Paul Baxendale-Walker v The Commissioners for HMRC

Leaving to one side for the moment the principle against doubtful penalisation and ECHR points, Mr Watkinson’s core submission on paragraph 50(1)(a) is that there is a difference in Schedule 36 between a person becoming liable to a penalty, that penalty being notified/imposed and the question of any appeal. All that is needed for a person to become liable to a penalty under paragraph 39 is that the person fails to comply with an information notice. Paragraph 39 simply provides that a person who fails to comply with an information notice “is liable to a penalty of £300” and, when paragraph 50(1)(a) refers to “a person [who] becomes liable to a penalty under paragraph 39”, it is doing no more than reflecting the language of paragraph 39. In that light, all paragraph 50(1)(a) requires is a failure to comply with an information notice which automatically cause a liability to a penalty to arise.

Paragraph 46 also provides that “where a person becomes liable to a penalty under paragraph 39”, HMRC “may assess the penalty”. Becoming liable is an automatic consequence of non-compliance; assessment is a separate act, which may (or may not) follow. Paragraph 46(2) requires an assessment to be raised “within the period of 12 months beginning with the date on which the person became liable to the penalty”. If becoming liable to a paragraph 39 penalty depended on the exhaustion of appeal rights in relation to an assessment to such a penalty, then the assessment time limit provisions could not work at all and HMRC could never assess a penalty because liability to it would never arise. That, submits Mr Watkinson, would produce a patently absurd result. I agree that such an over-literal reading of the provisions cannot possibly be right.

Paragraph 46(2) is subject to paragraph 46(3), which provides different time limits for assessments in cases involving an information notice against which a person may appeal. Here the time limit is 12 months after the latest of :

Mr Bedenham points to paragraph 45, and the provision that liability “does not arise” where a person satisfies the requirement in paragraph 45, as indicating that liability is not a fixed concept. How, he asks, can liability “not arise” if it arose automatically as a result of non-compliance with the information notice? Mr Watkinson’s answer to this point is that paragraph 45 (at least where appeals are concerned) must be operating as a form of retrospective deeming provision to the effect that the failure (which automatically gives rise to a penalty liability) is ignored if subsequently the appellant can prove that it had a reasonable excuse; only then does liability not arise.

Beyond this point on paragraph 45, Mr Bedenham did not launch any serious challenge to Mr Watkinson’s reading of these provisions as an ordinary matter of statutory construction. His arguments were more to the effect that the concepts of liability or becoming liable are not set in stone (as, he says, paragraph 45 indicates) and, even if the concepts were set in stone, those concepts when found in paragraph 50 can, and indeed must at least where Convention rights are in point, be read in a way which gives effect to a person’s Convention rights and in a way which avoids doubtful penalisation. I will turn to those arguments in a moment.

As far as the ordinary construction of paragraph 50 is concerned, I am with Mr Watkinson. To my mind, there is a clear distinction in the relevant provisions in Schedule 36 between a person becoming liable to a penalty (which simply depends on failing to comply with an information notice), being assessed to that penalty and the outcome of any appeal. On occasion the draftsman clearly addressed the impact of rights of appeal, but chose to make no provision to accommodate rights of appeal against a paragraph 39 penalty assessment where paragraph 50 is concerned. Reading paragraph 50 as operating on the basis that a penalty assessment is valid unless and until it is successfully challenged is also consistent with the approach to the validity of administrative acts discussed in Sukhdev Mattu (see [41] above). It follows that a person who does not comply with an information notice is to be treated for the purposes of paragraph 50(1)(a) and (b) as liable to a penalty under paragraph 39 unless and until they successfully appeal any assessment of the penalty (and the penalty will need to be assessed if the requirement of paragraph 50(1)(b) is to be met) or satisfy the requirements of paragraph 45.

I turn now to Mr Bedenham’s arguments relating to the ECHR. As paragraph 50 penalties are not intended to be pecuniary compensation but are instead intended to encourage compliance with tax obligations and to penalise non-compliance, it is common ground that paragraph 50 penalties are criminal charges for the purpose of Article 6 of the ECHR albeit that tax penalties differ from “hard core” criminal law and the criminal safeguards in the Convention will not necessarily apply with their full stringency; Jussila v Finland [2006] ECHR 996, at [43].

