• Home
  • >
  • Blogs
  • >
  • ATED Penalty Appeal – Hawthorn Properties Unlimited v HMRC

ATED Penalty Appeal – Hawthorn Properties Unlimited v HMRC

Published by Susan Basnet
Posted Date: May 30, 2024 , Modified Date: May 29, 2024
Categories: ATED

Since the introduction of the Annual Tax on Enveloped Dwellings (ATED) legislation by the Finance Act 2013, non-natural persons holding UK residential property worth over the ATED threshold in value are required to comply with this tax regime. ATED applies to both UK-resident and overseas companies.

Initially, when the ATED legislation was introduced property value threshold for which ATED was applicable was £2 million, which was subsequently reduced to £1 million for the year ending 31 March 2016 and further reduced to £500,000 for the year ending 31 March 2017.

Many companies are not aware of this tax regime and, therefore, miss the ATED deadlines for numerous years. As a result, HMRC issues penalties for late submissions of ATED returns.

Hawthorn Properties Unlimited, a UK resident company, received a penalty notice for £6,400 and subsequently appealed against HMRC's penalty notice. The examination of this case provides valuable insights into the penalties imposed by HMRC in relation to ATED and how these penalties are computed. The partial success of Hawthorn Properties Unlimited in its ATED penalty appeal has been of interest to many companies.

Case Background

Hawthorn Properties Unlimited did not own any property worth over a million on the valuation date. Therefore, until 1 April 2016 – 31 March 2017, the company was under no obligation to make the ATED returns. Despite this, HMRC issued a penalty notice for late filing that also included the tax year ending 31 March 2016 under Schedule 55 of the Finance Act 2009.

Case Background on ATED Penalty appeal

The total penalty assessed was £6,400, which led the company to appeal against the penalty with HMRC. The ATED penalty appeal was made against the full penalty for all the years except the initial late filing penalty of £100 for the years ending 2017, 2019 and 2021.

The details of the penalty notice are summarised as follows:

Description

Relating to the tax year ending

Amount

Initial late filing penalty

31 March 2016
31 March 2017
31 March 2019
31 March 2021

£100
£100
£100
£100

Daily late filing penalty

31 March 2016
31 March 2017
31 March 2019
31 March 2021

£900
£900
£900
£900

6-months late filing penalty

31 March 2016
31 March 2017
31 March 2019
31 March 2021

£300
£300
£300
£300

12-months late filing penalty

31 March 2016
31 March 2017
31 March 2019
31 March 2021

£300
£300
£300
£300


Total

£6,400

Arguments and Discussions

Hawthorn Properties Unlimited appealed against the penalty on several grounds, many of which were accepted by the tribunal. The arguments raised by the appellant in its ATED penalty appeal are as follows:

A Single Mistake

The appellant argued that the penalties were due to one genuine mistake that led to multiple errors. The respondent did not accept this to be the case and made the argument that the penalties are the result of six different mistakes. That is on the basis that failure to submit an ATED return for each relevant period was a separate mistake, although one with a common root.

However, the tribunal found the respondent's viewpoint irrational on the following grounds, 'Where a taxpayer has no knowledge of the requirement to file an ATED return in year 1, it will inevitably not be met in year 2, and so, on until the taxpayer becomes aware of it. The effect is that one mistake leads to numerous penalties being issued. Therefore, characterising that one mistake as six solely by reference to the legislative requirement to submit a return for each tax year is irrational.'

Multiple ATED Returns

Hawthorn Properties Unlimited submitted that if Parliament had intended to limit the number of penalties chargeable to a taxpayer for submitting multiple ATED returns at once for the first time, it would have expanded para.13 of Sch.55 or introduced a similar paragraph covering ATED returns in later legislation such as the Finance Act 2013. In the absence of such legislation, Parliament must have intended for taxpayers to receive the full number of penalties chargeable under the law even when submitting multiple late ATED returns.

As with the previous claim, the tribunal did not accept those submissions on two grounds. Firstly, the tribunal asserted that it may have been the case for returns, which are made monthly, but not for the ATED returns, which are made annually. Secondly, if the Parliament had wished to exclude from special circumstances multiple penalties arising from a single mistake, it would have done so.

No Tax Loss

Another argument put forward by the appellant was that there was no loss of tax to HMRC and to consider this a 'special circumstance'. The tribunal agreed with the first part, i.e. there is no tax loss. However, it did not agree that this should be considered a 'special circumstance' as the ATED return must be submitted even where there is no tax due.

Lack of HMRC Warning

HMRC also asserted that, unlike other penalty regimes, there is no requirement for HMRC to issue any form of warning to taxpayers of the accruing penalties. This absence of a warning requirement is a legislative decision that must be respected and cannot in itself be considered a special circumstance.

Tribunal's Decision and Conclusion

After hearing the arguments from both the appellant and the respondent, the tribunal saw it right to reduce some of the penalties.

Tribunal's Decision and Conclusion on ATED Penalty appeal

This conclusion was reached under the reasoning that although the appellant's reasonings may not have been considered 'special circumstances', cumulatively, those reasons amounted to 'special circumstances':

  1. One mistake has led to numerous defaults for numerous years.
  2. That mistake was a genuine one.
  3. Those penalties have accrued without warning.
  4. Hawthorn had no other known compliance issues.
  5. There was no ATED charge to be accounted for.

The tribunal's decision can be summarised as follows:

  • As the company was under no obligation to file ATED returns for the year ending 31 March 2016, the appeal against the penalty for that tax year was accepted.
  • The appeal against the four penalties for the tax year ended 31 March 2017 was dismissed.
  • HMRC accepted the appeal against the penalties for the year ended 31 March 2019 and 31 March 2021, except for the £100 initial daily penalty for each year.

Key Lessons Learned

The case of Hawthorn Properties Unlimited v HMRC offers valuable lessons on the intricacies of the ATED regime and the critical importance of staying informed about compliance requirements. This ATED penalty appeal underscores several key points:

  • Awareness and Understanding: Companies must be vigilant about legislative changes and compliance deadlines to avoid penalties. Hawthorn Properties' experience highlights the consequences of missing crucial updates.
  • Potential for Leniency: The tribunal's decision to reduce penalties based on "special circumstances" such as genuine mistakes and no tax loss demonstrates that there is room for leniency. However, this depends heavily on the specifics of the case.
  • Responsibility for Compliance: The lack of a requirement for HMRC to notify taxpayers about penalties underscores the importance of proactive compliance management. This aspect of the case points to the burden on companies to ensure timely compliance without expecting prior warnings.

In short, this case illustrates the necessity for proactive and informed compliance in navigating the UK's tax regime, emphasising both the challenges and the potential reliefs within the legal framework of tax penalties.

Susan Basnet
Our Complete Guides
Related Posts

Confused where to start?

Book our Free Discovery Call

Please wait while the page is loading
Current Progress
Current Progress

15 minutes

Choose your preferred date and time

Discuss your business goals, challenges and requirements.

How Our Discovery Call Works

Please wait while the page is loading
Current Progress
Current Progress

Discovery Call

Proposal

Onboarding

Success message!
Warning message!
Error message!