was received. The return was submitted 2243 days late.

On 23 December 2022, HMRC issued a notice of penalty assessment under para. 3 of Schedule 55 and in the amount of £100, to the address at Lynwood House.

On 2 February 2023, HMRC issued a notice of penalty assessment under para. 4 of Schedule 55, in the amount of £900 and calculated at £10 per day for 90 days, to the address at Lynwood House. On the same date, HMRC issued notices of penalty assessment under paras. 5 and 6 of Schedule 55 (in the sum of £300 each).

The filing date for the ATED relief return for the year ending 31 March 2018 was 30 April 2017.

On 21 June 2022, the Appellant’s return was received. The return was submitted 1878 days late.

On 5 January 2023, HMRC issued a notice of penalty assessment under para. 3 of Schedule 55 and in the amount of £100, to the address at Lynwood House.

On 22 February 2023, HMRC issued a notice of penalty assessment under para. 4 of Schedule 55, in the amount of £900 and calculated at £10 per day for 90 days, to the address at Lynwood House. On the same date (HMRC issued notices of penalty assessment under paras. 5 and 6 of Schedule 55 (in the sum of £300 each).

The filing date for the ATED relief return for the year ending 31 March 2019 was 30 April 2018.

On 21 June 2022, the Appellant’s return was received. The return was submitted 1513 days late.

On 20 December 2022, HMRC issued a notice of penalty assessment under para. 3 of Schedule 55 and in the amount of £100, to the address at Lynwood House.

On 23 January 2023, HMRC issued a notice of penalty assessment under para. 4 of Schedule 55, in the amount of £900 and calculated at £10 per day for 90 days, to the address at Lynwood House. On the same date, HMRC issued notices of penalty assessment under paras. 5 and 6 of Schedule 55 (in the sum of £300 each).

The filing date for the ATED relief return for the year ending 31 March 2020 was 30 April 2019.

On 21 June 2022, the Appellant’s return was received. The return was submitted 1148 days late.

On 20 December 2022, HMRC issued a notice of penalty assessment under para. 3 of Schedule 55 and in the amount of £100, to the address at Lynwood House.

On 1 February 2023, HMRC issued a notice of penalty assessment under para. 4 of Schedule 55, in the amount of £900 and calculated at £10 per day for 90 days, to the address at Lynwood House. On the same date, HMRC issued notices of penalty assessment under paras. 5 and 6 of Schedule 55 (in the sum of £300 each).

The filing date for the ATED relief return for the year ending 31 March 2021 was 30 April 2020.

On 21 June 2022, the Appellant’s return was received. The return was submitted 782 days late.

On 29 December 2022, HMRC issued a notice of penalty assessment under para. 3 of Schedule 55 and in the amount of £100, to the address at Lynwood House.

On 1 February 2023, HMRC issued a notice of penalty assessment under para. 4 of Schedule 55, in the amount of £900 and calculated at £10 per day for 90 days, to the address at Lynwood House. On the same date, HMRC issued notices of penalty assessment under paras. 5 and 6 of Schedule 55 (in the sum of £300 each).

The filing date for the ATED relief return for the year ending 31 March 2022 was 30 April 2021.

On 18 January 2023, the Appellant’s return was received. The return was submitted 417 days late.

On 23 February 2023, HMRC issued a notice of penalty assessment under para. 3 of Schedule 55 and in the amount of £100, to the address at Lynwood House.

On 2 February 2023, HMRC issued a notice of penalty assessment under para. 4 of Schedule 55, in the amount of £900 and calculated at £10 per day for 90 days, to the address at Lynwood House. On the same date, HMRC issued notices of penalty assessment under paras. 5 and 6 of Schedule 55 (in the sum of £300 each).

The filing date for the ATED relief return for the year ending 31 March 2023 was 30 April 2022.

On 21 June 2022, the Appellant’s return was received. The return was submitted 52 days late.

On 7 December 2022, HMRC issued a notice of penalty assessment under para. 3 of Schedule 55 and in the amount of £100, to the address at Lynwood House.

On 22 January 2023, HMRC issued a notice of penalty assessment under para. 4 of Schedule 55, in the amount of £900 and calculated at £10 per day for 90 days, to the address at Lynwood House. On the same date, HMRC issued notices of penalty assessment under paras. 5 and 6 of Schedule 55 (in the sum of £300 each).