Paragraph 2 of Article 6 embodies the principle of the presumption of innocence, that the Court should not start with the preconceived idea that the accused has committed the offence charged, the burden of proof is on the prosecution, and any doubt should benefit the accused (see Barberà, Messegué and Jabardo v. Spain, App. 10588/83 (1988), at [77]). In relation to both the ECHR arguments and the principle against doubtful penalisation, we might usefully start by reminding ourselves of the conditions which must be satisfied before a paragraph 50 penalty can be imposed. These are:

At this point we are concerned only with the question whether HMRC can apply for an additional, tax related penalty to be imposed and are asking ourselves whether, in circumstances where a person has a live appeal against an assessment to a paragraph 39 penalty, adopting the position that they have become liable to that penalty for this limited purpose engages the principle against doubtful penalisation or infringes that person’s Convention rights. The short answer to that question is “No”. Further requirements need to be satisfied before a paragraph 50 penalty is imposed and the most important of these is that “the Upper Tribunal decides that it is appropriate for an additional penalty to be imposed”. The conditions in paragraph 50(1)(a) and (b) are no more than a gateway to a judicial process, which does not operate with any statutorily imposed preconceptions.

Although I have held that a person who does not comply with an information notice is to be treated for the purposes of paragraph 50(1)(a) and (b) as liable to a penalty under paragraph 39 unless and until they successfully appeal any assessment of the penalty or satisfy the requirements of paragraph 45, nothing in paragraph 50 requires the Upper Tribunal to decide whether it is appropriate to impose a penalty on that basis in a case where the penalty has been challenged.

Mr Bedenham is absolutely right that, if, in the paragraph 50 application, the Upper Tribunal proceeded (or was required by paragraph 50 to proceed) on the basis that the statutory pre-requisite of liability under paragraph 39 was satisfied, despite that liability being the subject of an extant appeal, that would amount to the Upper Tribunal having a pre-conceived idea in relation to that element of the paragraph 50 “charge”, ignoring the burden of proof being on HMRC and would give rise to a breach of Article 6. That, however, is not the basis on which the Upper Tribunal is required to proceed at all. If there is a live challenge to a paragraph 39 penalty, that is something the Upper Tribunal would need to take into account in deciding whether it is appropriate to impose a penalty under paragraph 50.

To the extent the Upper Tribunal has jurisdiction to entertain an appeal against a paragraph 39 penalty assessment, arrangements could be made for it to hear that appeal at the same time as dealing with the paragraph 50 application or, if it does not have such a jurisdiction or chooses not to exercise it, it could stay the paragraph 50 application until the paragraph 39 penalty appeal had been finally determined. Such an approach would deal with the dangers of procedural chaos and potential unfairness Mr Bedenham raises.

The same reasoning applies so far as the principle against doubtful penalisation is concerned. The principle against doubtful penalisation reflects the approach the courts have taken that it is:

Without doubt, Parliament cannot have intended a person to be subjected to a paragraph 50 penalty whilst there was real doubt about whether one of the conditions to liability had been met, but again the safeguard against doubtful penalisation is the requirement that the Upper Tribunal considers the imposition of a paragraph 50 penalty to be “appropriate”; it is hard to see how imposing a paragraph 50 penalty could be appropriate before any live questions around the paragraph 39 liability had been finally determined.

I asked Mr Watkinson why HMRC would want to make an application for a paragraph 50 penalty when (as a result of an extant paragraph 39 penalty appeal) the Upper Tribunal would be unlikely to consider it before the paragraph 39 penalty appeal had been dealt with. His answer lies in the analysis of the purpose behind Schedule 36 in Derrin. If a taxpayer is trying to delay complying with an information notice by appealing against a paragraph 39 penalty, “marking his card” by applying for a paragraph 50 penalty would serve to remind the taxpayer of the importance of complying with the information notice and the consequences of not doing so. It would also enable HMRC to proceed to a hearing of their paragraph 50 application in short order after any paragraph 39 appeal were determined in their favour, or to have both matters dealt with at the same hearing. In addition, HMRC only have 12 months after a person becomes liable to a paragraph 39 penalty to apply to the Upper Tribunal for a paragraph 50 penalty to be imposed. If it is right (as HMRC say it is) that the taxpayer became liable to the penalty when they first failed to comply with the information notice, HMRC may well need to make an application under paragraph 50 before a paragraph 39 appeal is determined in order not to be out of time.

