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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Harrison v Revenue & Customs [2010] UKFTT 369 (TC) (09 August 2010)
URL: http://www.bailii.org/uk/cases/UKFTT/TC/2010/TC00651.html
Cite as: [2010] UKFTT 369 (TC)
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Terry Harrison v Revenue & Customs [2010] UKFTT 369 (TC) (09 August 2010)
INCOME TAX/CORPORATION TAX
Penalty
[2010] UKFTT 369 (TC)
TC00651
Appeal number: TC/2009/13691
Income Tax : Late payment – initial surcharge – no reasonable excuse – Appeal refused.
FIRST-TIER TRIBUNAL
TAX
TERRY HARRISON Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS (TAX) Respondents
TRIBUNAL: John M Barton, WS (Judge) Warren Snowdon (Member)
The Tribunal determined the appeal on Friday 18 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 1 September 2009, HMRC’s Statement of Case submitted on 12 October 2009 and the Appellant’s Reply submitted on 10 November 2009.
© CROWN COPYRIGHT 2010
DECISION
1. The Tribunal dismisses the appeal against an initial surcharge imposed on the Appellant (“Mr Harrison”) under the provisions of s 59(2) of the Taxes Management Act 1970 (“TMA 1970”) because of the late payment of tax due for the year ending 5 April 2008.
2. The amount of the surcharge was £6,638.96, calculated at 5% on unpaid tax of £132,779.20.
Preliminary
3. The surcharge notice was issued to Mr Harrison on 1 April 2009.
4. On 11/06/2009 Moore Stephens, acting for Mr Harrison, appealed against the surcharge on the grounds that he had entered into an arrangement with Wenham Major Private Client Limited (“Wenham Major”), who had advised him that no tax would be payable; that Wenham Major’s bank accounts were subsequently frozen and the proposed transactions were not carried out; and that Mr Harrison was unaware that he had outstanding tax liabilities until after the deadline had passed.
5. The Respondents (“HMRC”) issued a letter on 18 June 2009 giving their view of the appeal and offering a review. A review was requested on 23 July 2009. Mr Harrison agent explained that the shortfall arose as a result of a fraud at the consultancy firm of which Mr Harrison was unaware. A review conclusion letter was issued on 6 August 2009. Mr Harrison appealed to the Tribunal on 1 September 2009.
6. Neither party requested a hearing and the Tribunal, sitting in Edinburgh, considered the appeal on the basis of the papers.
7. The following documents were before the Tribunal -
A. Self Assessment claim to reduce payments on account.
B. Statement issued by HMRC as at 13 May 2008.
C Notice of Appeal.
D Correspondence between HMRC and Mr Harrison and his respective agents.
Material Facts
8. Mr Harrison’s tax liability for the year to 5 April 2008 was £135,323.64. £67,661.82 had been due to be paid by 31 January 2008 and the balance by 31 July 2008.
9. Mr Harrison had previously entered into a tax planning arrangement with the tax consultancy firm, Wenham Major whereby tax losses would be available to set against Mr Harrison’s other income. Mr Harrison was advised by Wenham Major that no income tax would be payable as a result of the intended transactions. Subsequent to this, Wenham Major's bank accounts were frozen and as a result, the proposed transactions were not carried out and no money was returned to Mr Harrison.
10. On 29/04/08 Mr Harrisons agents PFPG(NI) sent a letter and a form SA303 to HMRC requesting that the payments on account for 2007/08 be reduced to nil. The form SA303 had been signed by Mr Harrison on 28 April 2008. On 12 May 2008 HMRC sent a letter to Mr Harrison confirming nil payments on account; and on 13 May 2008 a self assessment tax calculation was issued to Mr Harrison advising him of the payments on account due for 2007/08 and that the amounts had been reduced to nil.
11. A Return for the year ending 5 April 2008 was issued to Mr Harrison on 6 April 2008. The Return was filed online on 30 January 2009. As at 28 February 2009, tax amounting to £132,779.20 was still outstanding.
12. On 6 April 2009, Mr Harrison finally settled his tax liability for the year to 5 April 2008. The period of default was 432 days for the first payment on account and 250 days for the second payment on account.
13. When a balancing payment or payment on account is unpaid more than 28 days from the due date, a surcharge automatically arises. This initial surcharge is equal to 5% of the tax unpaid at that time.
14. A surcharge notice was issued to Mr Harrison on 1 April 2009. The amount of the surcharge was £6,638.96, calculated at 5% on unpaid tax of £132,779.20.
15. An initial surcharge had previously been imposed on Mr Harrison for the year ended 5 April 2007.
Legislation
16. Section 59C(9) TMA 1970 provides that if it appears to the Tribunal that the taxpayer has a reasonable excuse for not paying the tax throughout the period of default, the Tribunal may set aside the imposition of the tax. Section 59C(10) TMA 1970 declares that inability to pay the tax shall not be regarded as a reasonable excuse.
