Paul Baxendale-Walker v The Commissioners for HMRC

For a tax-related penalty under paragraph 50 of Schedule 36 to the Finance Act 2008, liability to the underlying paragraph 39 penalty arises when the taxpayer fails to comply with the information notice. An extant appeal against the paragraph 39 assessment does not prevent an application under paragraph 50. However, the Upper Tribunal must not impose the additional penalty on a preconceived assumption that the underlying liability is established.

HMRC cannot use section 9 of the Commissioners for Revenue and Customs Act 2005 to vary the compliance date in a served information notice where Parliament has provided a specific statutory scheme. In either event, the paragraph 50 application failed because a statutory condition was absent: the paragraph 39 penalty was prematurely assessed, or the application was out of time.

HMRC applied under paragraph 50 of Schedule 36 to the Finance Act 2008 for a tax-related penalty of £14,031,851.01 against Paul Baxendale-Walker following his failure to comply with an information notice approved by the First-tier Tribunal.

Mr Baxendale-Walker applied under rule 8(3)(c) of the Tribunal Procedure (Upper Tribunal) Rules 2008 to strike out HMRC’s application. He argued that the paragraph 50 conditions were not met because he had appealed the underlying paragraph 39 penalty, HMRC had allowed further time for compliance, and the paragraph 39 penalty had been prematurely assessed. The central issues were the meaning of becoming liable to a paragraph 39 penalty, HMRC’s power to alter the compliance date, and whether HMRC’s application had a reasonable prospect of success.

1. Strike-out approach. The Tribunal applied the summary-judgment approach in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch), as approved in The First De Sales Ltd Partnership v HMRC [2018] UKUT 396 (TCC). It could decide a short point of law or construction where the evidence was sufficient and the parties had a proper opportunity to address it.
2. Underlying liability. A person becomes liable to a paragraph 39 penalty when they fail to comply with an information notice. Liability, assessment, notification and appeal are distinct concepts. An extant appeal against the assessment does not prevent the paragraph 50 gateway from being engaged. HMRC v Sukhdev Mattu [2021] UKUT 0245 (TCC) did not decide otherwise because the passage relied on merely recorded the parties’ agreement and was unnecessary to that decision.
3. Article 6 and doubtful penalisation. A paragraph 50 penalty is a criminal charge for Article 6 purposes. The gateway conditions do not require the Tribunal to presume that the paragraph 39 liability is established. The Tribunal must decide independently whether imposing the additional penalty is appropriate. It could hear or stay the paragraph 50 application pending resolution of the underlying appeal. This avoided breach of the presumption of innocence and the principle against doubtful penalisation.
4. Compliance date and paragraph 39 assessment. The Tribunal expressed the view that section 9 of the Commissioners for Revenue and Customs Act 2005 did not confer a general power to alter the compliance date in a served information notice. Paragraph 44 instead permits HMRC to waive penalty consequences if compliance occurs within further time allowed. The Tribunal did not need to decide the issue finally.
5. Application of the alternatives. If HMRC could vary the date, Mr Baxendale-Walker had not failed to comply when the paragraph 39 penalty was assessed and notified on 15 March 2023. The penalty was therefore not properly imposed, so paragraph 50(1)(b) was unmet. If HMRC could only allow further time under paragraph 44, the paragraph 50 application was made after the 12-month period and paragraph 50(1)(d) was unmet.
6. Disposition. HMRC’s application had no reasonable prospect of success. The strike-out application was allowed and HMRC’s application for the paragraph 50 penalty was struck out.

Not stated in the judgment. The decision concerned an application to strike out HMRC’s substantive application in the Upper Tribunal.