Penalty For Failure To File HMRC Tax Return

The case of Atkin v Commissioners for His Majesty’s Revenue and Customs [2024] UKFTT 786 (TC) (“Atkin”) demonstrates a taxpayer who fails to file a tax return when called upon to do so will typically have an uphill struggle to avoid the payment of an HMRC tax penalty, particularly if the matter is left for a material period of time.

How does HMRC know you it money?

The answer is that you usually tell HMRC how much we owe it through the filing of an HMRC tax return.

Need To File HMRC Tax Return

The tax return is a document filed with HMRC by the taxpayer that declares such matters as monies we have received from employment, investments, capital gains etc.

A taxpayer can come to file a tax return with HMRC either because they register with HMRC due to the duty to file the tax return under Section 7 of the Taxes Management Act 1970 or because they are liable to pay income tax or capital gains tax under Section 8 of the Taxes Management Act 1970 and have received a notice from HMRC to file.

However, the failure to file does not write off HMRC debts. As we shall see if makes matters worse.

This is part and parcel of the self assessment regime whereby HMRC relies upon the taxpayer to give it chapter and verse about their taxable affairs.

In Atkin, HMRC served a notice for the taxpayer to file a tax return which was due by 31 January 2023. It was not sent to HMRC until a later date. He had earned over £100,000 for the tax period.

The taxpayer was initially fined £100 which escalated to £1,200. The taxpayer appealed.

Judgment Highlights

The problem for the taxpayer was put forward by the tribunal as follows:

He suggests that he was unaware that he had to complete a self-assessment due to passing a threshold. Yet we have found that he was sent a notice to file, which would have made it abundantly clear that he had to file a return, in June 2022.

Furthermore, any scrap of ignorance would have vanished following the web chat on 13 March 2023 when he was told that he could file a paper return, yet he failed to do so until some nine months later.

His submissions that he was unable to sign up for electronic communications are largely irrelevant. The evidence shows that he did not appear to start this process until well after the filing deadline had passed. The emails we have seen regarding the attempts to sign up to electronic communication postdated not just the filing deadline, but also the penalty notification for the £100 penalty. His failure (which was largely his as he could not provide the correct ID) to sign up to electronic communication cannot possibly be a reasonable excuse for having failed to submit his return on or before 31 January 2023.

Whilst we are sympathetic to the appellant that he is suffering financial hardship, shortage of funds cannot be considered to be a reasonable excuse as a matter of law

So, we can see no reasonable excuse for the appellant failing to submit his tax return for 2021-2022 on or before the date specified in the notice to file, namely 31 January 2023.

…

We adopt the three stage test set out in Martland.

The first limb is to consider the length of the delay. The penalty notices were issued in February 2023 and August 2023. Appeals were not notified to HMRC until December 2023. The appeal against the £100 penalty is approximately 270 days late, and the appeals against the daily and six month penalty approximately 90 days late. These are sufficiently serious and significant delays to warrant moving to the second and third limbs of the three stage test.

The second limb is to consider the reasons for the delay. The appellant has provided none. His submissions regarding the delay are identical to those in his substantive appeal against the penalties. We can see nothing in them to justify failure to bring his appeals within the 30 day period. We have found that the penalty notices were properly served on him. It is also clear from not just notices themselves and the notes accompanying them but from the reminder letters that the appellant was notified that he had a 30 day period to appeal against the penalties.

Turning now to the third limb, namely an evaluation of all of the circumstances, considering the balance of prejudice, taking into account that time limits are to be respected and litigation conducted efficiently.

Given the lack of reasons, the fact that the delay is serious and significant, and that the appellant’s substantive appeal is unmeritorious, we have no hesitation in rejecting the appellant’s application that his appeal against the penalties should be brought out of time.