![TC09647 - [2025] UKFTT 01124 (TC)](https://backend.juristeca.com/files/emisores/logo_7HSuEAV.png){kind=logo}
The Facts
The Facts
The appellant first registered with HMRC as an EAB on 17 May 2017 and that registration expired on 31 March 2018. The appellant made a new application to register on 26 March 2019. The appellant did not renew the registration timeously in March 2020 but did so on 4 September 2020. Again, there was not a timeous renewal and the next renewal was made on 10 September 2021. No renewal was made in September 2022 and the next application to register was made on 24 November 2023 (amended on 14 December 2023). The most recent and first timeous renewal was made on 4 September 2024.
HMRC’s policy in relation to failures to renew the registration timeously changed with effect from 4 August 2022. A failure to renew the registration led to an automatic cancellation of the registration.
In the appellant’s case, as can be seen, although there had been failures to renew timeously in previous years, the first time that the registration was cancelled was on 30 September 2022 because the appellant had failed to renew the registration. HMRC allow an extra-statutory 14 day period of grace, so the unregistered period commenced on 15 October 2022 and ended on 24 November 2023, ie a period of 1 year, 1 month, 1 week and 2 days. HMRC view that as being five quarterly trading periods.
Prior to the cancellation of the registration, HMRC had issued via the Gateway account three automatically generated reminder notifications to the appellant on 1, 15 and 23 September 2022. Those reminders state that they are reminders to pay the annual fee. They point out that failure to pay in a timely manner may lead to HMRC cancelling the registration and if the business is not registered then “you and / or your business may be subject to civil sanctions, such as a fine, or criminal proceedings if you continue to trade in activities covered by the Regulations.”
At the same time as those reminders were issued three generic reminder emails to look at the Gateway account were also sent to the appellant’s registered business email address. HMRC’s records show that the latter two were opened and read on the day that they were received and the first was opened and read on 3 September 2022. Those read:
“You’ve got a new message from HMRC.
You have a new message from HMRC about your anti-money laundering supervision.
To view it, sign into your HMRC online account using the link you were given when you were invited to register online for supervision.
For security reasons, we have not included a link with this email.
Why you got this email
You gave this contact email address when you signed up for anti-money laundering supervision.
This means we send you an email to let you know you have a new message in your account.
From HMRC Anti-Money Laundering Supervision”.
On 1 October 2022, the cancellation of the registration was intimated to the Gateway account and that notice stated that the cancellation would come into effect 14 days later in order to “allow you to conclude relevant business”.
It points out that a new registration application and payment of the relevant fee was required and, in the absence of that, if the business continued to trade then it may be subject to a fine or criminal sanctions.
The appellant currently employs seven people. In the past, and currently, the appellant states that it relies on diarised reminders for matters such as renewal of registration.
In 2022, the appellant changed their computer records management system and in Mr Mathews’ words “this slipped through the net”.
When renewing or changing the contract with the appellant’s provider of anti-money laundering services (“AML”), in 2023, that provider noted that the appellant was not registered. The appellant immediately submitted a new application as an EAB on 24 November 2023.
On 8 January 2024, Officer Little, who is an Economic Crime Supervision Officer with HMRC, reviewed the application and that was approved the following day.
On 16 January 2024, Officer Little wrote to the appellant explaining that the business had previously been registered for supervision but that application had expired on 30 September 2022 and the new application had not been received until 24 November 2023. Accordingly, it appeared that the business might be liable for a financial penalty for trading whilst unregistered. She said that in order to determine whether a penalty is due and, if so, the value of that penalty, she required to have confirmation of the date when the business commenced trading and the gross profit for the most recent accounting period. She provided a link to the then current HMRC guidance on how they defined gross profit for the purpose of the penalty calculation.
On 9 February 2024, Mr Mathews confirmed that:
The business had traded as estate agents since 2002.
At no time had they intentionally traded whilst unregistered.
Missing the renewal date was in part caused by the change in the records system, people working from home post covid and changes in personnel.
They had received no reminders such as those sent by other Government departments such as the Information Commissioners Office and they had not been advised that the registration had lapsed.
As soon as they became aware of the problem they had renewed the registration and now had robust procedures in place to avoid a repetition of the oversight.
The gross profit figures were furnished together with an explanation that:
“There has been a large decrease in turnover in this period due to higher interest rates which has had a detrimental effect on the cash resources of the business, and we are now having to consider potential redundancies. We are still repaying our bounce back loan which is an additional drain on our resources”.
On 8 March 2024, Officer Little issued an “Intention to Impose a Penalty” letter in respect of the breach of the Regulations on the basis that the appellant had traded whilst unregistered. She had quantified the penalty in the sum of £13,000 and had added a penalty administration charge in terms of Regulation 102 of the Regulations. She included a penalty calculation schedule which gave further detail and explained how the amounts had been calculated (see paragraph 48 below). She stated that after taking into account all the relevant circumstances, it was considered that the penalty to be charged was appropriate in terms of Regulation 76. She included a link to the Penalties Framework. She responded to the points made by the appellant in the email of 9 February 2024.
