Penalties: Computer says ‘yes’!

By | 26 March 2021

Back in the ‘good old days’ it was possible to pick up the phone and speak to a tax inspector to resolve tax issues; the figures in tax assessments were often handwritten; and Inland Revenue (as it was then) staff did a lot of administration by hand, rather than using a computer.

The basic structure of tax law on matters such as notices to file tax returns for individuals etc. is contained in TMA 1970. Obviously, times have changed since that legislation was introduced. However, some of the legislation still reflects old procedures. This can be problematic and has resulted in disputes.

Insufficient proof

For example, in Qureshi v Revenue and Customs [2018] UKFTT 115 (TC), the taxpayer appealed against the alleged late filing of two tax returns, stating that she had not received any notices to file tax returns. HMRC needed to prove that a notice to file (under TMA 1970, s 8) had been sent. HMRC told the First-tier Tribunal that because a document headed ‘Return Summary’ contained an entry ‘Return Issued Date’ and a date alongside, it could conclude that a notice to file “must have been” sent on that date, and that the ‘Return Summary’ page would only come into existence if HMRC had sent out a notice to file.

However, the tribunal held that those documents were inadequate proof that any notice to file was sent to the taxpayer.

Notices received

In Qureshi the taxpayer stated that filing notices had not been received. By contrast, in Pritt v Revenue and Customs [2019] UKFTT 578 (TC), there was no such assertion by the taxpayer, who was late in filing several tax returns. HMRC provided a witness statement from an employee of HMRC who was familiar with the computer procedures relating to the printing and issue of late filing penalty notices. None of the documents sent to the taxpayer were returned to HMRC as undelivered by the Royal Mail. The First-tier Tribunal concluded (on the balance of probabilities) that the filing notices had been served on the taxpayer.

Furthermore, in Revenue and Customs v Rogers & Anor [2019] UKUT 406 (TCC), the Upper Tribunal held that the First-tier Tribunal had wrongly concluded that TMA 1970, s 8 required an officer to be identified when a notice to file was issued; and that the First-tier Tribunal was wrong to conclude that section 8(1) required a notice to file to be issued by a “flesh and blood” officer rather than a computer.

Beyond doubt

In October 2019, HMRC published a technical note stating that legislation would be introduced in the next Finance Bill to provide that, for certain functions, anything being done by an HMRC officer may be done instead by computer or other electronic means, whether automatically or not.

The relevant legislation was subsequently introduced in Finance Act 2020, s 103 (‘HMRC: exercise of officer functions’). The provision applies to (among other things) the issuance of notices to file self-assessment returns, the amendment of personal or trustee tax returns, and the making of assessments (in accordance with TMA 1970, s 30A).

Practical point

This rule change applies retrospectively (and prospectively), as it is treated as always having been in force. However, taxpayers who received a settled judgment from a tribunal or court regarding automated filing notices etc. before 11 March 2020 are not subject to the retrospective application of the legislation in respect of issues covered by that judgment if it was not set aside or overturned by that date.

The above article was first published in Tax Insider (April 2020) (