We consider four cases concerning self-assessment late filing penalties, and wonders how those taxpayers will deal with quarterly reporting under Making Tax Digital.
On 25 April 2017, the First Tier Tribunal rejected appeals against late filing penalties lodged by four unrepresented individuals, who had erroneously assumed that their SA tax returns had been successfully filed electronically. In essence, the separate appeals were very similar: Andrew Kent (TC05887), Barbara Harvey (TC05886), John Bowles (TC05883) and Nigel Cross (TC05882) each appealed against the imposition of daily penalties for late filing of their 2010/11 or 2011/12 SA tax returns.
These appeals were part of the wave of cases which had been put on hold pending the Court of Appeal decision in the “Donaldson case”. In July 2016, the Court of Appeal dismissed Donaldson’s appeal against late filing daily penalties, and HMRC’s standard approach to late filing penalties was endorsed. In December 2016 Donaldson was refused permission to appeal to the Supreme Court. The way was now clear for the all the cases held behind Donaldson, including these four appeals, to be considered.
Each of the taxpayers stated they thought they had filed online before the statutory filing deadline. Three of the taxpayers said they had not received the normal submission receipt email, which Cross assumed was down to an “error in the system” and would eventually sort itself out. Although Bowles had received what he though was a “submission receipt” it turned out to be exactly the opposite. Harvey maintained that her sons had filed their tax returns using the same computer as she had, and although none of them received filing acknowledgements, the sons had later received their anticipated tax refunds. So Harvey assumed that her tax return had also been successfully filed.
HMRC was clear that each taxpayer had previous online filing experience, so it was expected that they would “be aware of the online filing procedures”. The absence of an acknowledgement should have alerted them to the non-submission of the tax return in question. With a professional’s knowledge of the online filing system, it might look as though there was a singular lack of concern by the taxpayers as to whether the returns had been filed. There is no reference to any of the four having rung HMRC to check why there was no acknowledgement, even when penalty warning notices first began to be received. Nowadays, HMRC may expect the taxpayer to look at their online records, to check whether their tax return had been processed.
Perhaps these experiences signify a deeper issue of confusion and uncertainty surrounding online filing. In his appeal, Kent defended his belief that he had filed (when in fact he had only completed a draft return), blaming the misunderstanding on his “knowledge of computers and [HMRC’s] website”. Harvey commented that: “computers are not infallible”. We all occasionally blame the computer when technology does not work as it should, rather than delving deeper for an answer. Add to that an inbuilt wariness, fear even, to engage with HMRC and there is the potential for the kind of misunderstanding highlighted by these appeals.
It was said of the appeals that they were “not concerned with specialist or obscure areas of tax law”, but with each taxpayer’s “ordinary every day responsibilities”. But if the fulfilment of the annual responsibility is surrounded by such confusion, how much more confusing will this be when the filing requirements for the unrepresented businessman or landlord increases to six times a year under Making Tax Digital (MTD)?
Late submission penalties are proposed under MTD, which will not be linked to the tax liability. It seems that most of the general public, who are also taxpayers, are unaware of the approaching storm of MTD. With my weather eye on the horizon, I foresee righteous indignation flourishing amidst the late MTD filing penalties.