First-tier Tribunal (Tax)

[2011] UKFTT 32 (TC)

TC00909

Appeal number: TC/2010/06197

Income Tax – Surcharges for late payment – Taxpayer ill – Stress and alcoholism – No medical evidence – Brother gave evidence of condition – Found credible – Whether reasonable excuse – Appeal allowed

FIRST-TIER TRIBUNAL

TAX

Paul Atkinson Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: Miss Jill Gort (TRIBUNAL JUDGE) Mr Ian Menzies-Conacher

Sitting in public in Oxford 11November 2010

Mr P.A. Atkinson for the Appellant

Mr I.R. Compton, HM Inspector of Taxes for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This is an appeal against HMRC’s surcharge notices issued on or around 1 April 2009 and 11 August 2009 respectively for the year ended June 2008 in the sum of £1,168.74.

2.       Mr Atkinson, the Appellant, was required to file a return for the year ending 5 April 2008 and, if a paper return, to deliver it to HMRC by 31 October 2008, and, if filed electronically, by 31 January 2009 at the latest. The return was received by HMRC on 30 September 2008.

3.       The tax was in the sum of £11,687.58 which was payable on 31 January 2009. No tax was paid by Mr Atkinson and no time to pay agreement was entered into by him until 2 December 2009 under which sums of £2,500 and £2,900 were paid on 10 February and 3 March 2010 respectively on his behalf and the remainder of the tax due was fully paid under the time to pay agreement by 19 October 2010. Mrs Atkinson, the Appellant’s wife, had similarly failed to pay an an amount of £8,811.28 of tax which was due from her, and and had originally also, appealed against total surcharges of £881.12. She subsequently withdrew her appeal, but we note that similar instalment payments had been made on her behalf and a similar time to pay agreement had been entered into.

4.       Section 59C (2) of the Taxes and Management Act 1970 (“the TMA”) provides that:

“Where any 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.”

5.       Section 59C (7) of the TMA provides that:

“An appeal may be brought against the imposition of a surcharge under subsection (2) above, within a period of 30 days, beginning with the date on which the surcharge is imposed.”

6.       Section 59C (9) of the TMA provides that:

“On an appeal under subsection (7) above, that is notified to the tribunal, Section 50(6) to (8) of this Act shall not apply but the tribunal may:

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

b)     if it does not appear, confirm the imposition of the surcharge.”

7.       The facts of the case are only known to us from the account given to us at the hearing of the appeal by Mr P.A. Atkinson, and from his correspondence with HMRC. However, we found him to be an impressive and truthful witness whose evidence we accepted unhesitatingly. We gave due consideration to the question of whether it was in the interests of justice that we should adjourn the appeal to allow him time to produce evidence in the form of witness statements and medical certificates, but we came to the conclusion that it would not be, and at the conclusion of the hearing we announced our decision to allow the appeal.

8.       The facts that we find are as follows. Mr Atkinson at the relevant time operated as a sole trader running a franchised carpet cleaning business in Sunderland. Towards the end of 2008 his business suffered a severe downturn, going from a turnover of some £30,000 per month to £4,000 per month. Mr Atkinson started to drink heavily around this period and became increasingly unable to meet his liabilities, despite re-mortgaging his house. His wife, about whom we did not learn much, had apparently never had any involvement in the business or in the couple’s financial affairs. We do not know what she knew or why she did not seek help, but it was not until November 2009 that Mr Atkinson finally contacted his brother, Mr P.A. Atkinson and asked him for help. He had made no attempt to pay his income tax liability in the intervening period. We consider it relevant that Mr P.A. Atkinson lives in Thame in Oxfordshire, a long way from his brother.

9.       On arrival in Sunderland Mr P. A. Atkinson found that his brother was in a very bad way, drinking heavily, his speech being slurred by 11.00am each day and obviously suffering from severe ulceration, a condition he had had since he was young. He immediately took him to the doctor, but found that Mr Atkinson was in denial about his alcoholism and would not admit to it to his doctor. He was treated for ulcers. Mr Atkinson’s office was in his house, but we were told that his wife never went in to the office. Mr P.A. Atkinson found that there was unopened mail going back to January piled up in a corner of the office which he himself then opened. The most urgent matter was in fact the outstanding tax, and he contacted HMRC in Sunderland by telephone on or before 17 November, and wrote to them on that date, but was unable to obtain immediate authorisation from them to act on behalf of his brother. By contacting another department of HMRC he was able to obtain form 64-8 which he completed and sent to HMRC in Newcastle under cover of a letter dated 2 December 2009. On that same date he telephoned HMRC and proposed an immediate transfer of £10,000 to them in respect of Mr and Mrs Atkinson and a time to pay agreement in respect of the outstanding amount. HMRC’s own records show that on 9 December the taxpayer contacted them informing them that he had “been quite ill recently”.