I turn now to the arguments (as they developed in the hearing) which revolve around the letter the HMRC officer wrote to PBW on 15 March 2023. Given the importance of that letter, it is worth setting out in some detail what the officer said. Firstly, he referred to his letter of 1 March 2023, which enclosed further copies of the information notice originally issued on 14 January 2022. Next, he went on to say that he was issuing PBW with a £300 penalty under paragraph 39 because the information notice’s requirements had not been satisfied. He completed this section of the letter by observing that “I am therefore charging you a penalty because my letter of 1 March 2023 requested that you comply with the Notice by 15 March 2023.”

The second main issue the officer addressed was the possibility of a paragraph 50 penalty. His letter made it very clear that “I am currently considering making an application to the Upper Tribunal for a further penalty to be imposed under paragraph 50 Schedule 36 Finance Act 2008. Any further penalty imposed under this legislation could considerably exceed what has already been charged to you. With that in mind, I would ask that you provide the outstanding information and documentation requested in the Notice by 28 March 2023.” Mr Bedenham’s criticisms of this letter are that it was wrong for HMRC to be considering applying for a paragraph 50 penalty at a time when the requirement in paragraph 50(1)(b) (that the failure or obstruction continues after a paragraph 39 penalty is imposed) had not been satisfied. In any event, he says, HMRC had extended the compliance deadline to 28 March 2023. As they had done so, there was no “compliance failure” for the purposes of paragraphs 50(1)(b) or (c).

Mr Watkinson’s submits (and I agree) that the HMRC officer’s letter of 15 March 2023 does not extend the time given to PBW to comply with the information notice at all. As Mr Watkinson observed, it would be very odd if HMRC extended the deadline for complying with an information notice to a time after the time when they imposed a paragraph 39 penalty. A paragraph 39 penalty can only be imposed when there is a failure to comply with a information notice and it would be bizarre for HMRC to write to someone and in the same letter extend the time for compliance (so they are not in default) and impose a penalty for being in default. More importantly, the passage from the letter I quoted above does not in any way suggest that the date for complying with the information notice has been extended to 28 March 2023. What the officer is saying is that he is considering applying for a paragraph 50 penalty, but will delay doing so until after 28 March 2023 to give PBW one last chance to comply with the information notice. That is the natural (and to my mind only) reading of that passage.

So far as Mr Bedenham’s criticism of the officer for considering a paragraph 50 penalty on 15 March 2023 is concerned, I agree with Mr Watkinson that there is nothing in this point either. No application can be made to the Upper Tribunal until the conditions in paragraph 50(1)(a) – (c) have been met and they cannot be met until the compliance failure has continued after the imposition of the paragraph 39 penalty. But there is nothing in paragraph 50 which prevents HMRC thinking about what they would do if that situation were to come about and sharing their thoughts with the taxpayer.

HMRC did not apply for the paragraph 50 penalty until 28 March 2023, by which time PBW’s failure had continued after the paragraph 39 penalty was imposed (on 15 March 2023). Nevertheless, Mr Bedenham criticised HMRC for, in his view, rushing to apply for a paragraph 50 penalty so soon (less than a fortnight) after they imposed the paragraph 39 penalty. This runs counter to the approach to applying for a paragraph 50 penalty articulated by Henderson LJ in Tager (set out at [21]) above. There are two answers to this criticism.

Firstly, Henderson LJ’s comments do not in any way change the provisions of Schedule 36. It is clear (and was accepted in Tager, for example at [57]) that there is no need for a paragraph 40 penalty to have been imposed before an application for a paragraph 50 penalty can be made; the requirement in paragraph 50 is simply that a person has become liable to a paragraph 39 penalty and that penalty has been imposed. Whilst, in the ordinary course, one might expect a steady progression through the penalties before an application is made for a paragraph 50 penalty, there is nothing in the legislation which requires this.

