FTT upholds APN non-payment penalty

A First Tier Tribunal (FTT) has dismissed an appeal from an investor in a film scheme against a penalty for failing to pay an amount specified in an accelerate payment notice (APN) by the due date because the sum he paid was allocated to a separate partner payment notice (PPN) for another scheme

The case concerned James Cabourne, who was appealing against a £2,983 penalty imposed by HMRC for failing to pay £59,665 by the due date specified in an APN in relation to his use of a scheme, Phoenix Film Partners. [James Cabourne and the Commissioners for Her Majesty’s Revenue and Customs, [2017] UKFTT 0258 (TC), TC05739].

The tribunal heard that Cabourne had originally objected also to the invalidity of the APN which had given rise to the late payment penalty, his liquidity difficulties in making the payment by the due date, and HMRC’s stance on payment deferment. However, in the light of various tribunal decisions, Cabourne had stated he did not want to pursue those arguments.

This meant Cabourne’s FTT case against the penalty centred solely on the fact HMRC had allocated a self-assessment repayment credit against sums due in respect of another scheme, run by Ingenious, in relation to which he had received an accelerated PPN, rather than against the APN for the Phoenix scheme.

The tribunal heard that Cabourne’s self-assessment tax return for the year ended 5 April 2009 claimed that income tax had been overpaid in the sum of £56,855. This was due in large part to an increased amount of loan interest claimed under s398 of the Income Tax Act 2007.

On 30 April 2010 HMRC opened an enquiry under s9A Taxes Management Act 35 1970 into his use of the Phoenix scheme. This enquiry remained open. The repayment claimed in the return was not paid to him due to the open enquiry but appeared as a credit on his self-assessment account.

On 20 May 2015 it was agreed between Cabourne’s agent and HMRC that the repayment credit be set off against a PPN in relation to his use of another scheme, set up by Ingenious.

On 24 July 2015 HMRC issued an APN for Phoenix for the tax year 2008-9. The APN specified that £59,665 had to be paid by 27 October 2015 or if representations were made the later of 27 October 2015 and the date falling 30 days after HMRC’s decision following the representations. A reminder of the deadline was sent by HMRC to Cabourne with a copy to his representative on 10 September 2015.

Cabourne’s representative sent in representations on 20 October 2015. In summary these were that the APN was not legally invalid because a condition had not been met in that a tax advantage did not result from ‘the chosen arrangement’; it was not the fact of Cabourne investing in, or the operation of the scheme which resulted in relief, rather it was the fact he had made a claim for relief under s398 ITA 2007.

The representations also explained that he would suffer undue hardship if HMRC insisted on payment, pointing out that Cabourne had been living off savings following his redundancy as a City insurance broker, following which his income had been greatly reduced, and that it would be disproportionate to expect him to sell his house, it being difficult and expensive to borrow funds. HMRC were asked to defer payment until the expiry of the conclusion of the enquiry into the loan interest relief.

On 26 February 2016 HMRC reviewed the representations but went on to confirm the APN in the same sum and to set out that in accordance with the statutory provisions the payment period for the amount ended on 1 April 2016.

There were further exchanges between HMRC and Cabourne’s representative, and a further review which concluded that the penalty was correctly issued, that there was no reasonable excuse for the failure to pay in time and that there were not any special circumstances which allowed the review officer to reduce the penalty under the Special Reduction provisions of paragraph 9 Schedule 56 FA 2009.

In the event, the full amount of the APN was paid by Cabourne on 15 June 2016 by means of a third party loan.

However, at the FTT Cabourne’s case was that HMRC’s consideration was flawed because HMRC failed to take account of the relevant fact that the credit ought to have been applied to reduce the Phoenix APN rather than the Ingenious PPN, and in doing so reached a decision it could not reasonably have reached.

The judge said Cabourne was arguing with hindsight, knowing what is known now, namely that there was, from his point of view, less of a need to apply the credit to the Ingenious PPN liability and more of a need to apply it to the Phoenix. The question was whether this feature amounted to special circumstances.

However, the judge concluded: ‘Even if I were to find that HMRC’s application of the legislation in relation to special circumstances was flawed I would not accept that the fact the appellant chose to sanction the application of the repayment credit to reduce his liability under the Ingenious PPN (thereby reducing the amount on which a penalty could be charged in respect of late payment of the Ingenious PPN) rather than have it used against the Phoenix APN amounted to a special circumstance which ought to  lead to the penalty being reduced.’

The FTT found that the agreed allocation of the credit against the Phoenix scheme neither provided Cabourne with a reasonable excuse for the non-payment nor did it amount to a special circumstance which ought to have led to the penalty being reduced.

The FTT accordingly dismissed his appeal and Cabourne was required to pay the £2,983 penalty.

CCH tax writer said: ‘The taxpayer had participated in two schemes in relation to which HMRC issued a PPN and an APN respectively. It was agreed between the taxpayer and HMRC to allocate a repayment credit on his self-assessment account against the amount in the PPN. As the amount specified in the APN was not paid by the due date HMRC issued a non-payment penalty.

‘The taxpayer appealed the penalty saying that HMRC should have set the credit against the APN and not the PPN. As the taxpayer had agreed to the use of the credit against the PPN it is unsurprising that the FTT dismissed the taxpayer’s appeal.’

James Cabourne and the Commissioners for Her Majesty’s Revenue and Customs, [2017] UKFTT 0258 (TC), TC05739 is here.

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