ESA Films Ltd v Revenue & Customs [2011] UKFTT 248 (TC) (14 April 2011)

[2011] UKFTT 248 (TC)

TC01112

Appeal number: TC/2010/08661

Penalty – Late filing of corporation tax return – Whether reasonable excuse on the facts – No – Appeal dismissed –paragraph 18 schedule 18 Finance Act 1998

FIRST-TIER TRIBUNAL

TAX

ESA FILMS LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)

The Tribunal determined the appeal on 2 March 2011 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 10 November 2010 and HMRC’s Statement of Case submitted on 15 December 2010.

DECISION

Introduction

1. This is an appeal, by ESA Films Limited (the “Company”) against a tax related penalty of £1,100.23 imposed by HM Revenue and Customs (“HMRC”) for the late filing of the Company’s corporation tax return for the accounting period ending 31 December 2004 (the “Return”).

2. Having considered the papers provided by both parties, a Decision Notice dismissing the appeal and containing a summary of the Tribunal’s findings of facts and reasons for the decision was released on 10 March 2011. On 11 March 2011, following receipt of the Decision Notice, the Company’s managing director, Mr Zaheer Ahmad, wrote to the Tribunal requesting full written findings and reasons for the decision as the company wished to appeal to the Upper Tribunal. This is in accordance with rule 35(4) of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (the “Rules”) which provides:

If the Tribunal provides … summary findings and reasons only, in or with the decision notice, a party to the proceedings may apply for full written findings and reasons, and must do so before making an application for permission to appeal under rule 39 [of the Rules] (application for permission to appeal).

This decision is therefore provided in order to enable the Company to decide whether to apply for permission to appeal against the decision of the Tribunal and to assist in the formulation of any such appeal.

Evidence

3. The evidence before the Tribunal was contained in the following documents:

(1) Notice of Appeal dated 10 November 2010.

(2) HMRC’s Statement of Case submitted on 15 December 2010.

(3) The following documents sent with the Statement of Case:

(a) Companies House record of “Company Details”;

(b) Appeal against penalty to HMRC dated 31 March 2010;

(d) Appellant’s request for a review dated 1 September 2010; and

(e) HMRC’s review conclusion letter dated 19 October 2010.

Facts

4. From this evidence I find the following facts:

(1) Internet Experts Limited was incorporated on 28 July 1998 and registered at Companies House under Company Number 03605035. Its accounting reference date was 31 December.

(2) On 27 October 1998 it changed its name to ESA Recruitment Limited.

(3) A notice to file the Return was issued, by HMRC, to the Company on 24 January 2005.

(4) On 15 September 2005 the name of the Company was changed from ESA Recruitment Limited to ESA Films Limited. The Company continues to be known by this name.

(5) The Return had not been received by HMRC within three months after the filing date and a flat rate penalty of £200 was imposed on the Company. This penalty was paid in two instalments of £100 on 5 April 2006 and 8 June 2006 respectively.

(6) As the Return had still not been filed by 13 July 2006, HMRC issued a determination estimating the corporation tax at £24,000 together with a tax-related penalty of £2,400, 10% of the estimated corporation tax liability.

(7) The Return was filed on 29 August 2006, 241 days late. It showed a liability to corporation tax of £11,002.33. This replaced the estimated amount and, as the charge to corporation tax was lower than estimated, an amended penalty determination was issued on 31 August 2006 in the sum of £1,100.23, 10% of the corporation tax liability.

(8) It is not clear why, but it seems that there was no further action until the Company received a letter, dated 17 March 2010, from the Debt Office of HMRC demanding the immediate payment of the penalty.

(9) The Company responded by letter dated 31 March 2010 stating that it wished to appeal. This was rejected by HMRC in their letter of 18 August 2010 and HMRC’s decision to impose the penalty was upheld following a review. The Company was notified of the conclusion of the review by a letter from HMRC dated 19 October 2010.

(10) On 10 November 2010 the Company appealed to the Tribunal.

Law

5. The legislation applicable to company tax returns, assessments and related matters is contained in schedule 18 of the Finance Act 1998. Unless otherwise stated all subsequent references to paragraphs are to the paragraphs in schedule 18.

