Annual Tax on Enveloped Dwellings: Are Late Return Penalties Valid?
Three contradictory First-Tier Tax Tribunal decisions have created uncertainty about whether HMRC can validly levy daily penalties for late ATED returns. Paul Davidoff examines where things stand.
The Annual Tax on Enveloped Dwellings (ATED) applies to UK residential property held through a company, where the property is worth £500,000 or more. Returns must be filed by the end of April each year, even where an exemption applies — the exemption must be expressly claimed.
For non-UK companies, directors may not have been aware of their ATED obligations at all. When they eventually file overdue returns, HMRC may impose daily penalties from three months after each original deadline — potentially amounting to thousands of pounds per return, even where no tax was due.
The Tribunal decisions
Three recent First-Tier Tax Tribunal cases have produced contradictory outcomes. In the first two, the same judge held that HMRC could not validly impose daily penalties where it had not known the return was outstanding — because HMRC must notify the taxpayer of a future penalty date, and by the time HMRC became aware (when the late return was submitted), the return was no longer outstanding.
In the third case, a different judge reached the opposite conclusion, disagreeing with the earlier two decisions.
Where things stand
The decisions are contradictory and none is binding on HMRC or the First-Tier Tribunal. An Upper Tribunal decision will be needed to settle the point — but this requires a taxpayer to lose at first instance and consider the amount at stake worth appealing.
In the meantime, anyone filing late ATED returns should expect a penalty notice and be prepared to challenge it. Please contact Paul Davidoff or Darren Austin-Smith if you are concerned about ATED compliance or if you believe you may have been paying ATED incorrectly.