First-tier Tribunal (Tax)

[2010] UKFTT 352 (TC)

TC00634

Appeal reference: TC/2009/10866

INCOME TAX – late payment – surcharge – reasonable excuse – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                                                         MR IAN CAMPBELL                                       Appellant

- and -

THE COMMISSIONERS FOR

                                      HER MAJESTY’S REVENUE AND CUSTOMS         Respondents

Tribunal:        Jennifer Trigger (Judge)

                        Derek Robertson (Member)

The Tribunal determined the appeal on 16 December 2009 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 12 June 2009,  HMRC’s Statement of Case submitted on 23 July 2009 and the Appellant’s Reply dated 20 August 2009.

© CROWN COPYRIGHT 2010

DECISION

1.           In this case the tribunal was required to decide whether a surcharge for the late payment of income tax for the year ending 5 April 2008 (“the Surcharge”) had been correctly levied by HMRC.

2.           The evidence upon which the tribunal was required to make its decision consisted of the statement of case by HMRC, copy correspondence, copy cheques and copy HSBC account and the Appellant’s statement of case.  On the basis of that evidence the tribunal found the following facts to have been established.

3.           The Notice to File for the year ending 5 April 2008 was issued by HMRC on 6 April 2008 to the Appellant.  The filing date was 31 October 2008 for a paper return or 31 January 2009 if filed online.

4.           The Return was filed online by the Appellant’s agent, Price Bailey, chartered accountants (“the Agent”) on 28 January 2009.  The liability for tax (“the Liability”) was calculated automatically and the Agent would have known the amount of income tax that had to be paid by the Appellant by the due date of 31 January 2009 (“the Due Date”).

5.           The Liability for the year 2007 - 08 was £48,571.66.  The amount was due as payment on account in instalments of £4,255.89 and £4,255.90 and a balancing payment of £40,059.87.  The instalments were due to paid by 31 January 2008, 31 July 2008 and by the Due Date respectively.

6.           The sum of £40,059.87 was paid on 13 March 2009.  The period of default from the Due Date was 41 days.

7.           A surcharge notice was issued by HMRC to the Appellant on 3 April 2009.

8.           On 20 April 2009 the Agent submitted an appeal on behalf of the Appellant on the grounds that the Appellant had sent to HMRC a cheque in settlement of the 2007 – 08 tax liability well before the end of February 2009.

9.           By letter dated 19 May 2009 to HMRC the Agent stated that:

“Mr. Campbell is adamant that his cheque in settlement of the 2007 / 2008 tax liability was forwarded to you after discussing the matter with us well before the end of February.  He is unable to provide any explanation as to why the cheque was not presented until 17 March.”

10.        The Appellant’s grounds of appeal were:

Cheque number 102332 to HMRC was drawn on 27.1.09 and bank statements will show that it was not drawn as back-dated

It can be demonstrated that there were more than ample funds available to settle the tax owing

I have been in business for some thirty years and I have never had any surcharge or fines relating to Income Tax, VAT or National Insurance.

The cheque was posted in ample time and I can remember being surprised how long it had taken to pass through our account.

The amount is totally disproportionate to the alleged offence committed and given that people who are unable to pay their tax bills through extravagance or incompetence can now be given time to pay and no surcharge being imposed.

Whilst I have no receipt for posting the cheque there is a weight of circumstantial evidence that I have no reason for delay and to risk surcharge; and whatever the events that lead to the late delivery or banking of the cheque, was beyond my control, and therefore I passionately believe this grossly unfair surcharge should be quashed.

11.        HMRC maintained that as the sum of £40,059.87 was still outstanding 28 days after the due date a 5% surcharge had been correctly imposed in the sum of £2,002.29.

12.        By letter dated 9 May 2009 HMRC responded to the Appellant’s appeal against the surcharge for the year 2007 – 08.  HMRC stated that there must be a reasonable excuse for any failure to pay the tax liability by the Due Date and the reasonable excuse must have continued throughout the whole period when the payment was overdue.  HMRC did not accept that the Appellant had shown reasonable excuse because payment was received by HMRC on 13 March 2009 and it was the Appellant’s responsibility to pay the tax owed by the Due Date.

13.        By letter dated 19 May 2009 the Agent requested HMRC to review its decision to impose the Surcharge on the Appellant.  By letter dated 2 June 2009 HMRC informed the Appellant that the decision to impose the Surcharge was upheld.  The reasons given by HMRC were that although the Appellant had maintained that a cheque had been sent to HMRC in payment of the tax due, in February 2009, HMRC did not receive payment of the tax due until 13 March 2009.  HMRC requested the Appellant to provide evidence of the date of postage.  The Appellant did not provide any evidence.

14.        It was HMRC’s case that it received no evidence to support the Appellant’s statement that a cheque was drawn on 27 January 2009 in payment of the income tax outstanding at the Due Date.  Furthermore HMRC relied on the letter of appeal dated 20 April 2009 from the Agent which contained the following statement:

“We can confirm we spoke to our client during February, when we advised him of the late payment surcharge, and he assured us that payment would be made thereafter.”

15.        HMRC relied also on the issue to the Appellant of a surcharge for the late payment of tax for the year 2004 – 05.

16.        HMRC maintained that the Appellant has failed to show that there existed a reasonable excuse for the Appellant’s failure to pay the tax due by the Due Date and that no reasonable excuse existed for the whole of the default period, which in the Appellant’s case was 31 January 2008 to 12 March 2009.