6. Paragraph 1 provides that HMRC may by notice require a company to deliver a tax return. The filing date for a return is “twelve months from the end of the period for which the return is made” (see paragraph 14(1)(a)). If the return is not delivered on time a company will be liable, under paragraph 17, to a fixed-rate penalty of £100 if the return is filed within three months or £200 in any other case.

7. A company which fails to deliver a return within 18 months after the end of the period for which the return is made is liable to a tax-related penalty, under paragraph 18, with the penalty being 10% of the unpaid tax if the return is delivered within two years of the end of the period or 20% in any other case.

8. However, where a person “had a reasonable excuse for not doing anything required to be done” s 118(2) of the Taxes Management Act provides that “he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.” There is no definition of ‘reasonable excuse’ in the legislation which “is a matter to be considered in the light of all the circumstances of the particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]).

Submissions

9. The Notice of Appeal, prepared by Mr Ahmad on behalf of the Company, contains the grounds of appeal, which are in similar terms to the content of letter of 31 March 2010 to HMRC written by Mr Ahmad. These state:

I feel the penalty is unfair because after such a long period of time I feel it is unfair to ask me to pay a penalty for a company ESA Recruitment Ltd, which ceased trading in 2005 and for which I no longer have any paper work which will allow me to verify the accuracy of your claim. ESA Recruitment was a limited company and as such I am not personally liable for any penalty claim now arising.

ESA Recruitment’s corporation tax payments were all made up to date and in full. In view of the fact that all tax payments due were actually paid several years ago, and that, as so many years had elapsed since the period in 2004 for which this penalty is being issued, I would be most grateful if you could please reduce the penalty and interest charge to nil

In the Notice of Appeal Mr Ahmad also writes, that:

… the amount of the penalty, which is over a thousand pounds is huge and I feel quite unreasonable at a time when economic and trading conditions are already very challenging. I feel HMRC should be finding ways to support and assist businesses during these difficult times not pursuing individuals for such large sums.

10. An additional reason for not accepting HMRC’s view was advanced by Mr Ahmad in the Company’s request for a review of the decision to impose the penalty. This was that “ESA Recruitment no longer exists and ceased trading in 2005. ESA Recruitment was a limited company and I am not liable for any penalty claims against this now non-existent company.”

11. HMRC contend that as the Company does not have a reasonable excuse for its failure to meet its obligation to file its corporation tax on time its appeal should be dismissed and the penalty confirmed.

Discussion and Conclusion

12. It should be noted that this appeal is against the tax-related penalty of £1,100.23 imposed under paragraph 18 and not the flat-rate penalties imposed under paragraph 17 which have been paid by the Company. Also, although the issue was not addressed by HMRC in their Statement of Case, it is clear that the penalty was imposed on the Company and not Mr Ahmad personally and, as such, he is correct to say that he is not personally liable for the penalty which is a liability of the Company.

13. However, Mr Ahmad contends that the company concerned, ESA Recruitment Limited ceased trading in 2005 and is now “non-existent”. It is clear, from their Statement of Case, that HMRC do not accept that this was the case and refer to Companies House records which “confirm” that ESA Recruitment Limited did not cease trading in 2005 but changed its name to ESA Films Limited.

14. While the Companies House records do not necessarily confirm that ESA Recruitment ceased trading in 2005 they do confirm that it changed its name to ESA Films Limited on 15 September 2005 and that its status is “Active” . This means that it did not cease to exist in 2005, it merely changed its name. ESA Films Limited is therefore, as a matter of company law, the same company as ESA Recruitment Limited, albeit with a different name to that used previously. As such, the Company remains responsible for liabilities, such as the tax-related penalty incurred under its previous name unless it can establish that it has a reasonable excuse for filing the Return late. The fact the Company, when known as ESA Recruitment Limited, had paid its corporation tax does not, in my judgment, amount to a reasonable excuse as the penalty was not imposed as a result of there being unpaid tax but the late delivery of the Return contrary to paragraph 14. Similarly, I do not consider that either the size of the penalty (which is fixed by statute) or the passage of time since the accounting period ended in December 2004 can be regarded as a reasonable excuse.

15. In the circumstances the appeal is dismissed and the penalty confirmed.

16. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

First-tier Tribunal (Tax)