Secondly, whatever one might expect in a standard case, this is of course not a standard case. The information notice was served in January 2022 and the original compliance deadline (in the information notice as served by HMRC) was 15 March 2022, later extended to 29 March 2022. Paragraph 39 and paragraph 40 penalties had been imposed. They were withdrawn by HMRC in March 2023 and a new paragraph 39 penalty imposed. If HMRC need to justify their application for a paragraph 50 penalty so soon after imposing a paragraph 39 penalty, the explanation and justification lies in the history of PBW’s non-compliance with the information notice which, by that time, had stretched to almost a year.

This brings us neatly to the aspect of Mr Bedenham’s argument which arose in the course of the hearing. He observed that, in his letter of 1 March 2023, the officer said that “I will provide a further 14 days until 15 March 2023 for you to comply in full with the Notice.”

The paragraph 39 penalty notice was, of course, issued on 15 March 2023. On that basis, Mr Bedenham says, HMRC had assessed and notified a penalty for which PBW had not become liable. He would only become liable for the penalty under paragraph 39 at the end of 15 March, whereas HMRC notified the imposition of the penalty during the course of the working day on 15 March. Accordingly, the requirement of paragraph 50(1)(b) has not been met because PBW’s admitted failure did not continue after a penalty was validly imposed under paragraph 39. All the other penalties had been withdrawn and the penalty imposed on 15 March 2023 was imposed prematurely.

This forces us to confront the question when PBW became liable to a penalty under paragraph 39. The answer to this question, as we have seen, is when he failed to comply with the information notice. But when was that? At least initially, that would have been at the end of 15 March 2022 (assuming that HMRC have power to amend the information notice as approved by the tribunal before serving it). However, HMRC describe themselves as having granted an extension to 29 March 2022, and in due course they wrote to PBW and gave him until 15 March 2023 to comply, withdrawing all the earlier penalties. The discussion in the hearing assumed that HMRC have a general power (outside the statutory review mechanism in sections 49A et seq of the Taxes Management Act 1970) to change the date for compliance with an information notice once it has been served. If that is right, following HMRC’s letter of 1 March 2023, PBW would not have become liable to a penalty unless he failed to comply with the information notice by the end of 15 March 2023.

I cannot find any power in Schedule 36 for HMRC to vary the terms of an information notice (including the date by which its requirements are to be complied with) once it has been given. The closest I have come is paragraph 44, but paragraph 44 does not allow HMRC to extend the time for compliance. In terms, paragraph 44 provides (in much the same way that paragraph 45 relieves a person who can show a reasonable excuse for a failure) that a person is relieved from the consequences of failing to comply with an information notice if that person complies with the information notice within such further time as HMRC may allow. Interestingly, paragraph 44 does not deem a person not to have failed to comply with an information notice if they do so; it simply provides that their failure is not to give rise to a penalty liability.

Because this question (whether HMRC can vary the terms of an information notice which has been given) only occurred to me after the hearing and because the linked question of when (if at all) PBW became liable to a paragraph 39 penalty only arose late in the hearing, I invited written submissions from PBW and HMRC on these issues generally.

Mr Bedenham submits that HMRC do not have power to extend time for compliance with an information notice, at least if it has been approved by the tribunal. HMRC are not obliged to apply to the FTT for approval prior to issuing a taxpayer an information notice (as opposed to a third-party notice). However, where HMRC do so apply, the taxpayer is deprived of the normal appeal rights. (As a notice of appeal is the trigger for a statutory review, that mechanism will not be available in respect of a tribunal-approved information notice either.) It simply cannot be right that HMRC can later amend the information notice (for example, by altering the compliance date) in the absence of, at the very least, seeking further approval/permission from the FTT. Were it otherwise, HMRC could achieve the benefit of a tribunal approved information notice (the taxpayer being deprived of ordinary appeal rights) in relation to a document that differs from that actually approved by the tribunal.

Mr Bedenham also submits that HMRC cannot “restart” or extend the time limit for making a paragraph 50 application by the device of “re-issuing” the information notice or unilaterally allowing further time for compliance. He relies on the decision of Judge Redston (sitting in the FTT) in Sadiq Ahmed v HMRC [2020] UKFTT 337 (TC) where she held (at [3]):

If HMRC have power to alter tribunal approved information notices, that would logically seem to permit HMRC to shorten time for compliance so as to allow a taxpayer less time than had been approved by the tribunal. That outcome, which cannot be right, would tend to suggest that HMRC have no power, at least absent returning the matter to the FTT, to amend a tribunal approved information notice or impose a compliance deadline beyond the one endorsed at the tribunal. This, of course, is the essence of PBW’s objection to the validity of the information notice in the first place. His precise complaint is that HMRC amended the information notice before they served it, so that the information notice served on him was not the same as the one approved by the tribunal, but the logic of that approach applies just as much to things done subsequently by HMRC, which result in the information notice having a different effect to the effect that would have been produced by the information notice as approved by the tribunal.

