Analysis
The appellants were trustees of a life interest trust, the income of which was mandated to the life tenant and passed directly to him. HMRC served a notice under s8A of the Taxes Management Act 1970 to file an income tax return on the trustees. When no return was filed, HMRC assessed penalties against the trustees for failure to file the return by the due date. The trustees appealed to the First-Tier Tribunal against the decision of HMRC to reject their appeals, arguing that they thought a return had been filed by their previous agents, that given that the return was a nil return (since none of the trust’s income was received by the trustees) a penalty of £1300 was unduly severe, that the trustees had no income to pay the penalty.
Held: (without a hearing)
1) Allowing the appeal (on a point not argued by the appellants), that the penalties were wrongly assessed, because s8A of the 1970 Act only permitted service of a notice to file a return on ‘relevant trustees’, which were defined for the purpose of the Act by s7(9) as those who were trustees at the time when income or a chargeable gain arises, such that they are liable to notify chargeability to tax. Here no income or chargeable gain had been received. (Note: this seems an unfortunate construction of the legislation, as s8A is obviously intended to allow HMRC to require trustees to provide information regardless of whether it is the trustees, the beneficiaries or the settlor who is liable for the tax.)
2) That, in any event, the trustees had a reasonable excuse for the initial failure to file the return, in relying on their reputable accountants to file it for them. However, they did not have any reasonable excuse for their continued failure to file it after receipt of the penalty notice. The lack of funds was not a reasonable excuse.
3) That the daily penalty and the 6-month penalty were incorrectly assessed, as there was no evidence that a SA reminder had been sent to the trustees so as to meet the condition for a daily penalty under para.4(1)(c) of Schedule 55 to the Finance Act 2009, and the 6-month penalty had been;
4) That in any event a special reduction of the penalty should be made. The FTT could interfere with HMRC’s decision not to grant a special reduction, HMRC having failed to give proper reasons for that decision. The fact that the trust income was mandated to the life tenant, and HMRC’s own guidance and forms indicate that trustees with no income or chargeable gains should not file returns, was a special circumstance justifying a reduction in the penalties to nil.
JUDGMENT JUDGE RICHARD THOMAS: [1] This was an appeal by the trustees of the Paul Hogarth life interest trust 2008 (“the appellant”) against assessments to penalties under Schedule 55 Finance Act 2009 for the failure to deliver a return for the tax year 2010-11 by the due date. The trust is an interest in possession …Continue reading "Hogarth v HMRC [2019] WTLR 79"