Submissions
17. On behalf of Mr Harrison, it was contended as follows -
18. Mr. Harrison entered into an arrangement with Wenham Major to reduce the tax liability for the year ended 5 April 2008. This involved the utilisation of trading losses for offset against income under s 380 Income and Corporation Taxes Act 1988. This was the basis for the claim to reduce payments on account.
19. Mr. Harrison invested funds with Wenham Major and was advised that no tax would be payable as a consequence of the investment. Subsequent to this investment, Wenham Major 's bank accounts were frozen and the proposed transactions were not carried out. No part of Mr. Harrison's investment was returned to him.
20. It was claimed that Mr. Harrison was unaware that he had an outstanding tax liability until after the deadline for the payment of tax had passed, following receipt of correspondence from HMRC; and that as soon as he became aware of the liability he took corrective action.
21. It was also pointed out that HMRC had recognised the significant financial difficulties facing taxpayers in the current economic climate and had published guidance in this regard entitled “Business Payment Support”; and that this facility allows taxpayers to enter arrangements with HMRC to pay tax liabilities over an extended period without penalty. It was claimed that Mr. Harrison had been denied this opportunity as he understood no tax would be payable; and that if he had been aware of the liability before the due date, he would have approached HMRC to agree a deferment of the liability until he had raised funds to meet the liability.
22. It was accepted that Mr Harrison had a liability to pay tax for the year ended 5 April 2008, that he was liable to make payment on 31st January 2009 and that the amount remained unpaid at 28 February 2009; the liability being paid on 6 April 2009. Also that as a result of the foregoing, a surcharge was assessed by HMRC in accordance with s 59 (2) TMA 1970.
23. The basis of the appeal related to the discretion given under s 59 (9) TMA 1970 whereby the surcharge might be set aside if the taxpayer had a reasonable excuse for not paying the tax; and it was submitted that Mr Harrison had a reasonable excuse for not paying the tax throughout the period of default.
24. On behalf of HMRC, it was contended that Mr Harrison did not have a reasonable excuse because –
25. In HMRC's letter of 12 May 2008 to Mr Harrison (which confirmed that the payments on account had been reduced to nil), Mr Harrison was reminded that it was his responsibility to have estimated the amount of tax for the year before he makes any reductions to payments on account, and that if he reduced the payments on account by too much, a 5% surcharge could be charged. Although Mr Harrison had an accountant dealing with his affairs, it was still his responsibility to make sure that all returns and payments are made by the due date.
26. The surcharge had been correctly imposed because the tax remained unpaid 28 days after 31 January 2009.
27. An initial surcharge had previously been imposed on Mr Harrison for the year ended 5 April 2007, so he should have been aware that if the tax is not paid by the due date a surcharge may be charged.
28. HMRC submitted that there is no reasonable excuse throughout the period of default, and they invited the Tribunal to dismiss the appeal and to confirm the surcharge in the sum of £6,638.96.
Reasons
i
29. The question before the Tribunal was whether Mr Harrison had a reasonable excuse for not paying the tax throughout the period of default.
30. Mr Harrison claimed that he was unaware that he had an outstanding tax liability until after the deadline for the payment of tax had passed and when he received correspondence from HM Revenue and Customs. However, he had been aware of the anticipated liability when he signed the form SA303 on 28 April 2008. Also he ought to have been aware of the consequences of failing to pay tax on time, having been liable to a surcharge for the previous year. The Tribunal finds that Mr Harrison must have been naïve to rely on the proposed avoidance scheme without at least checking the position for more than a year. Accordingly Mr Harrison’s ignorance of the position regarding his possible claim to a loss is not regarded as a reasonable excuse.
31. In any event, he ought to have been aware of his liability when his Return was filed on line on 30 January 2009. The submission that Mr Harrison was unaware that he had an outstanding tax liability until after the deadline for payment, is therefore not accepted.
32. It was explained that as soon as Mr Harrison became aware of his outstanding tax liability, he immediately took corrective action, re-mortgaging his private residence, to raise funds to ensure that the liability to HMRC was cleared. Such, however, does not constitute an excuse for the prior default.
33. Further, it was pointed out that in the current environment, the majority of taxpayers who find themselves unable to pay their tax bill will enter into an agreed time to pay arrangement with HMRC; but that Mr Harrison was denied this opportunity as he was unaware tax was due. In this case, however, it was Mr Harrison’s failure to monitor his own tax liability which resulted in the default, not his inability to pay, and this aspect is also not regarded as a reasonable excuse.
34. The Tribunal accordingly finds that Mr Harrison did not have a reasonable excuse throughout his period of default, and his liability to the surcharge therefore stands.
35. 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.
MR JOHN M BARTON, WS
TRIBUNAL JUDGE
RELEASE DATE: 9 August 2010