HMRC say that section 9 of the Commissioners for Revenue and Customs Act 2005 (“CRCA 2005”) gives them this power. It provides:

Section 51(2) CRCA 2005 defines “function” as “any power or duty (including a power or duty that is ancillary to another power or duty)”.

HMRC submit that extending time for compliance with an information notice is (1) necessary or expedient in connection with the exercise of their power under Schedule 36 to issue an information notice, or (2) incidental or conducive to the exercise of that power. Since HMRC have the residual power in section 9 CRCA to extend time for compliance with an information notice, there is no need for such a power to be explicitly stated in Schedule 36.

They also say that it is implicit in paragraph 44 that HMRC can extend time for compliance with an information notice. If HMRC could not actually extend time for compliance with an information notice it would be remarkable that the Act envisages that being done. Further, as a matter of good administration, it would be remarkable if HMRC do not have that power. If they do not then HMRC could not, having received a perfectly reasonable request for an extension of time, accede to that request. It is (they say) in neither HMRC’s nor the taxpayer’s interest to find that HMRC have no such power.

HMRC say that, if they have the power to extend the time for compliance with an information notice, there would be no question of the date for liability to a paragraph 39 penalty defaulting back to the original date for compliance with the information notice simply because the taxpayer has failed to comply with the extended period for compliance. The date of failure would be the date of failing to comply with the information notice as extended by HMRC. Mr Watkinson’s argument at this point is straightforward. He says that HMRC can vary the date for compliance with an information notice, they did so here and they did not impose a paragraph 39 penalty for that failure too soon.

If HMRC agree to allow extra time before the original time for compliance with the information notice expired, it is relatively easy to see how such an action might be described as extending the information notice compliance time period. Here, where HMRC did not allow extra time until 1 March 2023, when PBW had been in default since 29 March 2022, it is harder to describe HMRC’s action as an extension of the original information notice compliance period rather than the giving of an opportunity to PBW to purge his failure. However, HMRC do not draw a distinction between agreeing (or imposing) a new compliance deadline before the original deadline had expired and doing so afterwards. They simply submit that they have power (under section 9 CRCA 2005) to agree or impose a new compliance deadline at any time.

In OWD Ltd and another v HMRC, [2019] UKSC 30, the Supreme Court expressed the view (at [49]) that section 9 CRCA 2005 “should not be construed as conferring on HMRC a power …which Parliament could have conferred through [a particular relevant statute] but did not”. The same point applies here. Parliament could very easily have given HMRC power to agree or impose a different time for compliance than the one in the information notice. Instead, paragraph 7 requires compliance “at such time, by such means and in such form (if any) as is reasonably specified or described in the notice”. Paragraph 7(2) appears to contemplate an agreement outside the notice but only so far as concerns the place where a document is to be produced.

Paragraph 44 does not provide that HMRC may agree or impose a different time for compliance than the one in the notice, which might have been the easier and more obvious drafting approach to take. Instead it makes the (quite precise) provision that a person’s failure to do what is required within a limited time is not to give rise to a liability to a penalty if it is done within such further time as HMRC allow. I do not consider that it is implicit in paragraph 44 that HMRC can extend time for compliance; quite the contrary, the time for compliance remains fixed in the notice, but HMRC can waive their right to impose a penalty. If section 9 CRCA 2005 gives HMRC the power they assert, paragraph 44 would be redundant; HMRC could simply agree or impose a new compliance deadline and this would mean that the taxpayer was no longer in default. Their section 9 power would be broader in scope than a relevant provision (paragraph 44) in Schedule 36.

