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  TC 05667,
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 , 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  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