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LBTT late return penalty quashed for lack of proof of decision to charge
Penalties imposed by Revenue Scotland (RS) after a land and buildings transaction tax return was filed 21 months late, have been quashed because the tax agency failed to produce evidence that it had taken a decision to impose the penalties, as required by legislation.
Upper Tribunal Judge David Small confirmed a ruling to that effect by the First-tier Tribunal for Scotland (FTTS) in refusing an appeal by RS, which had issued assessments to penalties against Michael Harrison and Sharon Ross.
The taxpayers had acquired a property in September 2015 and were due to file the LBTT return by 1 October. They failed to do so until 3 July 2017. RS sent penalty notices of £100 as a first penalty for failure to make a return, and £900 as a "three month penalty for failure to make return (£10 per day from 21 October 2016)", under ss 159-161 of the Revenue Scotland and Tax Powers Act 2014.
Agents had sent the return to the taxpayers for signature but it had not been sent back, and the matter had not been followed up due to the person concerned being on holiday. No LBTT was in fact payable but RS declined to waive or reduce the penalty.
The FTTS held that the taxpayers did not have a reasonable excuse for their late filing, that no special circumstances existed to justify reducing the penalties and that the penalties were not disproportionate. However, it allowed the appeal as regards the £900 penalty on the grounds, first that RS had not shown that it had taken a decision to impose the daily penalties, as required by s 161(1)(b) of the Act, and secondly that it had not given a notice to the taxpayers specifying the date on which the daily penalty became payable, as required by s 161(1)(c).
On appeal RS argued (1) that the FTTS should have found, on the evidence before it, that the necessary decision had been made by RS; alternatively the FTTS acted unreasonably in not inviting further evidence and submissions from the parties; (2) that the FTTS had wrongly read s 161(1)(c) as requiring that a taxpayer must receive a warning about the risk of incurring daily penalties before the first day on which they become payable, and separately, the specification of the period over which daily penalties were payable in the penalty assessment notice satisfied the requirement for notice of the date from which the £10 per day penalty was payable, and no separate notice of the start date was required.
On the first point, Judge Small did not accept "that the mere fact that the penalty assessment notice was issued is, by itself, prima facie evidence that RS had made the required decision... unless one assumes that tax authorities get most things right most of the time – a state of affairs which I hope is true but which I do not believe to be within judicial knowledge – I cannot see that the penalty assessment notice is evidence that it actually did".
He also did "not see it as inconsistent with the general concept of fairness and justice for a tribunal immediately to allow the taxpayer’s appeal if the burden is not discharged by evidence put forward by RS in the papers before the tribunal when it sits to reach its decision".
On the second point, Mr Small expressed the view that the FTTS had erred in law in holding on the wording of s 161 that advance notice had to be given before daily penalties became payable, but agreed with it that notice under s 161(1)(c) had to be given before assessment was made under s 179.
Click here to view the Upper Tribunal decision.