On 22 January 2024, the Appellant made an appeal under para. 20 of Schedule 55 in respect of the penalties charged.

On 5 March 2024, HMRC issued their decision letter to the Appellant upholding the decision to charge the penalties. This letter also offered a statutory review or the option to appeal to the First Tier Tribunal (‘FtT’)

On 21 March 2024, the Appellant accepted an offer of a review.

On 9 April 2024, HMRC issued their review conclusion letter to the Appellant which upheld the decision to charge late filing penalties.

On 29 April 2024 the Appellant sent in another review request.

On 9 July 2024, HMRC upheld the penalties raised.

On 31 July 2024 the Appellant sent in further information.

On 20 August 2024, HMRC upheld the penalties raised.

On 13 September 2024, the Appellant lodged an appeal before the FtT.

In order to put the parties’ respective contentions into context, we start with the relevant statutory provisions. The relevant law, so far as is material to the issues in this appeal, is as follows:

By virtue of s 159 of FA 2013, there is an “obligation to file” an ATED return. Section 159 provides that:

“159 Annual tax on enveloped dwellings return

(1)

Where tax is charged on a person for a chargeable period with respect to a single-dwelling interest the person must deliver a return for the period with respect to the interest.

(2)

A return under subsection (1) must be delivered by the end of the period of 30 days beginning with first day in the period on which the person is within the charge with respect to the interest.

(3)

If the first day in the chargeable period on which the person is within the charge with respect to the interest (“day 1”) is a valuation date only because of section 124 (new dwellings) or section 125 (dwellings produced from other dwellings)—

(a)

subsection (2) does not apply, and

(b)

the return must be delivered by the end of the period of 90 days beginning with day 1.

(3A) Where a person—

(a)

would (apart from this subsection) be required in accordance with subsection (2) to deliver a return for a chargeable period (“the later period”) by 30 April in that period, and

(b)

is also required in accordance with subsection (3) to deliver a return for the previous chargeable period by a date (“the later date”) which is later than 30 April in the later period,

subsection (2) has effect as if it required the return mentioned in paragraph (a) to be delivered by the later date.

(4)

A return under this section must be delivered to an officer of Revenue and Customs, and is called an “annual tax on enveloped dwellings return”.

Section 159A FA 2013 came into effect on 1 April 2015. Where “relief” is claimed, a return must be filed, as follows:

“159A Relief declaration returns

(1)

“Relief declaration return” means an annual tax on enveloped dwellings return which—

(a)

states that it is a relief declaration return,

(b)

relates to one (and only one) of the types of relief listed in the table in subsection (9), and

(c)

specifies which type of relief it relates to.

(2)

A relief declaration return may be made in respect of one or more single-dwelling interests.

(3)

A relief declaration return delivered to an officer of Revenue and Customs on a particular day (“the day of the claim”) is treated as made in respect of any single-dwelling interest in relation to which the conditions in subsection (4) are met (but need not contain information which identifies the particular single-dwelling interest or interests concerned).

(4)

The conditions are that—

(a)

the person making the return is within the charge with respect to the single-dwelling interest on the day of the claim;

(b)

the day of the claim is relievable in relation to the single-dwelling interest by virtue of a provision which relates to the type of relief specified in the return (see subsection (9));

(c)

none of the days in the pre-claim period is a taxable day.

(5)

The statement under subsection (1)(a) in a relief declaration return is treated as a claim for interim relief (see section 100) with respect to the single-dwelling interest (or interests) in respect of which the return is made.

(6)

Subsection (7) applies where—

(a)

a person has delivered to an officer of Revenue and Customs on any day a relief declaration return for a chargeable period with respect to one or more single-dwelling interests (“the existing return”), and

(b)

there is a subsequent day (“day S”) in the same chargeable period on which the relevant conditions are met in relation to another single-dwelling interest.

(7)

The existing return is treated as also made with respect to that other single-dwelling interest.

(8)

For the purposes of subsection (6)(b), the “relevant conditions” are the same as the conditions in subsection (4), except that for this purpose references in subsection (4) to the day of the claim are to be read as references to day S.

