First-tier Tribunal (Tax)

[2010] UKFTT 250 (TC)

TC00545

Appeal number: TC/2009/14082

Surcharge – reasonable excuse

FIRST-TIER TRIBUNAL

TAX

                                                     C Thompson                                    Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: Rachel Short (TRIBUNAL JUDGE)                                                                                    Paul Adams (TRIBUNAL MEMBER)        

The Tribunal determined the appeal on 9 April 2010 without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default paper cases) having first read the Notice of Appeal dated 22 June 2009,  HMRC’s Statement of Case submitted on 9 November 2009 and the Appellant’s Reply dated 6 January 2010.

© CROWN COPYRIGHT 2010

DECISION

1.       This is an appeal against a surcharge under s 59C(2) TMA 1970 for the tax year 2007/8 relating to the Trust and Estate Tax Return in the estate of Mrs Ellen Francis White,(“Mrs White”) of which the Appellant was an executor.

2.       A surcharge of £1,296.86 was imposed by HMRC on the basis that the capital gains tax was paid more than 28 days late.

3.       Agreed facts:

4.       The Appellant was the Executor of Mrs White’s estate in respect of which probate was granted on 20 January 2006.

5.       A Tax and Estates Tax Return was made in respect of Mrs White’s estate for 2007/2008 on 21 January 2009. The tax due on the basis of the return was payable on 31 January 2009. The total tax due was £26,139.95.

6.       Payment of the tax due in respect of that return was made on 30 June 2009.

7.       The Appellant made a “time to pay” request to HMRC on 27 January 2009. That time to pay request was rejected on 17 March 2009 because tax returns for earlier periods in respect of Mrs White’s estate were still outstanding.

8.       A surcharge notice was issued to the Appellant on 1 April 2009 and the Appellant appealed against this notice on 22 June 2009 after HMRC had threatened the Appellant with county court proceedings to recover the tax due.

9.       The tax which is the subject of this appeal is tax due in respect of the estate of Mrs White of which the Appellant is executor and not tax payable by the Appellant in his personal capacity.

10.    The Arguments

11.    The Appellant is appealing against the surcharge imposed by HMRC on the grounds of “severe financial hardship”.  He states that he is a publican and is suffering a downturn in profits in the current financial climate. He has provided the Tribunal with copies of his trading accounts for the years 2006 and 2007.

12.    The Appellant also argues that the fact that he was attempting to negotiate a time to pay agreement with HMRC should be taken account of in considering whether the surcharge should be applied.

13.    HMRC have stated that the financial hardship which the Appellant is suffering should not be treated as a “reasonable excuse” for not paying the tax due. They refer to HMRC’s guidance in this area which states that an insufficiency of funds is not generally considered to constitute a reasonable excuse for these purposes.

14.    In order to constitute a reasonable excuse the Appellant would have to show that circumstances had arisen which were exceptional, unforeseeable and beyond the Appellant’s control.

15.    HMRC point out that the Appellant should have been aware that he was obliged to pay the tax relating to Mrs White’s estate before the estate was distributed to the beneficiaries, and this was not done. 

16.    The Appellant’s own business position is not relevant to his tax obligations as the Executor of Mrs White’s estate.

17.    As for the time to pay agreement, HMRC say that this was not granted by HMRC because of outstanding tax returns for earlier periods. They also say that the Appellant failed to make any of the instalment payments which he had suggested during the time that he was waiting for a decision concerning the time to pay arrangements.

18.    The Decision.

19.    In order to successfully appeal against a surcharge under s 59C(2) Taxes Management Act 1970 the Appellant needs to demonstrate that he has a “reasonable excuse” for the non payment of the tax due in accordance with s 59C(9).

20.    There is no statutory definition of what constitutes a reasonable excuse for these purposes but there are a number of decisions of the courts which provide some guidance, including the decision in Steptoe [1992 ]STC 757.

21.    These authorities suggest that in normal circumstances a mere shortage of funds or financial hardship will not constitute a reasonable excuse for non payment of tax. However if the financial hardship arises itself as a result of an unforeseeable or exceptional event beyond the taxpayer’s control, then that might be sufficient grounds to establish reasonable excuse.

22.    The Tribunal does not consider that the Appellant’s financial difficulties in his business as a publican fulfil these requirements in this case for two reasons; firstly the financial position of his business is not relevant to his tax obligations as an executor. The funds to pay that tax should have been retained from Mrs White’s estate and there should have been no reason for the Appellant to have had recourse to his own business profits to pay the tax due.

23.    Secondly, even if the financial position of his personal business is relevant, the Appellant has not provided the Tribunal with any evidence to suggest that his severe financial difficulties arose from any exceptional circumstances beyond the taxpayer’s control.

24.    In relation to the time to pay agreement, the Appellant was notified on 17 March 2009 that this request had been turned down. It was still not until three months later that the Appellant finally paid the tax due. Therefore any “reasonable excuse” that the surcharge should not apply because the time to pay agreement was being negotiated subsisted at best until 17 March and not for the whole period of default as required by s 59C(9).

25.    The Tribunal does not consider that the Appellant has demonstrated a “reasonable excuse” for non payment of the tax due and has therefore concluded that the Appellant’s appeal be dismissed.

26.    This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  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.

Rachel Short

TRIBUNAL JUDGE

RELEASE DATE: 2 June 2010