Tax avoidance scheme investor loses tribunal penalty appeal

A solicitor who invested in the Liberty 2 tax avoidance scheme, and who was seeking to appeal against penalties imposed by HMRC for late payment of an accelerated payments notice (APN) on the grounds of ill health, has lost his case at the First Tier Tribunal (FTT)

The case concerned Joginder Nijjar whose self assessment tax return for the 2008/08 tax year was under enquiry by HMRC. In May 2015, HMRC issued him with an APN specifying a payment due of £61,676.98 by a deadline of 21 March 2016. [Joginder Nijjar and the Commissioners for Her Majesty’s Revenue and Customs, [2017] UKFTT 0175, TC05667].

Nijjar failed to make any payments, and was subsequently given two penalties, both for £3,083.84. The first penalty, calculated at 5% was because he had not paid by the deadline while the second, also calculated at 5%, was for not paying within five months of the deadline.

He appealed against these penalties, on the grounds that since at least 2012 he had been suffering from serious heart problems which necessitated a triple by-pass operation, as well as other long term conditions which meant his health was poor.

Formally a partner in a successful solicitor’s practice, he had been unable to work for some years and had also been the victim of a fraud between 2006 and 2008 in which he had lost several hundreds of thousand pounds.

Nijjar appealed against both penalties on the grounds that a penalty should only have been imposed if the underlying tax was actually due; and that he had not actually obtained a cash flow advantage from his participation in the tax avoidance arrangements. He also argued he was in grave hardship because of financial difficulties caused by protracted ill health and because he had been the victim of fraud.

The FTT found that HMRC had proved it had followed all the necessary requirements in issuing the APN and the subsequent penalties, which had been correctly calculated.

The FTT rejected Nijjar’s argument that HMRC had to demonstrate that the conditions required to issue the APN had to be satisfied and that, since he obtained no cash flow advantage from the arrangements (having lost a large amount of cash to fraud), no penalty could be issued. The penalty was linked to failure to pay an amount when due, not any cash flow advantage.

The FTT found that Nijjar did not have a reasonable excuse for the non-payment of the accelerated payment. He had not established that his ill health had caused his ‘failure to make a payment’. Although the FTT accepted that Nijjar’s financial difficulties were attributable to events outside his control, and therefore could potentially amount to a reasonable excuse, by the time the accelerated payment was due he had been suffering financial difficulties for a long time and should have taken steps to contact HMRC to arrange a payment plan.

The FTT did not alter HMRC’s decision on special circumstances as it did not think that Nijjar’s health problems had contributed to his failure to pay the accelerated payment to such an extent as to warrant a special reduction. Instead, the tribunal said the real reason why Nijjar had not paid on time was his financial situation and an inability to pay was excluded by statute from being a ‘special circumstance’, and in any event it would not have reduced the penalty as it did not consider that Nijjar had taken reasonable steps to address the consequences of his inability to pay.

The judge stated: ‘Mr Nijjar is clearly an intelligent man and a qualified solicitor. He should have realised that the issue of the APN meant that he would owe HMRC money and that the onus was on him, as a debtor, to get in touch with HMRC before the due date for payment to agree an instalment plan.’

The FTT accordingly dismissed the appeal.

Wolters Kluwer tax writer, Meg Wilson said: ‘This case highlights that where a taxpayer appeals against a penalty for the late payment of an accelerated payment, the FTT can only consider whether the penalty was validly raised (and whether there was a reasonable excuse for non-payment or whether the penalty should be reduced because of special circumstances).

‘The FTT cannot consider whether the APN was validly issued in the first place. If a taxpayer considers that the required conditions for issuing the APN were not met representations can be made to HMRC and if not satisfied with HMRC’s response judicial review proceedings can be taken.’

The FTT ruling in Joginder Nijjar and the Commissioners for Her Majesty’s Revenue and Customs, [2017] UKFTT 0175, TC05667 is here.

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