(9)

This table sets out the numbered types of relief to which the provisions specified in the left hand column relate— …”

This is in accordance with s 100 FA 2013, which provides that:

“100 Interim relief

(1)

Where tax is charged for a chargeable period with respect to a single-dwelling interest, the chargeable person may claim relief before the end of the chargeable period if—

(a)

one or more days in the period is relievable with respect to the interest (by virtue of any of sections 133 to 150),

(b)

one or more days in the chargeable period (after the first day in the period on which the chargeable person is within the charge with respect to the interest) are days on which the chargeable person is not within the charge with respect to the interest, or

(c)

the taxable value of the single-dwelling interest on the first day in the chargeable period on which the chargeable person is within the charge with respect to the interest is higher than its taxable value on a later day in the chargeable period on which the chargeable person remains within the charge with respect to the interest.

(2)

Relief under this section is called “interim relief”, and must be claimed—

(a)

in an annual tax on enveloped dwellings return, or

(b)

by amending such a return.

(3)

Where interim relief is claimed under this section, section 163(1) (payment of tax by filing date for annual tax on enveloped dwellings return) has effect as if the amount of tax charged with respect to the single-dwelling interest were the sum of amounts A and B.

(4)

Amount A is the total of all the daily amounts for days in the pre-claim period on which the chargeable person is within the charge with respect to the single-dwelling interest, other than days that are relievable with respect to the single-dwelling interest.

(5)

Amount B is zero if—

(a)

the day of the claim is relievable with respect to the single-dwelling interest by virtue of any of sections 133 to 150, or

(b)

the chargeable person is not within the charge with respect to the single-dwelling interest on the day of the claim.

(6)

Otherwise, amount B is the appropriate fraction of the annual chargeable amount for the single-dwelling interest.

For this purpose the annual chargeable amount is determined (under section 99(4)) on the basis that the day of the claim is the relevant day.

(7)

In subsection (6) “appropriate fraction” means—

where—

“X” is the number of days in the period beginning with the day of the claim and ending at the end of the chargeable period, and

“Y” is the number of days in the chargeable period.

(8)

In this section—

“day of the claim” means the day on which the return mentioned in subsection (2)(a), or notice of the amendment made under subsection (2)(b), is delivered to HMRC;

“pre-claim period” means the period—

(a)

beginning with the first day in the chargeable period mentioned in subsection (1) on which the chargeable person is within the charge with respect to the single-dwelling interest, and

(b)

ending with the day before the day of the claim.

(9)

See sections 105 and 106 for provision about the adjustment of the amount of tax charged.

If a person fails to file a return by the statutory due date, they are liable to a late filing penalty under Schedule 55, which was extended by Schedule 34 FA 2013 to cover the ATED.

Paragraph 1 provides that:

Paragraph 3 provides that:

“3 P is liable to a penalty under this paragraph of £100.”

Paragraph 4 provides that:

“4(1) P is liable to a penalty under this paragraph if (and only if)—

(a)

P’s failure continues after the end of the period of 3 months beginning with the penalty date,

(b)

HMRC decide that such a penalty should be payable, and

(c)

HMRC give notice to P specifying the date from which the penalty is payable.

(2)

The penalty under this paragraph is £10 for each day that the failure continues during the period of 90 days beginning with the date specified in the notice given under sub-paragraph (1)(c).

(3)

The date specified in the notice under sub-paragraph (1)(c)—

(a)

may be earlier than the date on which the notice is given, but

(b)

may not be earlier than the end of the period mentioned in sub-paragraph (1)(a).”

Paragraph 5 provides that:

“5(1) P is liable to a penalty under this paragraph if (and only if) P’s failure continues after the end of the period of 6 months beginning with the penalty date.

(2)

The penalty under this paragraph is the greater of—

(a)

5% of any liability to tax which would have been shown in the return in question, and

(b)

£300.”

Paragraph 6 provides that:

The documents for the hearing, set out at para. 13 above, comprised pleadings and appeal correspondence. We have considered any key points of disagreement in determining the facts as set out below.

Ms Shabir’s submissions can be summarised as follows:

Mr Steel’s submissions can be summarised as follows:

At the conclusion of the appeal hearing, we reserved our decision, which we now give, with reasons.

The following facts were either accepted, admitted or proved:

We, therefore, make these findings of fact.

