Judgment summary
This is an appeal against a decision of the First-tier Tribunal (FTT) released on 16 September 2024, which dismissed the Appellants' appeals against penalties imposed for non-compliance with information notices issued under Schedule 36 Finance Act 2008 (paras 1, 2, 18).
The Appellants argued they had a reasonable excuse because they were consistently advised that no action was needed since their pension schemes had been wound up, and it was reasonable for them to rely on that advice (para 3).
The Upper Tribunal dismissed the appeal on the reasonable excuse grounds, finding the FTT had applied the correct legal test and reached findings open to it on the evidence. The Upper Tribunal allowed the appeal in part on the ground concerning the quantum of penalties, finding the FTT had erred in law by relying on a statutory provision, paragraph 49A of Schedule 36 FA 2008, which did not apply to the facts of the case (paras 92-96).
Background
Mr Hill was the scheme administrator of the Molten Metal 2012 Pension Scheme, and his Information Notice was issued to him on 20 January 2018. Mr McCracken was the scheme administrator of the DMI Pension Scheme, and his Information Notice was issued to him on 22 January 2018 (paras 3, 4).
Liddell Dunbar Ltd (LD) operated the schemes on behalf of the scheme administrators as a practitioner. Following receipt of the Information Notices, LD engaged Independent Tax (IT) to advise LD in respect of the Information Notices and to correspond with HMRC on behalf of the appellants (para 5).
A review conclusion letter was issued on 22 October 2018, varying some content of the Information Notices but otherwise upholding them. LD subsequently advised the appellants, based on IT's view, that because the pension schemes had been wound up there "should be no need to respond" (para 6, 7).
HMRC issued a series of penalties: initial penalties of £300 each in December 2018; a first tranche of daily penalties of £2,040 each (at £30 per day) on 19 February 2019; a second tranche of £8,040 each (at £60 per day) on 4 July 2019; and a third tranche of £9,720 to Mr Hill (16 December 2019) and £10,020 to Mr McCracken (18 December 2019), both at £60 per day (paras 8, 11, 15, 22, 23).
The FTT found that neither Appellant had a reasonable excuse for non-compliance and upheld the penalties in full, including as to quantum (para 1, 18).
Core dispute
The central issue was whether the Appellants had a reasonable excuse for failing to comply with the Information Notices, on the basis that they were consistently advised that no action was needed because their pension schemes had been wound up, that they believed as a result they had no obligation to comply, and that it was reasonable for them to rely on that advice and hold that belief (para 3).
The Appellants appealed to the Upper Tribunal on the grounds that the FTT erred in law in its approach to reasonable reliance on an adviser (Ground 5(f)), that its conclusions were based on a misunderstanding of the facts, irrelevant factors and/or fell outside the reasonable range (Grounds 5(b)-(e)), and that it erred in law in relation to the quantum of the penalties (Ground 6) (para 19).
Court findings
The Upper Tribunal held that the FTT was entitled to find that the Appellants had not taken reasonable care in relying on the advice given by their advisers, applying the three-stage test from Perrin v HMRC [2018] UKUT 156 (TCC) (paras 11, 51-53).
The Tribunal rejected the argument that the FTT had applied the wrong test by failing to ask whether the Appellants were aware or should reasonably have been aware that the advice was "obviously wrong". Instead, the Tribunal held that paragraph 45 Schedule 36 FA 2008 and the relevant authorities required consideration of the level of care shown by a person in relying on advice, including their conduct in receiving that advice (paras 48-51).
The Tribunal found no misunderstanding of the facts regarding the "two groups" of pension schemes, no error in the FTT's treatment of the "change of advice" point, and no inadequacy of reasoning at FTT [62]. The FTT's findings that the Appellants failed to ask questions or check the advice they received were open to it on the evidence (paras 63-76, 81-83).
On quantum, the Tribunal agreed with the Appellants that the FTT had erred in law by relying on paragraph 49A Schedule 36 FA 2008, which applies only to notices issued under paragraph 5 (person unknown notices) and not to the paragraph 1 notice at issue in this case. The Tribunal held that this error may have made a difference to the FTT's conclusion on seriousness and quantum (paras 85-86, 92-93).
Outcome
The Upper Tribunal allowed the appeal in part. It dismissed the appeal on Grounds 1 and 2 (PTA Grounds 5(f) and 5(a)-(e)) relating to reasonable excuse, finding the FTT had applied the correct test and reached findings within a reasonable range. It allowed the appeal on Ground 3 (PTA Ground 6) concerning the quantum of the penalties, on the basis of an error of law regarding paragraph 49A Schedule 36 FA 2008 (paras 94-96).
The parties were directed to provide submissions within 21 days as to whether the issue of quantum of the penalties should be remitted to the FTT or remade by the Upper Tribunal (para 97).
Major issues / areas of contention
- Whether the FTT took an erroneous approach to the question of reasonable reliance on an adviser as an element of reasonable excuse under paragraph 45 Schedule 36 Finance Act 2008
- Whether the FTT's conclusions were based on a misunderstanding of the facts, irrelevant factors, or fell outside the reasonable range of conclusions open to it
- Whether the FTT erred in law in its approach to the quantum of the daily penalties by relying on paragraph 49A Schedule 36 FA 2008, a provision inapplicable to the paragraph 1 information notices at issue