In the recent First-tier Tribunal case of Sarah Godliman v The Commissioners for Her Majesty’s Revenue and Customs (HMRC), the consequences of failing to file self-assessment tax returns on time were brought to the forefront. The tribunal’s decision, released on January 16, 2024, serves as a stark reminder of the importance of understanding one’s tax obligations and the potential penalties for non-compliance.

The Case:

In a recent case, Sarah Godliman was penalized with a substantial amount of £1,400 for not filing her self-assessment tax returns for the tax years 2017-18 and 2018-19 within the prescribed deadlines. These penalties were imposed under Schedule 55 of the Finance Act 2009, which clearly outlines the consequences of late filing of tax returns.

Ms Godliman’s primary contention was that she had been erroneously placed in the self-assessment regime and should not have been required to complete a self-assessment return. She argued that the figures detailed in her tax returns for the years in question contained errors and that she had only received income from employment, not from self-employment.

However, the tribunal found that Ms Godliman had reported both employment income and self-employment profits on her tax returns for 2017-18 and 2018-19, which were submitted in October 2021, significantly past the filing deadlines. The tax return for 2017-18 detailed income from all employments of £4,130 and profit from self-employment of £6,880, while the tax return for 2018-19 showed income from all employments of £1,551 and profit from self-employment of £8,424.

Furthermore, the evidence presented during the hearing demonstrated that Ms Godliman had accessed HMRC systems in April and November 2019 to register for self-assessment as a sole trader. Either party did not dispute this fact.

The Law:

The penalties imposed on Ms Godliman were in accordance with Schedule 55 of the Finance Act 2009. Paragraph 3 of Schedule 55 states that a fixed £100 penalty is imposed if a self-assessment return is submitted late. Paragraph 5 provides for further penalties when a return is more than six months late, which is the greater of 5% of any liability to tax that would have been shown in the return and £300. Similarly, Paragraph 6 imposes an additional penalty when a return is received more than 12 months late, which is also the greater of 5% of any liability to tax that would have been shown in the return and £300.

The tribunal also considered the “reasonable excuse” defence under Paragraph 23 of Schedule 55, which states:

“(1) Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a return if P satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure.”

However, the tribunal found that Ms Godliman had failed to provide a reasonable excuse for not filing her tax returns on time.

Comments and Analysis:

The most striking aspect of this case is that Ms Godliman should have attempted to correct the alleged errors on her tax returns or inform HMRC that the self-employment profits were incorrect. Despite receiving notices to file self-assessment tax returns for 2017-18 and 2018-19 in January 2020, she failed to take any action to clarify her tax obligations or challenge the need to complete the returns.

Ms Godliman’s lack of action raises concerns about her understanding of her tax responsibilities and the significance of timely communication with HMRC. As the tribunal pointed out, HMRC has the right to ensure that no tax is due by requiring a tax return to be completed. By not addressing the issues with her tax returns promptly, Ms Godliman exposed herself to significant penalties.

The case underscores the necessity for taxpayers to be diligent in reviewing their tax returns for accuracy and promptly addressing any errors or inconsistencies. If Ms Godliman had taken steps to correct the alleged errors in her tax returns or sought clarification from HMRC, she could have avoided or reduced the penalties imposed.

Moreover, the tribunal’s decision serves as a warning to taxpayers who may be tempted to delay or ignore their tax filing obligations. The penalties imposed on Ms Godliman demonstrate the potentially severe financial consequences of non-compliance with tax laws. Taxpayers must understand their tax obligations and take proactive steps to ensure they are meeting them.

Conclusion:

The case of Sarah Godliman v HMRC is a cautionary tale for taxpayers, underlining the potential financial burden of late tax returns. The substantial penalties imposed on Ms Godliman for filing her tax returns late serve as a stark reminder of the need for taxpayers to be proactive in understanding their tax obligations, communicating with HMRC, and addressing any discrepancies or errors in their tax returns promptly.

Taxpayers should always remember the importance of seeking professional tax advice, carefully reviewing their tax affairs, and meeting the deadlines for filing their self-assessment tax returns. The tribunal’s decision, in this case, emphasizes the significance of personal responsibility in tax matters. It serves as a valuable lesson for taxpayers to prioritize their tax obligations, take timely action to address any issues that may arise and maintain a proactive approach to tax compliance.