The Appellant appeals against penalties that HMRC have imposed in respect of the late filing of ATED returns. It is settled that no penalty can arise in any case where the taxpayer is not in default of an obligation imposed by statute.

The ATED was announced by the government in its budget statement of 21 March 2012. The purpose was to introduce an annual charge on residential properties valued in excess of £2 million, purchased by non-natural persons (i.e., companies, partnerships or other investment vehicles). This form of ownership is described as “enveloping”. The ATED legislation was introduced in FA 2013.

ATED returns are required to be filed with HMRC if a property:

The valuation threshold for liability to ATED has, therefore, been adjusted to £500,000.

A return must be delivered by the end of the period of 30 days, beginning with the first day in the period on which the person is within the charge with respect to interest (i.e., “the filing date”).

The “penalty date” is also specified in legislation. Both the filing date and the penalty date are defined at para. 1(4) of Schedule 55. The penalty date is the day after the filing date.

Section 2 of the ATED Returns Notice “When to complete an ATED return” (“the Notice”) explains the concept of a “chargeable period”, as follows:

“2.1

The chargeable person, section 3 of the ATED technical guidance, must submit an ATED return for any property (single-dwelling interest) that’s within the scope of ATED for the relevant chargeable period. An ATED chargeable period runs from 1 April to 31 March.”

There are reliefs available which may reduce the liability in part or to zero. However, all claims for relief shown in paragraph 9.17 must be made in a return.”

Section 2.2 of the Notice explains the 30-day filing requirement in relation to the chargeable period:

“Normally an ATED return must be made within 30 days of the date on which the property first comes within the charge to ATED for any chargeable period – but read 2.7.”

Where a single-dwelling interest is held on the first day of the chargeable period, that is 1 April, the return must be filed by 30 April in the year of charge. For example, if the chargeable person owned a property by 1 April 2017, a return must be submitted by 30 April 2017.”

Section 2.6 (in relation to when an ATED return is due when a property is acquired part-way through a period) provides that:

“Where a property is acquired part way through a chargeable period, for example, a single-dwelling interest is brought from a third party, you must file an ATED return by the end of the period of 30 days beginning with the date of acquisition or transaction. Also read section 7 of this notice if you acquire a property which is eligible to a relief.”

Section 11 of the Notice includes a summary of ATED return filing and payment dates.

The section covering ATED on HMRC’s website also provides for the following:

“Normally you need to submit your return:

by 30 April if your property is within the scope of ATED on 1 April within 30 days of acquisition if your property comes within the scope of ATED after 1 April

for a newly built property, within 90 days of the earliest of the date:

your property becomes a dwelling for Council Tax purposes it is first occupied.”

Where tax is charged, a person may claim interim relief before the end of the chargeable period. Relief from ATED is detailed at ss 133 to 150 FA 2013.

Under s 100, a person may claim relief before the end of the chargeable period. Claims for relief must be made using an ATED return, or an amendment to such a return. Under s 159A FA 2013, where a claim to relief reduces the charge to nil, the claim may be made in a shorter type of return called a “Relief Declaration Return”.

Relief from ATED includes relief in relation to:

If a person fails to file a return by the statutory due date, they are liable to a late filing penalty under Schedule 55, which was extended by Schedule 34 FA 2013 to cover the ATED.

Paragraph 3 of Schedule 55 provides for a late-filing penalty of £100 in relation to, inter alia, ATED returns.

Paragraph 4, which is the key provision in this appeal, provides that:

“(1)

P is liable to a penalty under this paragraph if (and only if) -

(a)

P's failure continues after the end of the period of 3 months beginning with the penalty date,

(b)

HMRC decide that such a penalty should be payable, and

(c)

HMRC give notice to P specifying the date from which the penalty is payable”.

(2)

The penalty under this paragraph is £10 for each day that the failure continues during the period of 90 days beginning with the date specified in the notice given under sub-paragraph (1)(c).

(3)

The date specified in the notice under sub-paragraph (1)(c)— (a) may be earlier than the date on which the notice is given, but

(b)

may not be earlier than the end of the period mentioned in sub-paragraph (1)(a).”

One of the purposes of para. 4(1)(c) of Schedule 55 is to inform a taxpayer, in advance, of the liability to daily penalties. Paragraph 5 provides for a further penalty of £300 if the failure to file continues after the end of the period of six months, beginning with the penalty date.

