Selection of recent Tax Tribunal cases
The Guild report on a selection of recent tax tribunal cases around a missing self assessment, late filing penalties, a CJRS claim and payment of PAYE income tax and national insurance.
January 2023 – March 2023
Late filing penalties were appropriate and correct
Case details: Onuchika Eleonu V HMRC  TC08726
Ms Eleonu, who was employed through an umbrella solution company, appealed against penalties totalling £1,300 raised by HMRC for the late filing of the 2019-20 self-assessment return on the basis that she had always paid tax through PAYE, was not self-employed, and was not the owner of her own business.
On or before 6 April 2019 HMRC had issued Ms Eleonu a notice to file a self-assessment tax return for the year ending 5 April 2020 which, at the time of the hearing on 25 October 2022, had still not been received by HMRC. The deadline for submitting the online tax return was midnight of 31 January 2021.
Ms Eleonu was out of the country on holiday in March 2020 and unable to return to the UK due to covid-19 travel restrictions until July 2020 and, some four months later, sought assistance from Citizens Advice regarding filing the self-assessment return. Whilst the appellant stated that after receiving this assistance she filed the return in November 2020, she did not provide any documentary evidence to support this claim, and neither did HMRC hold any records of receiving the return.
Taking into consideration all the circumstances of the case, the Tribunal found that HMRC was entitled to satisfy itself that no tax was due by requiring that a tax return was completed, that the penalties had been charged in accordance with the legislation and that Ms Eleonu had no reasonable excuse for the failure to file the 2019-20 self-assessment tax return on time. The appeal was dismissed.
Underassessment of tax was brought about by carelessness
Case details: Dr Syed Akhlaq Rizvi V HMRC  TC08731
Dr Rizvi appealed against discovery assessments raised by HMRC regarding the 2014-15, 2015-16 and 2016-2017 tax years and claims made within Dr Rizvi’s self-assessment tax returns for relief under the Enterprise Investment Scheme (EIS) for which EIS3 certificates (a compliance certificate required before a claim for EIS relief can be made) were not held.
HMRC considered that Dr Rizvi was not entitled to the relief under EIS as the appropriate approval had not been obtained and he had made claims without having the necessary EIS3 form. As the discovery assessments were raised on 12 March 2021, which was outside the ordinary time limits, HMRC had to show that Dr Rizvi, or someone acting on his behalf, was careless.
Dr Rizvi accepted that he was not entitled to claim relief under EIS as he did not have the EIS3 form but did not consider that the condition of acting carelessly had been satisfied. Dr Rizvi’s view was that he had been with his accountants since 1993, they completed his tax return and calculated the tax due, and he expected them to complete the forms and get it right.
The Tribunal determined that it needed to decide three things. Firstly, whether Dr Rizvi was careless in making the claim without the having the EIS3 form. Secondly, if it was found Dr Rizvi was not careless, then was his accountant (or someone else) acting on his behalf in making the claims and submitting his tax return. Finally, if there was such a person, was he/she careless in completing the tax returns.
The Tribunal considered that, in the circumstances, the accountants were appropriately qualified to look after Dr Rizvi’s tax returns and that the completion of the returns is a mechanical exercise, and it would be perfectly reasonable and prudent to leave this to his accountants. The Tribunal therefore found that Dr Rizvi had not been careless in not checking for himself that the required EIS3 forms had been obtained.
Turning to the next two questions, it was found that the accountants were acting on behalf of Dr Rizvi and that, as it is a relatively mechanical and undemanding exercise to check if an EIS3 form is held, it constituted carelessness of a high order to allow a client to make a claim for EIS relief without holding a valid EIS3 form. The appeal was therefore dismissed.
Business was not entitled to CJRS scheme
Case details: Luca Delivery Limited V HMRC  TC08752
Luca Delivery Limited appealed against assessments raised by HMRC to recover Coronavirus Job Retention Scheme (CJRS) payments made by the business covering the period 1 May 2020 to 31 October 2020.