I am also conscious of the point made in Ahmed that HMRC should not be able to refresh or extend the period set out in statute (12 months after a person becomes liable to a penalty) for imposing or applying for a penalty. Parliament has imposed a time limit for assessing paragraph 39 penalties and applying for paragraph 50 penalties and it should respected. If HMRC can unilaterally impose a different compliance date at any time, which is how they analyse their actions in this case, they can effectively circumvent that requirement.

On the other hand, I take HMRC’s point that an interpretation that HMRC do not have the power they claim under section 9 will limit their ability to accommodate requests for extensions of time from a taxpayer. If they want to remain able to impose penalties on a taxpayer for failure to comply, they would need to limit any extensions of time they allow under paragraph 44 such that they still have time to impose a paragraph 39 penalty and apply for a paragraph 50 penalty within a year of the original compliance date on the notice and they will need to be astute to make sure that taxpayers do not “run down the clock” on them. On balance, I do not ascribe much weight to that point as against the factors discussed in [78]-[81] above, and my conclusion on this question would be that section 9 CRCA 2005 does not give HMRC the power they assert. to agree or impose a different time limit for compliance with an information notice once it has been served. However, for the reasons explained below, the outcome of this application will be the same whether HMRC have that power or not and there is no need for me to express a definitive view on that question.

If we assume for a moment that HMRC are right and they can unilaterally impose a new compliance date, then for our purposes the only date by which the information notice needed to be complied with was 15 March 2023. What would be the implications of this? The obvious implication is that PBW would not have failed to comply with the information notice and thus become liable to a paragraph 39 penalty until the end of 15 March 2023, whereas the officer wrote to him (and emailed his advisers) on 15 March 2023. His letter began “This letter is a penalty notice. I am sending it to you under paragraphs 39 and 46 of Schedule 36 to the Finance Act 2008.” and went on to state “As I have not received what the notice asked for, I am now charging you a £300 penalty”, giving PBW until 14 April to pay and notifying him of his right to appeal.

Much of the discussion before me, and HMRC’s written submissions, focused on when the paragraph 39 penalty the officer wrote about was “imposed”. This is because paragraph 50(1)(a)-(b) requires the failure to comply with the information notice to continue after a person has become liable to a penalty under paragraph 39 and after a penalty is “imposed” under that paragraph. Clearly, PBW had become liable to a penalty under paragraph 39 before HMRC applied for a paragraph 50 penalty; he became liable to that penalty at the end of 15 March 2023 and HMRC applied for a paragraph 50 penalty on 28 March 2023. So, the requirement in paragraph 50(1)(a) would have been met by then. However, that is not enough, as paragraph 50(1)(b) requires PBW’s compliance failure to continue after a penalty is imposed under that paragraph (i.e. paragraph 39).

Mr Watkinson’s submission is that no paragraph 39 penalty is imposed before the taxpayer has been notified of the penalty. He says that would have been on 16 March 2023 and by then PBW had failed to comply with the extended deadline for complying with the information notice. Mr Watkinson’s reasoning is that only service on PBW himself (not his authorised agent) would be valid service for these purposes and that would not take place until the notification was received (or is deemed to have been received) by him in the ordinary course of post the following day; section 7, Interpretation Act 1978.

“Imposed” is a curious word to use in paragraph 50. The verbs used elsewhere in Schedule 36 in connection with a paragraph 39 penalty are to become liable, to assess and to notify. It is not at all obvious why the draftsman used a new and different verb. Clearly the draftsman did not intend that “imposed” should just mean “assessed”; in a tax statute, “assessed” would have been the obvious word to use if that is all they meant to say. The only additional step required (the only other matter the draftsman could be pointing to) is notification. Paragraph 50 is a route to imposing a potentially very substantial penalty for failing to comply with an information notice, and it seems to me to be wholly consistent with the approach to the seriousness of such penalties taken by Henderson LJ in Tager (see [21] above) that a taxpayer should have been aware that he had entered the Schedule 36 penalty regime and yet continued to default. I consider that the process of imposing a paragraph 39 penalty involves (but only involves) two steps, assessment and notification, as paragraph 46 makes clear. So, “imposed under that paragraph” in paragraph 50(1)(b) is a reference to a paragraph 39 penalty which has been properly assessed and notified, that being the process for “imposing” such a penalty.