17.        The legislation which the tribunal was asked to consider was contained in the Taxes Management Act 1970 (“the Act”):

            “7, Notice of liability to income tax and capital gains tax

(1)  Every person who –

(a) is chargeable to income tax or capital gains tax for any year of assessment, and

(b) has not received a notice under section 8 of the Act requiring a return for that year of his total income and chargeable gains

shall, subject to subsection (3) below, within six months from the end of that year, give notice to an officer of the Board that he is so chargeable.

9, Returns to include self-assessment

(1) Subject to [subsection (1A) and (2)] below, every return under section 8 or section 8A of the Act shall include a self-assessment

(2) A person shall not be required to comply with subsection (1) above if he makes and delivers his return for a year of assessment –

      (a) on or before the [31^st October] next following the year

(3) Where, in making and delivering a return, a person does not comply with subsection (1) above, an officer of the Board shall if subsection (2) above applies, and may in any other case –

(a) make the assessment on his behalf on the basis of the information contained in the return, and

(b) send him a copy of the assessment so made.

         59B, Payment of income tax and capital gains tax

            (3) In a case where the person -

(a) gave the notice required by section 7 of the Act within six months from the end of the year of assessment, but

(b) was not give notice under section 8 or 8A of the Act until after 31 October next following that year,

The difference shall be payable or repayable at the end of the period of three months beginning with the day on which the notice under section 8 or 8A was given.

(4) In any other case, the difference shall be payable or repayable on or before 31 January next following the year of assessment.

         59C, Surcharges on unpaid income tax and capital gains tax.

(2) Where any of the tax remains unpaid on the day following the expiry of 28 days from the due date, the taxpayer shall be liable to a surcharge equal to 5% of the unpaid tax.

(3) Where any of the tax remains unpaid on the day following the expiry of six months from the due date, the tax payer shall be liable to a further surcharge equal to 5% of the unpaid tax

(9) On an appeal under subsection (7) above [that is notified to the tribunal] section 50(6) to (8) of the Act shall not apply but the [tribunal] may –

(a) if it appears … that, throughout the period of default, the taxpayer had a reasonable excuse for not paying the tax, set aside the imposition of the surcharge; or

(b) if it does not so appear…, confirm the imposition of the surcharge

(10) Inability to pay the tax shall not be regarded as a reasonable excuse for the purposes of subsection (9) above.”

Conclusion

18.        The tribunal made the following findings of fact:

The Appellant was at all times responsible for making payment of the tax due by the Due Date.

The Appellant was aware of the amount of tax due on the Due Date.

The Appellant failed to pay the tax due by the Due Date or following the expiry of 28 days from the Due Date.

There was no evidence that any cheque for any part of the tax due was sent to HMRC by the Due Date or following the expiry of 28 days from the Due Date.

There was produced a cheque allegedly drawn on 21 January 2009 on account number 21145533, account name Mr. I M Campbell trading as D. C. Developments at HSBC Bank.  HMRC denied receipt of that cheque or any cheque until 13 March 2009, which was accepted by the tribunal.

There was no evidence that the Appellant had sufficient funds, or access to sufficient funds, to settle the tax due by the Due Date or following the expiry of 28 days from the due date.

That the tax remained unpaid after the Due Date.

That the tax was paid on 13 March 2009.

That the default period was from the Due Date to 12 March 2009.

That HMRC had correctly levied a surcharge equal to 5% of the unpaid tax at the Due Date.

That no reasonable excuse existed for non-payment of the tax due by the Due Date or throughout the period of default.

That a surcharge was issued to the Appellant for late payment of tax for the year 2004 – 05.

19.        The tribunal was satisfied on the balance of probabilities that HMRC had correctly levied the surcharge on the Appellant for late payment of tax after the Due Date.  The tribunal considered that it was highly improbable that the Appellant had made a payment of the tax due by the Due Date or after the expiration of 28 days from the due date.

The Appellant was aware from his past dealings with HMRC that a surcharge would be imposed if he failed to make a payment before the Due Date.  On the balance of probabilities the tribunal considered that the Appellant’s credibility was in doubt because of the statement in his appeal that he had never had any surcharge or fines relating to Income Tax, VAT or National Insurance.  A surcharge had been imposed for the year 2004 – 05.  The period between the imposition of that surcharge and the Surcharge, the subject of this appeal, was small and it was the tribunal’s view that it was highly unlikely that the Appellant would have overlooked the earlier surcharge.  This, in the view of the tribunal, cast doubt on the Appellant’s credibility as it led the tribunal to conclude that the Appellant sought to conceal from the tribunal the earlier surcharge to give an inaccurate account of the Appellant’s previous dealings with HMRC.

As the Appellant’s credibility was in doubt the tribunal decided on the balance of probabilities that it was highly unlikely that the Appellant had sufficient funs to pay the tax due by the Due Date.  The tribunal was reinforced in this conclusion by the lack of evidence that the Appellant had sufficient funds to pay the tax by the Due Date.

20.        The Appellant’s tax liability was not insubstantial and it was the view of the tribunal that if the Appellant had made payment of the tax by the Due Date it was highly likely that he would have obtained proof of postage.  This was reinforced, in the view of the tribunal, by the previous surcharge and the state of knowledge of the Appellant of the need to make payment in a timely fashion to avoid a surcharge and to be able to prove that payment had been made.

21.        The Appellant had not in the view of the tribunal been able to demonstrate that there was any reasonable excuse for failing to pay the tax due by the Due Date and throughout the whole period when the payment was overdue.

22.        In all the circumstances the tribunal dismissed the appeal.

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.

JENNIFER TRIGGER

TRIBUNAL JUDGE
RELEASE DATE: 27 July 2010