Tax tribunal: failure to accept ‘representations’ can impact HMRC APN penalty time limits

In a recent decision, the First-tier Tribunal (Tax chamber) (FTT) found that, in certain circumstances, HMRC’s failure to accept that correspondence should be treated as ‘representations’ from the taxpayer could mean that time has not started to run for imposing penalties for non-compliance.

The conclusion did not change the position of the taxpayer, Mark Fox, as HMRC had already withdrawn the surcharges for late payment. However, the FTT still gave its conclusion as there are hundreds of cases stayed behind this case.

Fox had been issued with an APN and sought to challenge it in two ways: by way of a group judicial review, which has not yet been decided, in which another person is the lead claimant; and by sending a letter to HMRC by way of representation in accordance with the APN rules.

When a taxpayer has made representations within the 90 day time period, HMRC must consider them and must issue a ‘determination’. Where this is the case, the penalties for non-payment of the APN cannot start to run until 30 days after the determination.

Fox’s letters were headed: “Representations regarding the accelerated payments notice ('APN') issued to me”. They went on to refer specifically to being treated as representations in accordance with section 222(2) of the 2014 Finance Act, and then cross-referred to the submissions made in his judicial review claim.

HMRC originally declined to accept that they were “representations” and therefore did not issue a determination. It then issued penalties and surcharges that were appealed.

After the first day of the hearing, HMRC withdrew the surcharges on Fox acknowledging that it should have considered the letters sent as representations including the substance of the judicial review challenges and should have therefore issued determinations to confirm the APNs correctly. HMRC also undertook to review other taxpayers that may be in the same position to see if the particular facts in this case exist in other appeals. However, at the resumption of the adjourned hearing, HMRC went back on this position, reverting to its original view that the letters were not representations and that it would now not consider other taxpayers in the same position.

The FTT did not accept HMRC’s renewed position that the letters were not representations. It found that they were plainly representations and incorporating the judicial review grounds by reference was a perfectly adequate means of making them. As a result, HMRC should have issued a determination. Since it did not, the time for issuing penalties and surcharges had not started to run.

Tax disputes and investigations expert Steven Porter said: “Although HMRC may have gone back on its original undertaking to review other taxpayers, the decision of the Tribunal is very clear. Therefore any person in receipt of APN penalties or surcharges who believes they may be in a similar position to Mr Fox should look again at their position”.

This decision also covered the circumstances of a company, Exclusive Promotions Ltd, which were different to those in the Fox case as HMRC had responded to some of the representations and ignored others which it had determined the taxpayer was unable to make based on the statutory process. Although the Tribunal considered HMRC’s review of the representations and found HMRC to have been flawed, unlike Mr Fox, Exclusive’s penalties were upheld by the Tribunal.

Tax disputes expert Sam Wardleworth of Pinsent Masons said: “This was because the Tribunal found it did not have the supervisory jurisdiction to decide on the relevant underlying issue concerning the validity of the APNs – a  topic frequently arising in appeals against APN penalties. If Exclusive wanted to challenge HMRC’s determination on the basis that it was flawed, it could only do so by way of judicial review”.

“Despite this, the Tribunal’s findings open additional questions for taxpayers who find themselves in the same circumstances as Exclusive Promotions Ltd. These questions arise in light of the conclusions in the 2017 Rowe v HMRC case, in which the taxpayers ultimately lost their appeal because the Court of Appeal exercised its senior court powers to conclude that the result would have been the same had HMRC followed the correct procedure”.

Steven Porter added: “In Exclusive’s circumstances the Tribunal found itself to be lacking the relevant supervisory jurisdiction however, in the right venue, it would have been open to Exclusive to argue that, in relation to penalties in particular, the result would not have been the same had HMRC performed its role appropriately. This raises the questions as to whether the decision would have been the same in relation to these penalties had it been brought in a venue with the correct jurisdiction”.