APN’S – no relief for the taxpayer

The First-tier Tribunal (FTT) has dismissed a taxpayerʼs appeal against penalties imposed for the late payment of accelerated payments – Nijjar [2017] TC 05667,

 The facts

Mr Nijjar appealed against two penalties that HMRC imposed, under s226 of FA  2014,  for  late  payment  of  accelerated  payments  demanded   in  an  accelerated payment notice (“APN”) issued pursuant to s219 of Finance Act 2014.  The Tribunal accepted that Mr Nijjar was ‘an honest and reliable taxpayer.’

On 19 May 2015 HMRC issued Mr Nijjar with an APN relating to the tax year to 5 April 2008 arising out of arrangements known as “Liberty 2” which HMRC considered to be notifiable under DOTAS. At the time HMRC issued the APN, there was an enquiry (under s9A of the Taxes Management Act 1970) open into Mr Nijjar’s self- assessment tax return for the 2007-08 tax year. The APN specified an accelerated payment due of £61,676.98.

Mr Nijjar made representations to HMRC under s.222 FA 2014on 17 August 2015, objecting to a number   of aspects of the APN. HMRC rejected those representations by letter dated 15 February 2016.  HMRC determined that Mr Nijjar was obliged to make the accelerated payment  by 21  March  20162.  It  was  common  ground  that  he  had  made no payment by that deadline, or by the date of the hearing.

As Mr Nijjar had not paid the accelerated payment demanded by the relevant deadline HMRC assessed Mr Nijjar to an initial 5% penalty under FA 2014  s. 226(2), followed by a further 5% penalty because the payment had not been paid within 5 months of the deadline under s. 226(3).

Mr Nijjar suffered from poor health and had financial difficulties.  He had also been the victim of a significant fraud. At  no  point however,  whether  prior  to  the  deadline  for  paying  the accelerated payment  or  after,  did  Mr  Nijjar  initiate  contact  with HMRC  with a view to agreeing a payment plan for that accelerated payment. Nor did he propose a payment plan and no such plan was in place at the date of the hearing.

On 26 April 2016, Mr Nijjar received a letter warning him that enforcement proceedings would be taken in respect of the accelerated payment unless he paid immediately. This made it clear to Mr Nijjar that HMRC were  not  giving  him  any  latitude,  whether  because  of  his  financial  situation   or otherwise, and prompted him to call to HMRC on the number quoted in that letter.

Mr Nijjar subsequently appealed to HMRC against the first penalty imposed on 11 May 2016 on the grounds that (i) a penalty should only have been imposed if the underlying tax was actually due; (ii)  he  had  not  actually obtained a  cash  flow  advantage from his participation in the Liberty 2 arrangements and (iii) he was in grave  hardship because of his financial situation and health problems. HMRC rejected that appeal on 6 June 2016 concluding, among other matters, that Mr Nijjar did not have a reasonable excuse for failing to pay the amount  due.  A subsequent review by HMRC upheld the penalty, on the basis that that Mr Nijjar did not have a “reasonable excuse” for failing to  pay the amount demanded and that there were no “special circumstances” that would allow HMRC to reduce the first penalty.  However, as the FTT found, Mr Nijjar notified his appeal against the second penalty to the Tribunal without first appealing to HMRC, and there was thus no evidence of HMRC’s reasoning in relation to the second penalty and it was clear that they had not considered the issue of special circumstances separately in relation to the second  penalty.

The FTT’s decision

The FTT reviewed the applicable legislation, under s.226 FA 2014 as applied to Schedule 56 FA 2009. The FTT recorded that, whilst there is no appeal to the Tribunal against the APN itself, there is a right of appeal against a penalty that is imposed for failure to make an accelerated payment. In this respect, no payment was due if the Taxpayer could satisfy the FTT that was a ‘reasonable excuse’ for the failure to pay the APN.  Alternatively, HMRC has a power under ‘special circumstances’ to reduce a penalty.

The FTT were not sympathetic to Mr Nijjr on grounds of ill health or financial difficulties.  The Tribunal said:-

‘Despite Mr Nijjar’s health problems, he has dealt competently with procedural issues relating to the APN…..Since Mr Nijjar’s health problems did not prevent him from taking those (procedural) steps, I do not consider that they would have prevented him making payment on time particularly given that HMRC told him on a number of occasions when the due date for payment was, and what he needed to do if he could not make payment on time.

I accept that Mr Nijjar’s financial difficulties are attributable to events outside his control (they have arisen as a result of his protracted poor health and the fraud of which he was a victim). They are not therefore excluded by paragraph 16 of Schedule 56 from being a reasonable excuse. However, by the time the accelerated payments fell due, Mr Nijjar had suffered from financial difficulties for a long time. He should have realised from the point at which he received a letter warning him that he was about to receive an APN that he would not be able to pay the amount demanded and taken steps to get in touch with HMRC to arrange a payment plan. It was not reasonable  for  Mr  Nijjar  simply to  assume that HMRC were aware of his  financial  situation and would make due allowance for it.’

Mr Nijjar’s arguments were similarly rejected on the issue of ‘special circumstances.’  The FTT said:-

 ‘HMRC have considered whether there are “special circumstances” in relation to the first penalty. However, as I have noted at [13], they did not take into account   that Mr Nijjar had been the victim of a fraud. I  have  concluded that  HMRC did  not  consider “special circumstances” at all in relation to the second penalty (although Mr Nijjar’s actions in notifying his appeal against the second penalty direct to the Tribunal have contributed to this result).

 It  follows  from  what  I  say  at  [36]  that  HMRC’s  conclusions  on   “special circumstances” are “flawed” in the sense set out in paragraph 15 of Schedule 56 of Finance Act 2009 and I therefore have the power to substitute my own decision on that issue for that of HMRC. I will not, however, alter HMRC’s decision. I do not think that that Mr Nijjar’s health problems have contributed to his failure to pay the accelerated  payment  to  such an  extent  as to  warrant  a special reduction. The   real reason why Mr Nijjar has not paid on time is his  financial situation.  That  is  an  “inability to pay” which is excluded by statute from being a “special circumstance”.  In any event, since I do not consider that Mr Nijjar has taken reasonable steps to address the consequences of the inability to pay, I would not anyway have reduced the penalty for this reason.’

 Levy and Levy comment

The key point is that any taxpayer faced with an APN cannot just plead financial circumstances and sit back and do nothing; he or she must proactively approach HMRC with a view to explaining those circumstances and attempting to agree a payment plan.  If such a plan cannot be agreed, at least the hard-pressed taxpayer can point to having made the effort in any subsequent proceedings before the FTT in relation to penalties.


Levy and Levy – the tax resolution and investigations specialists in London and Tunbridge Wells