Analysis
The appellants were the executors of the will of the deceased who had died on 15 October 2012. The appellants had filed an annual self-assessment return for 2012/13, covering the period from 6 April 2012 to the date of death, which under-declared the income for that period. On 26 September 2013, an executor had written to HMRC, sending a cheque for the outstanding tax then due and stating that he presumed that this was full and final settlement and would proceed to distribute the estate. The executors proceeded to do that but failed to publish notice in the London Gazette of that intention, giving a deadline for any further claims. A year later the revenue wrote raising queries as to the accuracy of the 2012/13 return and in due course raised an assessment for the tax under-declared and a penalty for failure to disclose the income giving rise to the charge. The penalty was assessed on the basis the executors’ conduct had been deliberate but not concealed.
The executors appealed against the assessment and penalty. The executors submitted that HMRC’s delay in responding to the executor’s letter was unacceptable and was the cause of the predicament that the executors now found themselves in – having distributed the estate and having no legal right of reimbursement against the beneficiaries. The executors accepted that the error had been careless in the sense that it could have been avoided with greater diligence but said that it was not reckless or with intent to cause loss to HMRC. Further the executors accepted that the tax was lawfully due and that interest on it was no more than commercial restitution to the Exchequer. HMRC accepted that insufficient care had been taken to ascertain all the circumstances before categorising the executors’ actions as ‘deliberate’ and accepted that they should only be seen as careless.
Held, reducing the penalty to nil:
- 1) No case having been put that the outstanding tax which had been assessed was not due or was not correctly calculated, there was no ground upon which the appeal against the assessment could be allowed. Further there was no right of appeal as far as the interest was concerned.
- 2) As a general rule the tribunal had no jurisdiction in relation to issues of maladministration so that the delay in responding to the executor’s letter was for the Revenue Adjudicator to deal with if that complaint was maintained. However, para 17(2)(b) of Sch 24 to the Finance Act 2007 provided a very limited exception to this so far as it enabled the tribunal in an appeal under para 15(2) to substitute HMRC’s decision as to the amount of the penalty with another decision which HMRC had the power to make. Under para 11 HMRC could have reduced the penalty because of special circumstances.
3) The tribunal would substitute its own decision for HMRC’s by reducing the penalty to nil. The appellants had chosen to risk the consequences of taking on the administration of the estate themselves and it was not the tribunal’s function to relieve them of the results of their choice. The fact that their ignorance of the procedure to guard against late claims left them vulnerable to the assessment must therefore be disregarded, as must their inexperience in handling accounts which doubtless led to the error. Nonetheless the circumstances warranted consideration of special circumstances. The factors which influenced the reduction of the penalty to nil were that the executors had told the tribunal that they were far from sure that they would find the beneficiaries, particularly the charities, willing to reimburse them the tax at issue which they must still pay and that HMRC had admitted that their own delay in dealing with the case was blameworthy (indeed had it not occurred, the executors may have been spared their present difficulties).
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