Peter Marano v Commissioners for HMRC

Section 103 of the Finance Act 2020 retrospectively validates HMRC functions performed by automated processes. HMRC need prove that a notice or assessment was its notice, but need not prove that an officer authorised the system or its criteria. The service provisions in section 115 of the Taxes Management Act 1970 are permissive, not exhaustive. A penalty notice is validly notified where its statutory purpose is achieved and the taxpayer is made aware of the assessment and relevant period. Tax-geared late-filing penalties are calculated by reference to the liability shown, or which would have been shown, in the return, without deducting payments on account. In deciding whether special circumstances justify reduction, early payment, prior disclosure of the liability and the size of a tax-geared penalty are relevant considerations.

Mr Marano appealed from the First-tier Tribunal’s decision confirming a discovery assessment and penalties under Schedule 55 to the Finance Act 2009 for failure to file a 2012–13 self-assessment return. The appeal concerned four issues: the validity of automated notices and penalty assessments; notification of penalty assessments sent to an LLP address but received indirectly; whether payments on account reduced the tax-geared penalty base; and whether early payment, prior disclosure and penalty size were relevant to special circumstances.

The Upper Tribunal considered the retrospective effect of section 103 of the Finance Act 2020, the interpretation of Schedule 55 and the scope of the tribunal’s review under paragraph 22(3). It dismissed the first three grounds, allowed the fourth and remitted the special-circumstances issue to a differently constituted FTT.

1. Automated notices and assessments. Section 103 of the Finance Act 2020 draws a conceptual distinction between an officer and HMRC itself. It permits HMRC, including through fully automated functions, to do anything capable of being done by an officer, with the same legal effect. HMRC therefore need establish that the notice or assessment emanated from HMRC. It is unnecessary to prove that an officer authorised the criteria, system or particular automated act. The retrospective provision applied to the notices in this case. Ground 1 was dismissed.
2. Notification. Schedule 55 paragraph 18 requires HMRC to notify the taxpayer of the penalty assessment and state the relevant period. It prescribes no special formality. Section 115 of the Taxes Management Act 1970 provides permissive methods of service and does not exclude other effective methods. Notification may be direct or indirect if the statutory purpose is achieved. Mr Marano and his accountants knew of the penalty notices, so Ground 2 was dismissed.
3. Calculation of tax-geared penalties. Schedule 55 paragraphs 5, 6 and 24 refer to the amount that would have appeared as due and payable in a hypothetical return, or the amount shown in a subsequent actual return. Payments on account operate at the collection stage under sections 59A and 59B of the Taxes Management Act 1970 and do not reduce the Schedule 55 penalty base. Ground 3 was dismissed.
4. Special circumstances. Paragraph 16 gives HMRC and the tribunal a wide discretion, subject to its express exclusions. The FTT erred by treating early payment, prior detailed notification of the liability and the size of the tax-geared penalties as irrelevant. Those matters had to be considered, although their weight and the ultimate decision remained for the FTT. Ground 4 was allowed. The decision on penalty reduction was set aside and remitted to a differently constituted FTT under section 12(2) of the Tribunals, Courts and Enforcement Act 2007.

• Upper Tribunal (Tax and Chancery Chamber) [2023] UKUT 113 (TCC): dismissed Grounds 1–3, allowed Ground 4 and remitted the special-circumstances issue to a differently constituted FTT.
• First-tier Tribunal (Tax Chamber) [2020] UKFTT 199 (TC): confirmed the discovery assessment and upheld the Schedule 55 penalties.