Paragraph 6 provides for a further penalty of £300 if the failure to file continues after the end of the period of 12 months, beginning with the penalty date.

On 4 August 2013, guidance on ATED (“the Guidance”) was published on the HMRC website and, following changes announced in the Budget on 19 March 2014, the Guidance was updated on 20 March 2014. We bear in mind that the HMRC’s Guidance is not an exhaustive code, or a comprehensive edict. It is trite law that guidance and kindred instruments do not have the status of law and, thus, are subservient to primary legislation and secondary legislation.

The incontrovertible facts of this appeal are that the Appellant did not submit the ATED returns by the date specified in statute. This matter is not in issue between the parties. Subject to considerations of “reasonable excuse” and “special circumstances” set out below, the penalties imposed are due and have been calculated correctly.

Parliament has addressed the issue of the individual circumstances of a person by providing at para. 23, of Schedule 55, that:

“(1)

Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a return if P satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure.

(2)

For the purposes of sub-paragraph (1)—

(a)

an insufficiency of funds is not a reasonable excuse, unless attributable to events outside P's control,

(b)

where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and

(c)

where P had a reasonable excuse for the failure but the excuse has ceased, P is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.”

There is no statutory definition of “reasonable excuse”. Whether or not a person had a reasonable excuse is an objective test and is a matter to be considered in the light of all of the circumstances of the particular case: Rowland v R & C Comrs (2006) Sp C 548 (‘Rowland’), at [18]. The test we adopt in determining whether the Appellant has a reasonable excuse is that set out in TheClean Car Co Ltd v C&E Commissioners [1991] VATTR 234 (‘Clean Car’), in which Judge Medd QC said this:

“The test of whether or not there is a reasonable excuse is an objective one.  In my judgment it is an objective test in this sense.  One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?”

Although Clean Car was a VAT case, it is generally accepted that the same principles apply to a claim of reasonable excuse in direct tax cases.

In Perrin, the UT set out a four-step process for the FtT to use when considering whether a person has a reasonable excuse, at [81]:

“81.

When considering a “reasonable excuse” defence, therefore, in our view the FTT can usefully approach matters in the following way:

(1)

First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer’s own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts).

(2)

Second, decide which of those facts are proven.

(3)

Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the FTT, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”

(4)

Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased). In doing so, the FTT should again decide the matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.

The UT explained that the experience and knowledge of the particular taxpayer should be taken into account in considering whether a reasonable excuse has been established. The UT concluded that for an honestly held belief to constitute a reasonable excuse, it must also be objectively reasonable for that belief to be held. The word ‘reasonable’ imports the concept of objectivity, whilst the words ‘the taxpayer’ recognise that the objective test should be applied to the circumstances of the actual (rather than the hypothetical) taxpayer.

In Harrison v R & C Comrs [2022] BTC 525, the UT viewed the four-stage approach to be guidance, rather than a set of principles to be followed.

In Barrett v HMRC [2015] UKFTT 329 (TC), Judge Berner said this:

“The test of reasonable excuse involves the application of an impersonal, objective, legal standard to a particular set of facts and circumstances. The test is to determine what a reasonable taxpayer in the position of the taxpayer would have done in those circumstances, and by reference to that test to determine whether the conduct of the taxpayer can be regarded as conforming to that standard.”

And:

“The test is one of reasonableness. No higher (or lower) standard should be applied. The mere fact that something that could have been done has not been done does not of itself necessarily mean that an individual’s conduct in failing to act in a particular way is to be regarded as unreasonable. It is a question of degree having regard to all the circumstances, including the particular circumstances of the individual taxpayer. There can be no universal rule; what might be considered an unreasonable failure on the part of one taxpayer in one set of circumstances might be regarded as no unreasonable in the case of another whose circumstances are different.”

The standard by which this falls to be judged is that of a prudent and reasonable taxpayer, exercising reasonable foresight and due diligence, in the position of the taxpayer in question and having proper regard for their responsibilities under the Tax Acts: see Collis v HMRC [2011] UKFTT 588 (TC) (‘Collis’).The decision depends upon the particular circumstances in which the failure occurred. Where the person had a reasonable excuse for the failure but the excuse ceased, the person is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased.

