Donaldson v HM Revenue and Customs

Under Schedule 55 to the Finance Act 2009, HMRC may make a generic advance decision to impose daily late-filing penalties on all taxpayers who default for the requisite period. The conditions in paragraph 4(1) are cumulative, not chronological. A notice may therefore be given before liability arises, provided it informs the taxpayer that a daily penalty will be payable from the specified date if the default continues.

An assessment of a daily penalty must state the period for which it is assessed. Yet an omission of that period does not invalidate the assessment where the taxpayer can readily identify it and the notice is, in substance and effect, compliant with section 114(1) of the Taxes Management Act 1970.

Mr Donaldson filed his paper income-tax return after the filing deadline. HMRC imposed a £900 daily penalty and a further £300 late-filing penalty under Schedule 55 to the Finance Act 2009.

The First-tier Tribunal allowed his appeal because it held that HMRC had not given the notice required by paragraph 4(1)(c). The Upper Tribunal allowed HMRC’s appeal, holding that the notice condition was met. Mr Donaldson appealed with permission to challenge whether HMRC had made the decision required by paragraph 4(1)(b), whether adequate notice had been given under paragraph 4(1)(c), and whether the penalty assessment stated the required period under paragraph 18(1)(c).

1. Appeal dismissed unanimously. The Master of the Rolls gave the judgment, with which Kitchin and Hamblen LJJ agreed.

2. Paragraph 4(1)(b) of Schedule 55 permits HMRC to make a generic policy decision that every taxpayer whose default continues beyond three months will incur daily penalties. It does not require a separate discretionary decision for each taxpayer. The statutory reasonable-excuse provision addresses individual circumstances. The three conditions in paragraph 4(1) are cumulative and are not required to occur in the order in which they are listed.

3. The reminder and penalty documents were notices for paragraph 4(1)(c). They stated that a £10 daily penalty would be charged if the return remained outstanding after the stated date. Paragraph 4(1)(c) allows such notice to be given in advance of the taxpayer becoming liable. It is sufficient that the notice specifies the date from which the penalty will be payable if the default continues.

4. For a daily penalty, paragraph 18(1)(c) requires the assessment notice to state the period over which the penalty accrued. The notice did not do so merely by stating a maximum of 90 days and referring to paragraph 4. It should at least have identified when the relevant three-month period began.

5. That defect was nevertheless saved by section 114(1) of the Taxes Management Act 1970. The court approved the observation in Pipe v Revenue and Customs Commissioners [2008] STC 1911 that a mistake or omission may be too fundamental to be saved. This omission was one of form: the taxpayer had been told the filing date and the daily-penalty start date, and could readily identify the 90-day period. The assessment therefore remained valid.

• Court of Appeal (Civil Division): Dismissed Mr Donaldson’s appeal in [2016] EWCA Civ 761, thereby affirming the Upper Tribunal’s conclusion that the daily penalties were validly imposed.
• Upper Tribunal (Tax and Chancery Chamber): Allowed HMRC’s appeal from the First-tier Tribunal on the ground that the notice condition in paragraph 4(1)(c) of Schedule 55 to the Finance Act 2009 was satisfied.
• First-tier Tribunal: Allowed Mr Donaldson’s appeal because it found that HMRC had not given notice specifying the date from which the daily penalty was payable.