Part of the assessment related to the wife of the director who had commenced as an employee in December 2019 but was not included on the company’s RTI return until June 2020. This oversight was acknowledged by the company’s external accountants as resulting from their clerical error.
HMRC argued that for the CJRS claim relating to the employee (director’s wife) to be valid, the employee would have needed to be included in an RTI return filed on or before 28 February 2020 or 19 March 2020 and that as the employee was not included on the RTI return until June 2020, the business was not entitled to make a claim.
The director stated that the employee had been employed by the business before the beginning of the pandemic, that the business had instructed and paid its accountant to include her and that he had been unaware that she was not on the payroll until it came to his attention in May 2020.
The tribunal found that they could not allow the appeal as the business was not entitled to CJRS, since the employee had not been included on an RTI return by the relevant date. Even if, as suggested by the business, an amended RTI return was submitted to correct the return, this would not alter the position for the purposes of the CJRS claim. The appeal was dismissed.
Business was not obliged to pay PAYE income tax and National insurance
Case details: Prisma Recruitment Limited V HMRC  TC08762
Prisma Recruitment Limited (Prisma) is an employment agency who made appeals to the Tribunal relating to PAYE income tax, National Insurance Contributions (NIC) and several VAT default surcharges.
Prisma supplied workers to other companies including The BGM Group Limited (BGM) which was a workplace consultancy business, who, in turn, provided services to customers including the Royal Bank of Scotland plc (RBS) – such work being carried out by the workers supplied by Prisma.
Prisma operated PAYE in accordance with the “agency legislation – section 44” for the individual workers it supplied. During 2012-13 tax year BGM got into financial difficulties and was placed in administration on 19 April 2013. Prisma ended its agreement with BGM on 28 March 2013, and paid the workers up to the same day but did not pay the PAYE/NIC to HMRC after the beginning of January 2013 as they did not receive any payments from BGM after the first week in January 2013.
Prisma initially resisted paying the disputed tax and NIC but did eventually make payments under a time-to-pay arrangement with HMRC, including the outstanding VAT liabilities starting in June 2014. During this period of dispute, Prisma raised the issue with HMRC that the workers were providing excluded services and therefore it was not obliged to operate PAYE or pay Class 1 NIC and also requested repayment of any deductions Prisma had paid so far relating to PAYE/NIC that had been deducted incorrectly.
The appeals covered 5 different issues-
- Whether HMRC had made a Regulation 80 determination - if they had, then there was an appealable decision. If not, then there was no appealable decision, and the Tribunal had no jurisdiction to consider the PAYE aspects. Prisma contended that the PAYE/Class 1 NIC it had paid was not due.
- Had Prisma made an overpayment relief claim under schedule 1AB to the Taxes Management Act 1970 (TMA) and, if so, was relief due?
- Were the workers providing “excluded services”? In this matter, it was important to determine who Prisma’s client was for the purposes of section 44 ITEPA.
- Prisma appealed the Section 8 NIC decisions issued against certain workers.
- Prisma appealed the VAT default surcharges on the basis it had a reasonable excuse for the late payment of VAT.
The Tribunal concluded that HMRC had made a Regulation 80 determination which was appealable by Prisma and that Prisma had made an in-time repayment claim under Schedule 1AB TMA. The Tribunal further decided that BGM was Prisma’s client for the purposes of section 44 and that the workers were providing excluded services, which meant that Prisma was under no obligation to deduct PAYE/Class 1 NIC from the workers’ remuneration. The appeals against the Regulation 80 determination, Section 8 NIC decisions and the overpayment relief claim were allowed. In addition, HMRC must repay the amount of PAYE/Class 1 NIC which Prisma had wrongly paid.
Regarding the VAT default surcharges, the Tribunal found that the reason for late payment was simply insufficient funds which were no more than normal trading exposures and that this does not amount to a reasonable excuse. The VAT appeals were therefore dismissed.
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