We proceed by firstly determining whether facts exist, which when judged objectively, amount to a reasonable excuse for the default and, accordingly, give rise to a valid defence. In this regard, we have assessed whether the facts put forward and any belief held by the Appellant are sufficient to amount to a reasonable excuse.

In the Grounds of Appeal, Mr Steel submits, on behalf of the Appellant, that he was dealing with long-term illness, thus preventing him from dealing with its statutory requirements in respect of ATED (with which he had not been familiar at the time of purchase of the property). We have derived considerable benefit from hearing the oral evidence given in this appeal. Having heard the evidence, whilst we find Mr Steel to be a truthful witness, we are satisfied that the facts put forward do not amount to a reasonable excuse. We give our reasons for so finding.

Firstly, we are satisfied that despite referring to chronic health problems (which are not disputed), we find that Mr Steel’s health problems began in 2016. This was significantly after the property was purchased in 2014, and indeed after ATED was introduced in 2013. We, therefore, find that Mr Steel’s illness did not start prior to the introduction of ATED and was not a reason for him to not enquire about the tax consequences of his purchase. In any event, we find that by his own evidence, Mr Steel was able to attend to his self-assessment after his illness began.

Secondly, as set out above, the legislation was already introduced at the time that the property was purchased. Even if the property only reached the ATED threshold in 2016, we find that by his own oral evidence, Mr Steel did not feel the need to instruct tax advisers until about 2022. We are satisfied that a reasonable person acquiring a property of value would make enquiries into the tax consequences of such acquisition, in light of changes in the law. We are further satisfied that the “gov.uk” website provides taxpayers with information in relation to the statutory due dates for payment of tax, and taxes that apply to various transactions. We find that it would have been prudent for Mr Steel to instruct accountants at an earlier stage.

Thirdly, whilst ignorance of the law was not being raised as a reasonable excuse, Mr Steel stated that he had not been aware of the legislation. He added that he is usually quite “switched on” in relation matters such as tax liability, but that his illness made him otherwise. Whilst this may be so, we have found that his illness did not begin until 2016, by which time the property had reached the ATED threshold. We have further found that he did not instruct any tax advisers at the time of the purchase of the property, and did not carry out any investigations on the gov.uk website. The fact that Mr Steel may not have been aware of the Appellant’s duties in relation to ATED does not constitute a reasonable excuse. The onus is upon an appellant to ensure that they properly understand their obligations under the law.

We have borne in mind the comments of the Tribunal in Hesketh & Anor v HMRC[2018] TC 06266 where Judge Mosedale held that Parliament intended all of its laws to be complied with, and that ignorance of the law was not an excuse. At [93] Judge Mosedale concluded that:

“...for anything to be a reasonable excuse for a failure, it must cause the failure. Yet HMRC’s failure to tell the appellants about the change in the law did not cause their ignorance: it merely failed to change it. Mr and Mrs Hesketh were ignorant of the new filing requirement”

In Spring Capital v HMRC [2015] UKFTT 8 (TC), at [48], Judge Mosedale said this:

“Ignorance of the law cannot, as a matter of policy, ever amount to a reasonable excuse for failing to observe the law. This is because otherwise the law would favour those who chose to remain in ignorance of it above those persons who chose to acquaint themselves with the law in order to abide by it.”

Similarly, in Lau v HMRC [2018] UKFTT 230 (TC) (‘Lau’), at [33], Judge Anne Scott held, at [37] to [38], that:

“Parliament cannot have intended ignorance of the law to be a reasonable excuse because Parliament must have enacted the law with the intention that it would be obeyed. In all these circumstances, ignorance of the law simply cannot amount to a reasonable excuse.”

In Cenlon Finance Co. Ltd v Ellwood (1962) 40 TC 176, Lord Denning said this:

“…it is a mistake to say that everyone is presumed to know the law. The true proposition is that no one is to be excused from doing his duty by pleading that he did not know the law.”

Ignorance of the law cannot, therefore, amount to a reasonable excuse: see also Qualaphram Ltd v HMRC [2016] UKFTT 100 (TC), at [121]. As held by Clauston J in Holland v German Property Administrator [1936] 3 All ER 6, at p 12:

“the eyes of the court are to be bandaged by the application of the maxim as to ignorantia legis.”

