First-tier Tribunal (Tax)

[2010] UKFTT 214 (TC)

TC00515

                            Appeal number TC/2009/13697

INITIAL AND SECOND SURCHARGE - late payment of tax – reasonable excuse

FIRST-TIER TRIBUNAL

TAX

                                              MAURICE CRAGG                             Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                       REVENUE AND CUSTOMS (Income Tax)    Respondents

TRIBUNAL: Anne Scott

The Tribunal determined the appeal without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal ) (Tax Chamber) Rules 2009.

© CROWN COPYRIGHT 2010

DECISION

1.     This case was assigned to be heard under the Default Paper category and because it was a hearing on the papers the Tribunal was unable to explore the evidence by questioning. The appeal is in respect of the surcharge notice issued on 09 October 2007. That notice was not produced but it was evident from the papers that the appellant had received it. The Tribunal did consider whether or not the Hearing should be adjourned for production thereof and of the information requested by Mr Cragg in his letter of 28 October 2009. The Tribunal had due regard to the fact that this was a paper hearing and to the provisions of Rule 2 of The Tribunal Procedure (First-tier) (Tax Chamber) Rules 2009.  The primary point in issue, with which the Tribunal had jurisdiction, was whether the Appellant had reasonable excuse for late payment. The onus is on him to establish reasonable excuse so HMRC were not required to produce, for example, as requested by him in his letter of 28 October 2009 the transcripts of telephone conversations about the missing tax returns, if in fact they exist. They are under no obligation to do so or to produce the entire return. The Tribunal decided that the paper hearing submission from HMRC addressed all of the material points and therefore since proper consideration of the issues was feasible, in the interests of avoiding delay, the case should be heard without adjournment. The Tribunal decision can only be based on the information available at the time of the Hearing.

2.     In terms of Rule 37 of The Tribunal Procedure (First-tier) (Tax Chamber) Rules 2009 the Tribunal corrects the clerical error in the summary decision; the Appellant’s name should read as it does herein, namely Maurice Cragg.

3.     The history is that the Appellant has been self employed since 25 April 2002 and his self assessment tax returns for the years 2001-02, 2002-03 and 2004-05 were submitted within the statutory deadlines. He should have been aware of his obligation to submit returns timeously. The 2005-06 return was issued on 06 April 2006 and the filing date was 31 January 2007. Duplicate returns were issued, at the Appellant’s request, on 14 July 2006 and 17 January 2007. Those requests from him, made by telephone, indicate that, at the very least, he was aware that he had obligations to the tax authorities.  The return was only received on 13 October 2008. On 30 August 2007, in the absence of a return HMRC raised a determination for tax of £4,300.92; that was due to have been paid by 31 October 2007. Following receipt of the return in October 2008 the liability was revised to £755.40 and that was paid on 20 November 2008. The period of default was therefore 659 days.

4.     In terms of Section 7 Taxes Management Act 1970 (hereinafter referred to as TMA) every person who is chargeable to Income Tax (and it was not disputed that the Appellant was such a person) shall within 6 months of the relevant tax year give notice that he is chargeable. The Appellant did not do so.

5.     In terms of Section 9 TMA the Appellant is required to file a self assessment if the return is filed after 31 October in the relevant year. In other words the tax payer is required to calculate the tax due. He did not do so.

6.     In terms of Section 59 TMA the due date for payment of the tax due is 31 January following the year of assessment (tax year) and if the tax is unpaid 28 days later then a surcharge equal to 5% of the unpaid tax is due and if any of the tax is still unpaid 6 months later then a further surcharge of 5% of the unpaid tax is imposed.

7.     In this case the tax due, as ultimately assessed and agreed was £755.40. The initial surcharge therefore was £37.77 and the same amount was imposed on the expiry of 6 months. It is not disputed that the tax due was not paid until more than 6 months after the due date. Therefore, the surcharge determination is correctly calculated at £75.54.

8.     Section 59 TMA provides that the only situation in which a surcharge will not be imposed or upheld is where the taxpayer has a reasonable excuse for not paying the tax throughout the period of default. The onus is on the taxpayer to establish reasonable excuse and that is not defined in the legislation. The case law and HMRC practice notes indicate that that is something outwith the taxpayer’s control.

9.     The Tribunal has to decide, on the balance of probabilities, whether or not the Appellant had a reasonable excuse for late lodgement of the tax return. His argument was that he had not received the return.  The basic point here is that although HMRC do issue tax returns the obligation to make returns lies unequivocally with the tax payer. That is the law of the UK (see paragraph 4 above). The Appellant challenged the fairness of that legislation (Folio 6) and challenged HMRC policy (Folio 13). Those are matters which are outwith the jurisdiction of this Tribunal. The Tribunal must apply the legislation as enacted and interpreted in case law to the facts of the case.

10.  The Appellant states that he did not receive the original or the duplicate tax returns from HMRC. He does not explain where he got the return which was submitted by him. The front page of that return was lodged as part of the HMRC submission (Folio 19). That return was not a downloaded return. The taxpayer’s address and the address for HMRC had been completed in handwriting rather than by computer. It was a return which had been issued by HMRC and in their submission they confirmed that it was the return issued by them following the telephone conversation on 17 January 2009. That was not challenged by the Appellant.

11.  This was quite an exceptional case in the sense that it appeared to be the situation that two addresses were held for the Appellant by HMRC and they were identical other than the postcodes and even the postcodes were substantially the same, the only difference being the last two letters in each. Oddly, it is the case that both addresses are in fact for the same street approximately one mile apart and with the same number building. No mail was returned to HMRC. The Tribunal accepted the possibility that some of the mail sent to the Appellant by HMRC may not have reached him but clearly some did so.

12.  All of the correspondence relied upon by HMRC in its submission was issued in the period 07 January 2006 to 22 September 2008 when the address which HMRC held on its computer system (Folio 18) was not the Appellant’s actual address. However, the return which was eventually submitted had been issued to the Appellant’s own address. There is no indication on the face of the return as to the date of issue thereof but realistically, there are only three possibilities, namely that (a) HMRC did not always use the same postcode, notwithstanding their records, (b) it was issued after 22 September 2008 or (c) mail was passed to him since the street clearly has duplicate numbering and it was presumably a recurrent problem.

13.  The Tribunal noted that in his appeal letter dated 09 September 2008 the Appellant states “If you ask yourself, why is it that a tax return is not returned, when it shows a financial loss for that tax year, what is there to gain from it”. That confirmed the view of the Tribunal that the return, which was eventually submitted, was issued by HMRC in January 2007 as alleged by them and that the Appellant chose not to return it timeously; that view was supported by Folio 2 where it is apparent that it was not just this return but also those for 2006-07 and 2007-08 that were all submitted in October 2008.

14.  Accordingly, since reasonable excuse can only be accepted if it applied throughout the period of default (Section 59 C (9) TMA 1970) then the Appeal cannot succeed on that basis even if it were to be accepted that the address issue could be accepted as a reasonable excuse. It is not to any real extent. In any event he knew (and should have known) that he was required to submit the returns and pay the tax that was due. He could have downloaded a return. He could have paid the tax. He did neither and no other excuse has been proffered by him for the delay in submitting the returns and paying the tax.

15.  The Appellant argued that HMRC were operating outwith the law. The Tribunal finds that they have complied with and applied the relevant law.

16.  In all these circumstances the Tribunal finds that there was no reasonable excuse throughout the period of default and the Appeal therefore fails.

TRIBUNAL JUDGE

RELEASE DATE: 13 May 2010