[2010] UKFTT 569 (TC)

TC00820

Appeal number: TC/2009/11815

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

FIRST-TIER TRIBUNAL

TAX

                                  TERRENCE WILLIAM FRASER                  Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS               Respondents

                        TRIBUNAL: NICHOLAS ALEKSANDER (TRIBUNAL JUDGE)                                                         JANE SHILLAKER                                     

Sitting in public in London on 29 January 2010

Linda Fievez CTA for the Appellant

Bruce Robinson an Officer of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       The appeals relate to surcharges arising from the late payment of tax in respect of the 1999/2000 year of assessment.  The Tribunal released its decision notice in summary form on 8 February 2010.  On 16 October 2010 the Appellant's representative wrote to the Tribunal applying for permission to appeal to the Upper Tribunal.  No such appeal can be made without the Tribunal having first issued a decision with full findings of facts and reasons; the Appellant's application has therefore been treated as an application for full written findings and reasons.  Under Rule 35 of the Tribunal's Rules, any such application must be made within 28 days of the release of the summary decision and the application was therefore been made out of time.  However, in the light of the correspondence that the Appellant's representative has had with the Revenue Adjudicator (and in particular the Adjudicator's apparent decision that the Appellant has not exhausted his appeal rights), the Tribunal has decided under Rule 5 to extend the relevant time limit, and issue this decision.  The Appellant can now apply for permission to appeal in accordance with the procedure set out in paragraph 14 below.

2.       Linda Fievez represented the Appellant and Bruce Robinson represented HMRC at the hearing.  The Appellant was too ill to attend the hearing, but we heard evidence from his wife, Mrs Fraser.  We also had before us a bundle of relevant documents.

The Law

3.       The legislation governing surcharges for late payment of tax is contained in the Taxes Management Act 1970 (“TMA”).  Relevant extracts are set out below:

59B.     Payment of income tax and capital gains tax

(1)     Subject to subsection (2) below, the difference between—

(a)     the amount of income tax and capital gains tax contained in a person's self-assessment under section 9 of this Act for any year of assessment, and

 (b)     the aggregate of any payments on account made by him in respect of that year (whether under section 59A of this Act or otherwise) and any income tax which in respect of that year has been deducted at source,

shall be payable by him or (as the case may be) repayable to him as mentioned in subsection (3) or (4) below […]

[…]

(4)     In any other case, the difference shall be payable or repayable on or before the 31st 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.

[…]

Background Facts

4.       The due date for the submission of the relevant tax return and payment of any balancing amount was 31 January 2001.  It is not disputed that the tax return in question was received by HMRC on 2 February 2001.  The surcharge arises in respect of the late payment of the balancing amount shown as due on the self assessment included in the return.  This was for £8563.49 and it is not disputed that is was only paid on 13 June 2002 – more than six months after the day following the expiry of six months from the due date.  The sole issue before the Tribunal is whether the Appellant had a reasonable excuse for the late payment, and whether that excuse subsisted throughout the period of default (see section 59C(9) TMA).

5.       Mrs Fraser explained to us that her husband was in substantial arrears with his tax and a decision was made to remortgage their house in order to meet these arrears.  As her husband was out of the country working, she telephoned HMRC on 6 February 2001 to confirm the amount of tax outstanding.  She was told that it was £49,953.37.  She asked "Is that all?" and was told yes.  On the basis of the telephone conversation, Mr and Mrs Fraser remortgaged the house to raise £50,000.

6.       However, at the time Mrs Fraser telephoned HMRC, the tax return for 1999/2000 had only just been received, and had not been processed.  For that reason the person to whom she spoke would not have been aware of the balancing amount due in respect of 1999/2000 and did not include that amount in the £49,000 approx figure that he gave to her.

Conclusions

7.       Mrs Fievez submits that Mr Fraser has a reasonable excuse for the late payment in these circumstances.  If HMRC had told Mrs Fraser that the £49,000 approx figure did not include any outstanding tax for 1999/2000, then Mr and Mrs Fraser would have remortgaged the house for a greater amount in order to meet not only Mr Fraser's arrears, but also the balancing payment due for 1999/2000.

8.       We are not convinced by Mrs Fievez submissions.  We are aware that it takes time to remortgage a house, it is not something that can be done overnight.  The telephone call records of HMRC show that Mr and Mrs Fraser had been in discussions with HMRC about settling his arrears for a considerable period of time.  In a call on 30 November 2000, Mrs Fraser had called HMRC to tell them that they were remortgaging their house, and there were further update calls about the remortgage in December 2000 and January 2001.  Mrs Fievez informed Mr and Mrs Fraser that there would be a balancing payment due in respect of their 1999/2000 tax return.   So at the point when Mr and Mrs Fraser were arranging their remortgage (well before the call on 6 February 2001), they were aware of the arrears that they had to meet and also that there would be a balancing payment due on Mr Fraser's 1999/2000 tax return.

9.       We do not consider that it is reasonable for Mrs Fraser to expect that on 6 February 2001, HMRC could give her details of the tax her husband owed in respect of income declared on a return which was only submitted a few days before.  Mr and Mrs Fraser had been warned by their accountant that tax would be payable in respect of that return, and the fact that tax would be payable on 31 January 2001 for the year 1999/2000 is made clear on the face of the tax return and in the explanatory booklet sent with it.  In any event, HMRC issued a statement on 4 April 2001 which set out the amount of tax due (including the balancing amount).  At that point Mr Fraser was aware of the tax due.

10.    Even if Mrs Fraser had been warned by HMRC on 6 February that the figure did not include the balancing payment for 1999/2000, we are not convinced that Mr Fraser would have been able to raise an additional £10,000 on the remortgage within sufficient time to avoid either the initial or further surcharge – Mrs Fraser herself told us that she had no assurance from her lender that it would have lent anything further. 

11.    Indeed by April 2001 Mr Fraser was aware of the total amount of tax due, but was not able to discharge this amount until June 2002, more than one year later.  Even if it was reasonable for Mr Fraser to rely upon the information given to his wife on the telephone on 6 February 2001 (but  – to make it clear – our finding is that it was not), any such excuse could not subsist beyond April 2001 when he received the tax statement from HMRC.

12.    The underlying issue in this case is Mr Fraser's shortage of funds – and unless there are extenuating circumstances behind the shortage – shortage of funds cannot amount to a reasonable excuse (section 59C(1) TMA).  We find that there were no such circumstances and that therefore Mr Fraser did not have a reasonable excuse for the late payment of his tax at any time during the period of default.

13.    The appeal is therefore dismissed.

14.    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.

NICHOLAS ALEKSANDER

TRIBUNAL JUDGE

RELEASE DATE: 15 November 2010