Pipe & Ors v Revenue & Customs

Where a penalty determination has been made for the correct period, a mistake in the subsequent notice does not invalidate the determination merely because the notice states different dates. Under section 114(2)(b) of the Taxes Management Act 1970, a determination is not impeached or affected by any variance between the notice and the determination. The error must still be a variance rather than something so fundamental that it cannot properly be characterised as such. The statutory appeal is against the penalty determination, not the notification. Continuing daily penalties under section 93(3) are, in the judge’s view, criminal penalties for Article 6 purposes, but Article 6(3) is satisfied where the taxpayer was previously told the default, the steps required to remedy it, and the nature and maximum amount of the prospective penalties.

Five consolidated appeals by case stated challenged decisions of the General Commissioners for Exeter and East Devon dated 12 December 2006. The taxpayers had failed to submit income tax and capital gains tax returns after notices under section 8 of the Taxes Management Act 1970. Following directions under section 93(3), HMRC determined continuing daily penalties. The penalty notices stated that the penalties related to dates in April 2004, although the intended and legally authorised period was in September 2004.

The General Commissioners held that the date error did not invalidate the penalties. The central issues were whether the appeals concerned the underlying determinations or only their notices, whether section 114(2)(b) preserved the determinations despite the variance, and whether Article 6(3) required the notices themselves to state the correct dates.

1. The appeals were dismissed. The statutory appeal lay against the determinations of the penalties at stage 4, not against the later penalty notices at stage 5.
2. The taxpayers’ acceptance that the notices contained an error implied that the underlying determinations had been made for the correct September dates. No evidential burden therefore arose requiring HMRC to prove the dates of the determinations.
3. Section 114(2)(b) of the Taxes Management Act 1970 provides that a determination is not impeached or affected by any variance between the notice and the determination. The date error was a variance within the ordinary meaning of that term. The language of the subsection was clear and unqualified.
4. Baylis v Gregory [1989] AC 398 concerned section 114(1), not section 114(2)(b), because the assessment itself had been made for the wrong year. It did not govern a mistake confined to the notice of a correct determination.
5. Even assuming that the continuing penalties were criminal charges for Article 6(3) purposes, the taxpayers had been informed of the default, the action required to remedy it, and the nature and maximum amount of the penalties. The later mistake in notifying the determined penalties did not engage Article 6(3).
6. As an additional observation, continuing daily penalties under section 93(3) were criminal in character for Convention purposes. Their punitive and deterrent elements, potentially substantial amount, discretionary imposition, and requirement for a prior Commissioners’ direction distinguished them from the automatic fixed penalty considered in Harvard Sharkey v HMRC [2006] EWHC Ch 300.

The judgment records appeals by case stated from the General Commissioners for Exeter and East Devon. The General Commissioners had held that the continuing penalties remained valid despite the erroneous dates in the penalty notices. The High Court dismissed the consolidated appeals.