In particular, she pointed out that it was the appellant’s responsibility to ensure that it met all legal requirements in the Regulations and that there was extensive guidance available on HMRC’s website. She provided a link to HMRC’s guidance on money laundering supervision which not only explains the civil measures but also the criminal sanctions. She confirmed that prior to the cancellation of registration, three renewal reminder messages had been issued to the Gateway account as was the cancellation notice.
Lastly, she explained that the letter was for information purposes only and to provide the business with an opportunity to make representations; no final decision had been made. She referred the appellant to the Penalties Framework. She also explained that in accordance with Regulation 85, HMRC had a duty to publish details of any penalty.
On 21 March 2024, Rupp and Fraser sent representations to HMRC and their letter is date stamped by HMRC on 25 March 2024. It would appear that it was mislaid internally as, Officer Little, believing that no representations had been received, issued a Penalty Notice in the sum of £13,350 to the appellant on 12 April 2024.
When the officer received the representations on 15 April 2024, she emailed the appellant telling them to disregard the Penalty Notice stating that she would review those representations before making a final decision.
On 7 May 2024, the officer issued an “Amended Penalty Notice” in the same sum. She narrated the representations and responded to them.
In particular she confirmed that:
It was the appellant’s responsibility to ensure that it met the requirements in the Regulations and whilst there was no evidence that it had intentionally intended not to register, it had not taken the appropriate steps at the relevant time. There had been a breach of the Regulations.
Whilst the appellant had argued that communications via the Gateway were not specified in the legislation as “an acceptable method of communication” she referred the appellant to the guidance on registering or renewing for money laundering supervision.
Whilst the appellant had argued that HMRC had sent the letter of 8 March 2024 by mail and so the reminder notifications should have been sent by mail, she observed that HMRC communicated with taxpayers by email, phone, post or secure communication and she again referred to the guidance on registering and renewal. She pointed out that it was the appellant’s responsibility to check the Gateway account.
She noted that the appellant stated that at all times the AML checks had been carried out (at some cost) and suspicious activity would have been reported but explained that that was not the point of the penalty which related to the period that the business was trading whilst unregistered which is also a requirement of the Regulations.
She had sent the representations about publication to the publication team who would make a decision on that matter.
The appellant had argued that in terms of Regulation 83, the appellant had not derived any benefit from not registering, no profits or losses were gained, no losses had been incurred by third parties and the appellant had co-operated fully with HMRC. The officer confirmed that she had reviewed Regulations 76 and 83 and deemed the penalty to be appropriate in the circumstances of the business. She acknowledged that the appellant had co-operated with HMRC and had applied the 50% reduction as a result. She highlighted the opportunity for a further 25% reduction if the penalty charge were paid within 30 days.
During a telephone call on 3 June 2024, Mr Rupp again reiterated to the officer the arguments that communications via the Gateway account were not appropriate and that the penalty was not fair or proportionate. In particular it was not fair because it was due to an administrative oversight. The officer explained that if the penalty was paid within 30 days and her decision was not upheld on review then a refund would be made.
The reduced penalty in the sum of £10,100 was paid on 5 June 2024.
The appellant having requested a review of the decision of 7 May 2024, on 8 July 2024 HMRC issued a Review Conclusion letter upholding Officer Little’s decision. That letter recognised that the appellant’s primary argument for seeking a review was that being notified via the Gateway account was unreasonable. The other arguments previously advanced by the appellant were also addressed.
The review officer made it clear that the crux of the matter was that the appellant had traded for a significant period of time whilst it was not registered with HMRC as was required by the Regulations. Quite apart from the guidance stating that reminders would be issued via the Government Gateway account, which should be checked, the appellant should have known that renewal was required annually. The appellant had not provided any evidence that it had taken all reasonable steps and exercised all due diligence to comply with the Regulations.
The review officer confirmed that the penalty had been correctly calculated in terms of the three steps specified in the Penalties Framework. The appellant’s gross profit falls into the fourth band with a penalty of £25,000. The starting penalty for both the first and second steps was £25,000 and the third step was a penalty of £200 for each of the five periods. The total penalty was therefore £26,000 and as the late application to be registered was not prompted by HMRC, a 50% reduction was appropriate. To the resultant figure of £13,000 a non-appealable penalty administration charge of £350 fell to be added giving a total of £13,350.
On 5 August 2024, the appellant appealed to the Tribunal. The Grounds for Appeal read:
“Our client believes that the level of penalty is out of proportion to the failure to re-register for AML, and also that HMRC sent reminders by the Government Gateway which is not the way any of (sic) clients would expect to be contacted, instead of by post or email which is the normal method for businesses
They are also concerned that any publication of this will have a detrimental and financial affect (sic) on their business in the local community.”