A special commissioner decided that the imposition of penalties following a taxpayer's late filing of a PAYE return was not disproportionate and did not constitute an infringement of the taxpayer's right to peaceful enjoyment of its possessions guaranteed by art. 1 of Protocol 1 to the European Convention of Human Rights or the Human Rights Act 1998.

Facts

The taxpayer company appealed against the imposition of penalties resulting from the taxpayer's late filing of PAYE return. The Revenue had imposed penalties upon the taxpayer, amounting in total to £800, pursuant to TMA 1970, s. 98A(2)(a), for failure to submit a return as required by reg. 43 of the Income Tax (Employments) Regulations 1993.

By virtue of s. 98A(3)(a), in cases where the number of persons in respect of whom particulars should be included in the return was 50 or less, the penalty applicable under s. 98A(2)(a) was £100 per month or part of a month during which the failure to make a return continued subject to a maximum of 12 months. The taxpayer, who had engaged one subcontractor in the relevant year, had failed to make a return in respect of that subcontractor until over ten months after the date by which the return was required to be made. The notices applied penalties relating only to a total of eight months during which the taxpayer failed to make a return and no additional notice was issued in respect of the additional two months’ failure. The taxpayer contended that the penalty imposed in respect of a return comprising one subcontractor was the same as would have been sought from an employer engaging 50 subcontractors, and, even acknowledging the wide margin of appreciation afforded to the Revenue in taxation matters, the imposition of a penalty on the taxpayer that was 50 times more onerous on a per capita basis than a comparable case was disproportionate and constituted an infringement of the taxpayer's right to the peaceful enjoyment of its property guaranteed by the Human Rights Act 1998.

The taxpayer argued that the Revenue had the necessary power under TMA 1970, s. 1 to produce a penalty regime that was compliant with the Human Rights Act, based on a per capita penalty that gave direct proportionality between the level of penalty and number of subcontractors.

Issue

Whether the imposition of the penalties constituted an infringement of the taxpayer's right to peaceful enjoyment of its possessions guaranteed by art. 1, Protocol 1 of the European Convention of Human Rights and was disproportionate.

Decision

The special commissioner (Malcolm Gammie QC) (dismissing the appeal) said that there was a difference between the ‘margin of appreciation’ in its broader application to the assessment of the public interest that justified the infringement of the Convention right, and the question whether the particular measure was a proportionate measure. States were allowed a wide margin of appreciation in framing and implementing taxation policies. As the national tribunal that was called upon to decide whether the penalties imposed in this case under TMA 1970, s. 98A were or were not proportionate, the court had to conduct a more detailed consideration of the penalty provisions in question. The adoption of banding was a refinement to a fixed penalty regime for the late filing of returns and did not convert the penalty into a per capita penalty. As such it was not disproportionate in the taxpayer's case. The fact that the taxpayer had ended up with a penalty of £800 (as compared to tax deducted of £1,026) reflected its failure over ten months to complete and file the return.

The taxpayer was clearly in default in failing to deliver the return for ten months after the due date. For whatever reason a penalty was only imposed for eight of those months but for the eight months the only penalty that the Revenue could impose was that required by s. 98A, R v IR Commrs, ex parte Wilkinson [2005] UKHL 30; [2005] BTC 281 considered.

Even if the taxpayer's Convention right was infringed by s. 98A, the Revenue were entitled to rely upon s. 6(2) of the 1998 Act. The power of the special commissioners was constrained by the provisions dealing with appeals against penalty determinations in TMA 1970, s. 100B. The penalty in this case fell within s. 100B(2)(a). It was not possible to say that the penalty under s. 98A was not ‘required’ to be of a particular amount on the basis of human rights arguments. The penalties prescribed by s. 98A were of a particular amount and the commissioners had no power under s. 100B(2)(b)(iii) in this case. As the taxpayer was plainly in default in failing to deliver its return in time and the penalty for the eight months for which it was imposed was that specified in s. 98A, the commissioners had no option but to confirm the determinations.

(2007) Sp C 644.
Decision released 8 November 2007.