Late Filing Penalties Upheld in Sarah Godliman v HMRC Case

Introduction

The decision in the case of Sarah Godliman v The Commissioners for Her Majesty’s Revenue and Customs [2024] UKFTT 81 (TC) concerns the appeal against penalties for late filing of self-assessment tax returns for two consecutive tax years, 2017-18 and 2018-19. The First-tier Tribunal (Tax Chamber) examined whether the penalties imposed by HMRC were appropriate and justified under existing tax legislation.

Key Facts

Ms. Sarah Godliman (“the Appellant”) received notices from HMRC requiring her to file self-assessment tax returns for the years ending 5 April 2018 and 5 April 2019. The Appellant’s returns were submitted 559 and 553 days late, respectively, resulting in HMRC imposing total penalties of £1,400 under Schedule 55 of the Finance Act 2009. The Appellant contended those returns were filed erroneously under the self-assessment regime and claimed the income was from employment, not self-employment as stated. The Appellant also questioned the proportionality of the penalties.

Legal Principles

Self-assessment Filing Obligations

Under s.8 of the Taxes Management Act 1970 (TMA), individuals may be required to file a self-assessment tax return by specific deadlines. Failure to meet these deadlines results in a structured penalty regime as outlined in Schedule 55 of the Finance Act 2009. This includes a £100 immediate penalty, followed by additional penalties after three, six, and twelve months, calculated based on £10 daily rates and/or percentages of tax liability exceeding £300.

Reasonable Excuse and Special Circumstances

Paragraph 23 of Schedule 55 introduces the concept of ‘reasonable excuse,’ providing a potential defense against penalties if the appellant can substantiate such a claim. Moreover, HMRC may reduce penalties under ‘special circumstances’ as per Paragraph 16. Both conditions require proper evidence and justification.

Outcomes

The Tribunal evaluated the Appellant’s claims regarding her inclusion in the self-assessment regime and the consequent penalties. However, the Tribunal found that the submitted tax returns did include self-employment income, and the Appellant had interacted with HMRC systems indicating self-assessment registration. The Appellant failed to communicate or rectify this claim with HMRC after receiving notices.

The crucial points of law pertained to the late filing penalties and reasonable excuses. The Tribunal concluded that the late filing penalties were applied correctly as per legislation. There were no errors on HMRC’s part in imposing the penalties under the stipulated penalty regime. The Tribunal also determined that the Appellant did not provide evidence of a ‘reasonable excuse’ for the late filings or present ‘special circumstances’ that would warrant a penalty reduction.

Conclusion

The Tribunal’s decision in [2024] UKFTT 81 (TC) emphasizes the importance of compliance with tax filing obligations and reinforces the structured penalties regime designed to enforce these obligations. This case underscores that an appellant challenging penalties must provide compelling evidence for claims of ‘reasonable excuse’ or ‘special circumstances.’ It also serves as a reminder to check one’s tax status and filing obligations diligently to avoid unnecessary penalties. The decision ultimately upholds the penalties imposed by HMRC, dismissing the appeal and underscoring the critical nature of timely tax return submissions.