Ignorance of the law cannot come to the defence of a violation of the law.

Furthermore, whilst the default may not have been intentional, this does not amount to a reasonable excuse. In Garnmoss Ltd. T/A Parham Builders v HMRC [2012] UKFTT 315 (TC), the tribunal held (in the context of a VAT appeal and the question of reasonable excuse) that:

“12.

What is clear is that there was a muddle and a bona fide mistake was made. We all make mistakes. This was not a blameworthy one. But the Act does not provide shelter for mistakes, only for reasonable excuses. We cannot say that this confusion was a reasonable excuse.”

Fourthly, we are satisfied that despite the fact that letters may have been sent out by HMRC in respect of those that may have been affected by ATED, HMRC are under no statutory duty to notify taxpayers of changes in the law. It is the case that HMRC would not have been aware of the need for the Appellant to file ATED returns until steps were taken by the Appellant. In Nicholson v Morris (H M Inspector of Taxes) 51 TC 95, at p. 111 Walton J said this:

“and it is idle for any taxpayer to say to the Revenue, "Hidden somewhere in your vaults are the right answers: go thou and dig them out of the vaults." That is not a duty on the Revenue. If it were, it would be a very onerous, very costly and very expensive operation, the costs of which would of course fall entirely on the taxpayers as a body. It is the duty of every individual taxpayer to make his own return and, if challenged, to support the return he has made, or, if that return cannot be supported, to come completely clean, and if he gives no evidence whatsoever he cannot be surprised if he is finally lumbered with more than he has in fact received. It is his own fault that he is so lumbered”.

As with Stamp Duty Land Tax (‘SDLT’) and Inheritance Tax (‘IHT’), HMRC will be unaware of the need for a taxpayer to submit ATED returns until they are received. We hold that there is no statutory requirement within FA 2013 for HMRC to give notice to a person to file an ATED return.

Overall, we find that whilst Mr Steel may have honestly believed that he was not required to file an ATED return, having purchased a property through the Appellant, in our judgment it was not objectively reasonable for him to have failed to consider the ramifications in respect of tax. In those circumstances, the initial belief is not objectively reasonable. We have considered the timing of his illness, which we acknowledge and which not is not disputed. We are not told of any efforts by Mr Steel to inform himself of the requirements of ATED, in light of the facts that we have found. In our judgment, that is insufficient.

Having considered all of the information before us, cumulatively, we are satisfied that the Appellant has failed to establish a reasonable excuse for the failure to file ATED returns by the statutory due date.

Even when a taxpayer is unable to establish that they have a reasonable excuse and remains liable for one or more penalties, HMRC have the discretion to reduce those penalties if they consider that the circumstances are such that reduction would be appropriate.

The Tribunal may rely on special circumstances, but only if HMRCʼs decision was ‘flawed’ when considered in the light of the principles applicable in proceedings for judicial review’. That is a high test. It is in the context of that specific jurisdiction that the question of proportionality must be considered. There are many appeals in the FtT where the question as to whether there are special circumstances justifying a reduction in the amount of a penalty has been considered. Accordingly, from time to time the FtT has made general observations about what might constitute special circumstances.

There have been a number of cases on special circumstances, from which we derive the following principles:

The special circumstances must apply to the individual and not be general circumstances that apply to many taxpayers: see Collis, at [40].

As the FtT said in Advanced Scaffolding (Bristol) Ltd v HMRC[2018] UKFTT 0744 (TC), at [99], there is no reason for the FtT to seek to restrict the wording of para. 16 of Schedule 55 by adding a judicial gloss to the phrase. In support of that approach the FTT referred to the observation made by Lord Reid in Crabtree v Hinchcliffe at p 731D-E when considering the scope of “special circumstances” as follows:

“the respondent argues that this provision has a very limited application... I can see nothing in the phraseology or in the apparent object of this provision to justify so narrow a reading of it”.

The FtT then said this, at [101] and [102]:

“101.

I appreciate that care must be taken in deriving principles based on cases dealing with different legislation. However, I can see nothing in schedule 55 which evidences any intention that the phrase “special circumstances” should be given a narrow meaning.

102.

