First-tier Tribunal (Tax)

[2010] UKFTT 81 (TC)

TC00393

Appeal number TC/2009/13258

Fixed penalties: Surcharge for late payment of income tax. Reasonable excuse.

FIRST-TIER TRIBUNAL

TAX

NARENDRASINH CHUDUSAMA

                                                                                                             Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                    REVENUE AND CUSTOMS (INCOME TAX) Respondents

                                                TRIBUNAL: Paulene Gandhi (tribunal judge)

                                                                        Andrew Perrin (member)

Sitting in public in London on 23 November 2009

Mr Chudusama appeared in person

Mr Howson of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1     This is an appeal against a £167.90 surcharge of 5% for late payment of income tax due for the year ending 5 April 2008. 

2       The following facts are accepted by both parties:

Mr Chudusama filed a paper return on 22 October 2008.  The due date for filing was 31 October 2008.  As he had filed a paper return by 31 October 2008 it was for HMRC to calculate his tax (s9 Taxes Management Act (TMA) 1970).  The first assessment on 15 December 2008 was for £43,740.87.  However that calculation was for the wrong amount.  HMRC  had taken into account and treated as taxable various tax fee amounts that Mr Chudusama had included in his return despite Mr Chudusama noting in his return that these were tax free. Mr Chudusama submitted an amendment to the return on 24 December 2008.  On 16 January 2009 HMRC issued an amended calculation.  Mr Chudusama did not receive this.  He was then sent another amended assessment on 11 March 2009 of £6229.87.  This was still incorrect.  However when he received a letter on 30 March 2009 he arranged payment on 14 April 2009 and paid £6141 by debit card.  The default period is from 1 February 2009 to 14 April 2009. 

3     The due date for payment of the tax is 31 January following the year of assessment (see s59B(4) TMA 1970). In addition to interest on late payments there is also a system of imposing surcharges.  When a payment is still unpaid on the day following the expiry of 28 days from the due date a surcharge automatically arises.  The initial surcharge is equal to 5% of the tax unpaid at that date (s59C(2) TMA 1970). 

4     As Mr Chudusama accepts he paid the tax late the question is whether he had a reasonable excuse for not paying the tax throughout the period of default.  If there is we can set aside the imposition of the surcharge (see s59C(9) TMA 1970)

5      On 19 December 2008 Mr Chudusama spoke to Mr. Norris of HMRC who told him that once the liability had been established he would be given enough time to pay any amount due by way of tax. Having heard and seen Mr Chudusama give evidence we accept he was a credible witness and thus that he was in regular contact with HMRC to ascertain the actual amount of tax owed. 

6       However a reasonable excuse must exist for the entire period of the default or the liability must be paid within a reasonable period after the reasonable excuse has ended. 

7     Mr Chudusama was entitled to rely on Mr. Norris’s advice. However Mr Chudusama knew by 11 March 2009 that he would have to pay some tax.  It is clear that he had still not been given the correct amount but he did have an approximate idea of what he owed.  Further it is also clear from his letter of 2 February 2009 that he had a reasonable understanding of his tax position.  He did not pay as he did not want to make an admission of liability nor did he know he could make a payment on account.  In our view making payment would not have amounted to an admission of liability. All that would have happened is that HMRC would have refunded any extra tax Mr Chudusama had paid.  Ignorance of the law cannot of course amount to a reasonable excuse. Mr Chudusama, as someone who was in regular contact with HMRC and as someone with a reasonable understanding of his tax affairs could have found out about these issues. Thus we find that there was no reasonable excuse for the entire period of the default as although Mr Chudusama did initially have a reasonable excuse he did not pay within a reasonable period of time once that excuse had ended as he did not pay his tax liability for just over another month after 11 March 2009.  

The Appellant has a right to apply for permission to appeal against this decision pursuant to rule 39 of the rules. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this Decision Notice.

TRIBUNAL JUDGE

RELEASE DATE: 28 January 2010