Tribunal strikes out HMRC's application for a tax-related information notice penalty against Paul Baxendale-Walker

In Paul Baxendale-Walker v HMRC [2024] UKUT 00154 (TC), the Upper Tribunal (UT) granted the taxpayer's application to strike out HMRC's application for a tax-related penalty pursuant to paragraph 50, Schedule 36, Finance Act 2008 (FA 2008).

Background

The First-tier Tribunal (FTT) approved the issuing by HMRC of an information notice to Mr Paul Baxendale-Walker (PBW) pursuant to paragraph 1, Schedule 36, FA 2008 (the notice). HMRC amended the deadline for compliance with the notice to 15 March 2022, because of a delay in service and, after agreeing to two further extensions, issued penalty notices to PBW for non-compliance, pursuant to paragraphs 39 and 40, Schedule 36, FA 2008. On 1 March 2023, HMRC withdrew those penalties and informed PBW that he had a further 14 days (until 15 March 2023) to comply. 

On 15 March 2023, HMRC issued a new paragraph 39 penalty to PBW, which PBW appealed to the FTT. On 28 March 2023, HMRC applied to the UT for the imposition of a tax-related penalty on PBW in the sum of £14,031,851.01, pursuant to paragraph 50, Schedule 36, FA 2008 (HMRC's application).

On 29 March 2023, PBW made an application to the UT, under Rule 8(3)(c) of the Upper Tribunal Procedure (Upper Tribunal) Rules 2008, to strike out HMRC's application on the basis that certain statutory pre-conditions for the imposition of a paragraph 50 penalty had not been met and accordingly there was no reasonable prospect of HMRC's application succeeding (the strike out application). 

PBW argued that: 

• a paragraph 50 penalty cannot be imposed where there is an extant appeal against the underlying paragraph 39 penalty; 
• the statutory pre-requisite that the failure to comply with an information notice continued after the imposition of the penalty, had not been met in the instant case because HMRC was considering making an application for a paragraph 50 penalty even though the paragraph 39 penalty had been raised the day before;
• there was no failure that continued after the paragraph 39 penalty was imposed, as required by paragraphs 50(1)(b) and (c); 
• to the extent that paragraph 50(1)(a) is open to more than one reasonable interpretation, the interpretation which avoids a paragraph 50 penalty should be preferred; and
• HMRC's interpretation of the relevant provisions breached Article 6 of the European Convention on Human Rights (ECHR).  

HMRC argued that PBW's interpretation required reading into paragraph 50(1)(a) additional words which were not present and its interpretation of paragraph 50 did not involve any incursion into the presumption of innocence, for the purposes of Article 6, ECHR. Further, HMRC argued that there was a continuing failure to comply, as the paragraph 39 penalty was imposed on 15 March 2023 and PBW had not complied with the notice by 28 March 2023, when HMRC's application was made. 

UT decision

The strikeout application was allowed.

The UT held that not all of the paragraph 50 conditions had been satisfied. 

In striking out HMRC's application, the UT:

• disagreed with PBW that a paragraph 50 penalty cannot be imposed if there is an extant appeal because liability to a paragraph 39 penalty can arise, for the purposes of paragraph 50, as soon as a taxpayer fails to comply with an information notice; 
• commented that any danger of procedural chaos or potential unfairness could be dealt with by the ability of the FTT to stay a paragraph 50 application until any paragraph 39 penalty appeal has been finally determined;  
• did not need to definitively decide whether HMRC is able to vary the compliance date stated in an information notice because, either way, a requirement of paragraph 50 was not met because if HMRC had such a power, paragraph 50(1)(b) was not satisfied because HMRC's purported assessment of the paragraph 39 penalty was invalid (at the time the HMRC officer made and notified the assessment, PBW had not failed to comply with the notice)and if it did not, HMRC's only power was under paragraph 44, which only relieved PBW from the consequences of his failure if he complied within such further time as HMRC permitted; paragraph 50(1)(d) was not satisfied because HMRC applied to the FTT for the paragraph 50 penalty on 28 March 2023, but the deadline expired on 15 March 2023, that being the end of the period of 12 months beginning with the date PBW became liable to the paragraph 39 penalty. 

Comment 

The UT's decision provides helpful analysis on the correct interpretation of paragraphs 39, 40 and 50, Schedule 36, FA 2008. 

Although the UT did not definitively determine whether HMRC can vary the date for compliance stated in an information notice issued under paragraph 1, Schedule 36, FA 2008, and which has been approved by the FTT, the UT's obiter comments strongly suggest that HMRC is not able to do so.  

The decision can be viewed here.