It is clear that, in enacting paragraph 16 of schedule 55, Parliament intended to give HMRC and, if HMRC’s decision is flawed, the Tribunal a wide discretion to reduce a penalty where there are circumstances which, in their view, make it right to do so. The only restriction is that the circumstances must be “special”. Whether this is interpreted as being out of the ordinary, uncommon, exceptional, abnormal, unusual, peculiar or distinctive does not really take the debate any further. What matters is whether HMRC (or, where appropriate, the Tribunal) consider that the circumstances are sufficiently special that it is right to reduce the amount of the penalty.”

In Bluu Solutions Ltd v Revenue & Customs [2015] UKFTT 95 (TC), the FtT expressed the view that a decision by HMRC on whether or not there are special circumstances can be made at any time up to the conclusion of the tribunal hearing. However, it acknowledged that a decision by HMRC in relation to special circumstances requires reasons, as otherwise the tribunal cannot ascertain whether the decision was flawed.

In Edwards v R &C Comrs[2019] BTC 516 (‘Edwards’), the UT considered whether the fact that significant penalties had been levied for the late filing of returns where no tax was due was a relevant circumstance that HMRC should have taken into account when considering whether there were “special circumstances” which justified a reduction in the penalties. The UT determined that the mere fact that a taxpayer has no tax to pay does not render a penalty imposed under Schedule 55 for failure to file a return on time disproportionate and, as a consequence, is not a relevant circumstance that HMRC must take into account when considering whether special circumstances justify a reduction in a penalty.

The UT further said this, at [84] and [85]:

“84.

However, we were referred to HMRC’s guidance on the Schedule 55 FA 2009 penalty regime, as it relates to late filing penalties. It is clear from that guidance that the aim behind the Schedule 55 penalty regime is to penalise taxpayers who fail to comply with their obligations once a notice to file is issued and to incentivise them to comply with future notifications that they must file a tax return (and pay any tax due) on time. In our view, a penalty regime which seeks to incentivise taxpayers to comply with a requirement to file a return is a legitimate aim, regardless of whether it is subsequently determined that any tax is due. The purpose of the requirement to complete a tax return is so that HMRC is in a position to ascertain whether tax is due from a particular taxpayer. If the taxpayer does not comply with the requirement to file a return, then HMRC is clearly not going to be in a position to ascertain easily whether tax is in fact due. A taxpayer who does not think he should be within the self- assessment regime when he receives a notice to file because as a matter of course he will have no further tax to pay should enter into a dialogue with HMRC with a view to being removed from the requirement to file rather than take no action in response to the notice…

85.

In our view, there is a reasonable relationship of proportionality between this legitimate aim and the penalty regime which seeks to realise it. The levels of penalty are fixed by Parliament and have an upper limit. In our view the regime establishes a fair balance between the public interest in ensuring that taxpayers file their returns on time and the financial burden that a taxpayer who does not comply with the statutory requirement will have to bear.”

It follows that the mere fact that the Appellant may not have had any tax liability does not justify a reduction in the penalty, either on the grounds of proportionality, generally, or because of the presence of special circumstances in relation to the penalty scheme. The amount of the penalties charged is set within the legislation. HMRC have considered the Appellantʼs grounds of appeal found that they do not amount to special circumstances which would merit a reduction of the penalties. Accordingly, HMRCʼs decision not to reduce the penalties was not flawed.

We have also considered the case of R & C Comrs v Hok Ltd [2012] UKUT 363 (TCC); [2013] STC 255 (‘Hok’). There, the UT held that the FtT did not have power to discharge penalties on the ground that their imposition was unfair. The UT held, at [109], that the FtT has no general supervisory jurisdiction. Applying Aspin v Estill [1987] STC 723, the Tribunal found, at [116], that the jurisdiction of the FtT in cases of that nature was limited to considering the application of the tax provisions themselves. The penalties charged are proportionate and the penalty regime is proportionate to its aim. Its aim is to encourage compliance, not punish defaults. The penalty regime further includes provisions for “reasonable excuse” and “special circumstances”, which allow mitigation in appropriate cases.

For the reasons set out above, the appeal is dismissed. Our findings above are not a rejection of Mr Steel’s illness, but are a balanced appraisal of all of the information before us, in light of the chronology and the legislation.

This document 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.