It is also clear as a general matter that assessment and notification are distinct steps and that “the process of making the assessment itself is an internal matter for the Commissioners”; see Courts plc v Customs and Excise Comrs [2004] EWCA Civ 1527, at [106] per Jonathan Parker LJ.

The problem for HMRC here is that the officer wrote to PBW (a letter copied to his advisers and received by them electronically on 15 March 2023) before the end of the time for PBW to comply with the information notice and told them that he was charging a penalty. A letter written under paragraph 46 (which is what the officer’s letter described itself as being) is a notification of an assessment which has been made; see paragraph 46(1)(b). However, the officer could only assess a paragraph 39 penalty on PBW if he had become liable to one and (on the assumption we have made about HMRC’s powers to change the compliance date on an information notice) PBW did not become liable to a paragraph 39 penalty until the end of 15 March 2023. The officer purported to assess and notify a penalty to which PBW was not liable. Although PBW subsequently (within a matter of hours) became liable to a paragraph 39 penalty, no such penalty was properly assessed and notified as the purported assessment was made before the liability arose. Mr Watkinson did not suggest that PBW becoming liable to a penalty so soon afterwards would have cured any defect in the way the penalty was imposed. As noted above, he raised a number of arguments to the effect that the assessment was not imposed on PBW until 16 March. Mr Bedenham took issue with them, but they do not alter the fact that the assessment was made before the liability arose and so I do not need to consider them further. It follows from the paragraph 39 penalty being prematurely imposed that it was not imposed under that paragraph and so the requirement in paragraph 50(1)(b) was not satisfied.

If HMRC do not have power to change the date by which the information notice was to be complied with once the notice had been given, PBW became liable to a paragraph 39 penalty at the end of 15 March 2022 (assuming that HMRC had power to amend the information notice as approved by the tribunal before serving it) and the officer’s letter of 1 March 2023 can only be read as an offer of an “amnesty” under paragraph 44.

As we have seen, paragraph 44 operates to cancel a person’s liability for failure to comply with an information notice if they comply within such further time as HMRC allow. If (as was the case with PBW) they do not do so, their original failure is not purged and so it remains the case that they became liable to a paragraph 50 penalty at the time of their original failure. As far as PBW is concerned, this means that HMRC were in time to assess a paragraph 39 penalty by reference to that failure, in fact 15 March 2023 was the last day on which they could do that; see paragraph 46(2). It would mean that they would have assessed the liability whilst their “amnesty” period was still running. There is nothing in paragraph 44 which would stop them doing this, although clearly the assessment would fall away if PBW complied before the end of 15 March.

That is not the end of the matter, however, as an application for a tax-related penalty must be made within the period of 12 months beginning with the date on which PBW became liable to a paragraph 39 penalty; see paragraph 50(1)(d) and (7). That would mean that the application for the paragraph 50 penalty would need to be made by 15 March 2023, whereas it was not made until 28 March 2023.

To conclude, I am against Mr Bedenham on the grounds of this application as originally articulated. A person becomes liable to a paragraph 39 penalty for the purposes of paragraph 50 as soon as that person has failed to comply with an information notice. Sukhdev Mattu notwithstanding, there is no need to give that phrase a different meaning for the purposes of paragraph 50(1)(a) and (b) where a person has an extant appeal against a consequential penalty assessment, in order to avoid infringing the principle against doubtful penalisation or that person’s Convention rights. The necessary safeguard is in paragraph 50(1)(e).

However, on the facts of this case one of the requirements of paragraph 50 will always be lacking, and so the Upper Tribunal will not be able to decide that a penalty can be imposed under that paragraph. This is because

It is because one (although not the same) requirement of paragraph 50 is not met, whether HMRC have power to vary the date for compliance in this information notice or not, that I do not need to come to a definitive conclusion on the question whether they have such power or not.

For completeness, I make the obvious point that, if PBW is right and HMRC do not have power to vary the terms of a tribunal-approved information notice in any respect at all (even where the variation benefits the taxpayer) and, to be valid, the information notice as served must be exactly the same as the information notice approved by the tribunal, that would be a further reason why HMRC’s application would have to fail.

Notwithstanding PBW’s clear failure to comply with the information notice, the only conclusion open to me is that HMRC’s application for a paragraph 50 penalty has no reasonable prospect of success.

This application is allowed and HMRC’s application for a tax-related penalty must be struck out.