First-tier Tribunal (Tax)

[2010] UKFTT 376 (TC)

TC00658

Appeal number TC/2010/00020

Income Tax – surcharge  for late payment of tax – s.59(C)(2) TMA 1970 – erroneous advice by tax advisor – whether a reasonable excuse – no – whether subsequent carry back losses disturbed surcharge penalty already assessed - no

FIRST-TIER TRIBUNAL

TAX

                                                 ADAM PELLED                                Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

TRIBUNAL: Mr Michael S Connell (Judge)

Sitting in public at Brighton on 12 April 2010

The Tribunal determined the appeal on 12 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 04 December 2009 and HMRC’s statement of case submitted on 03 February 2010.

© CROWN COPYRIGHT 2010

DECISION

1.         This is an appeal by Mr Adam Pelled against a surcharge imposed under s.59C(2) Taxes Management Act (TMA) 1970 following the late payment of tax for the year ending 05 April 2008.

2.         The Appellant’s tax return filing date for the year ending 05 April 2008 was 31 October 2008 for a paper return or 31 January 2009 if filed online.  S.9 TMA 1970 says that every return should contain a self-assessment unless the return is filed by 31 October following the end of the year to which the return relates, in which case HMRC will do the calculation.

3.         The Appellant’s tax return was not received by HMRC until 29 June 2009.

4.         The return contained a self-calculation of tax and, after processing by HMRC, showed a tax liability due of £148,478.47.  This sum was made up of the sum of £7,503.26 due to be paid by 31 January 2008, £7,503.27 due to be paid by 31 July 2008 and a balancing payment of £133,471.94 due to be paid by 31 January 2009.

5.         Prior to receipt of the tax return, HMRC issued an income tax late payment surcharge notice on 11 May 2009.  The surcharge was in the sum of £150.06, being 5% of the then unpaid balance of £3,001.31.

6.         Following receipt of the Appellant’s tax return the surcharge was increased to £6,673.59, being 5% of the unpaid balancing payment due of £133,471.94, which was finally paid on 16 November 2009.

7.         On 21 September 2009 the Appellant appealed the surcharge.  The appeal was late, being more than 30 days after the imposition of the surcharge, but HMRC accepted the late appeal.

8.         The Appellant’s grounds of appeal were that, firstly his tax advisor had given him explicit but erroneous advice in July 2008 that the tax payable in respect of his 05 April 2008 return would not be due and payable until January 2010.  The Appellant said that he would have ensured prompt payment had he known the tax was due a year earlier.  Secondly, the Appellant said that he suffered crippling financial losses in the year to 05 April 2009.  He said that, whilst he was aware that his 05 April 2008 tax return was late, he was not expecting a surcharge given that he had very substantial losses to carry back to that year from the year 2009.  However, credit resulting from a carry back loss claim is given the date the claim is made.  In this case, Mr Pelled’s 2008-09 personal tax return was not received until 12 August 2009 and credit was given for trading losses of £61,955.00.  However, this did not disturb the surcharge penalty which had already been charged in respect of the earlier year.

9.         Payment of tax is due in accordance with s.59B TMA 1970 and, in this instance, the due date for the balance to be paid was 31 January 2009 under s.59B(4).  A taxpayer becomes liable to a surcharge where they are late in paying tax due.  The surcharge is calculated at 5% of all tax remaining unpaid after the expiry of 28 days from the due date.

10.       Under s.59C(9) TMA 1970 the Tribunal may only set aside a surcharge where the taxpayer had a reasonable excuse for not paying the tax and the excuse existed throughout the period of default.  In this case the Appellant knew that his tax return was late but apparently did not appreciate that he had a significant tax liability which had been due for payment by 31 January 2009.  He says it was not until 22 June 2009 that he became aware for the first time that tax should have been paid for the year ended 05 April 2008 on 31 January 2009.  The tax was not actually paid until 16 November 2009.

11.       ‘Reasonable excuse’ is not defined in the tax legislation and the expression is normally given its everyday meaning.  HMRC says it takes the expression to mean that it is something exceptional or out of the taxpayer’s control – for example serious illness of the Appellant or the bereavement of a close relative or partner.  HMRC has published its views in guidance notes and on its website.

12.       The period of default in this case was from 31 January 2009 to 16 November 2009 – that is 289 days.

13.       HMRC say that the Appellant has been making self-assessment returns since 1996-97 (the commencement of the self-assessment system) and that therefore he should be experienced with his obligations in that regard.  The front of the tax return clearly warns that interest and a surcharge may be charged if tax is paid late.  Ignorance of the law is no excuse and it is the responsibility of the Appellant to ensure that all his tax obligations were met.

14.       Mr Pelled appears to have been misled by his tax advisor.  Direct tax legislation is silent on the excuse of reliance on third parties but case law makes it clear that, except in exceptional circumstances, reliance on a third party or outsourcing one’s tax compliance obligations does not negate a taxpayer’s liability to comply with the relevant regulations.  Mr Pelled must have been aware that a substantial tax liability had arisen for the year ended 05 April 2008 and at the very least should have queried the position with regard to the 2008-09 loss with his advisor insofar as it may have affected the amount of tax payable by 31 January 2009.

15.       Taking all the circumstances into account, it did not appear to the Tribunal that the Appellant had a reasonable excuse for not paying the tax due throughout the period of default and accordingly the imposition of the surcharge was confirmed.

            The Appellant has the right to apply for permission to appeal against this decision pursuant to Rule 39 of Tribunal Procedure First-tier Tribunal (Tax Chamber) Rules 2009.  The Appellant is referred to ‘Guidance to Accompany a Decision from the First-tier Tribunal (Tax Chamber)’ which accompanies and forms part of this Decision Notice.

     MICHAEL S CONNELL

TRIBUNAL JUDGE

RELEASE DATE:  12 August 2010