10.    The letter of 2 December 2009 was treated as an appeal which, by a letter dated 25 February 2010, HMRC refused on the basis that the taxpayer had failed to pay or request a time to pay agreement by 28 February 2009. In a letter dated 7 May 2010 a Mr Barnfather of HMRC also wrote refusing the appeal and offering a review stating inter alia:

“Why I do not think that you have a reasonable excuse

The introduction of Self Assessment meant significant changes in the way taxpayers account for and pay tax due. It places the onus upon the taxpayer to pay the right amount at the right time if interest and surcharge is to be avoided. The deadline for payment is clearly shown on the front of the tax return and it is your responsibility to pay in time. In your case, whilst a time to pay arrangement has now been agreed, you were required to approach HM Revenue & Customs by 28 February 2009 to arrange a suitable payment agreement.”

11.    Mr. P.A. Atkinson requested a review on 25 May 2010 stating inter alia that:

“At the time of the tax liability my brother was a sole trader, and at the time of arrival at my brother and his wife’s home and home office, it was clear things were very astray. My brother was clearly indicating early signs of alcoholism and was suffering from stress compounded by peptic ulcers. My immediate focus was to encourage him to manage his health issues and after a few days I was able to get a doctors visit where he was treated for stress and anxiety.……………..

“The grounds for my appeal are therefore that:

My Client is a sole trader and has suffered a prolonged and serious illness during the dates when they could have sent an appeal to HMRC or acc epted a review offer.”

12.    The outcome of the review was notified to Mr Atkinson by a letter dated 2 July 2010 in which it was refused on the grounds that:

“In cases where illness has prevented you to make payment the illness must be so serious that if (sic) prevented you from paying or arranging to pay your liability. I note from your records that you were in receipt of PAYE income during this period and so we would have expected you to have contacted us sooner to arrange a time to pay agreement.”

Mr P.A. Atkinson responded to this point in a letter dated 24 September 2010 in which he stated that: “Mr Atkinson was incapacitated however his PAYE continued to be paid at £500 per month by his accountants automated payment process. My Client transferred from sole trader to an employee of an Ltd liability status company post the period payment was originally due.” He had previously, by his Notice of Appeal which was dated  24 July 2010, repeated his earlier ground of appeal that Mr Atkinson had suffered a prolonged and serious illness and also inter alia referred to HMRC having failed to adhere to their own procedures by ignoring the ‘reasonable excuse’ criteria.

13.    In HMRC’s Statement of Case they rely inter alia on the PAYE point set out above, on the fact that they had sent several reminders in relation to the outstanding tax liability and ‘his failure to deal with received mail appropriately added to his problems and therefore cannot be considered as a reasonable excuse’ and the fact that Mr Atkinson had ‘self calculated the tax liability and filed online therefore heknew how much tax was due and when it needed to be paid’. They considered that the appeal did not contain anything which showed that something exceptional prevented Mr Atkinson from submitting the appropriate payment by the due date and that there was no reasonable excuse throughout the period of default.

14.    The case was again reviewed by HMRC, by Mr Compton, on 5 November 2010. In that letter, for the first time, although the tribunal hearing date had already been fixed for 17 November, it was suggested to Mr P.A. Atkinson that he might wish to consider obtaining a witness statement from Mr Atkinson and providing documentation from his GP. He also suggested that Mrs Atkinson was available to assist in her husband’s tax affairs. This letter was not received until 10 November when it was sent by email. Mr P.A. Atkinson replied by email that this last suggestion was unrealistic, but he did at this stage withdraw Mrs. Atkinson’s appeal. He was unable to provide a doctor’s certificate in respect of the alcoholism because of his brother’s denial with regard to that, but he did refer to his good track record in tax matters.

15.    Mr Compton in his skeleton argument produced at the hearing referred us to Gladders v Prior (SpC361) for the proposition that ‘a reasonable excuse ….. is something that is outside the person’s control that would prevent a reasonable man from complying, such as illness’. He pointed to the lack of medical evidence in this appeal. He also referred to the fact that Mr Atkinson’s VAT return for the period ended December 2008 was filed on time and that prima facie it appeared that he was able to attend to his VAT affairs around the relevant time. In response to this Mr P.A. Atkinson informed us that the accountant had handled the VAT, which we accepted.

16.    Also in his skeleton argument Mr Compton referred to the great lengths to which HMRC go to assist its customers in complying with the legislation. Whilst this may be so, we were not very impressed with HMRC’s approach to reasonable excuse in this case. We have referred above (para 10) to the extraordinary view of it taken by Mr Barnfather, and we have noted that it was not until a few days before the hearing that any advice was given to Mr P.A. Atkinson about the wisdom of producing evidence of his brother’s illness. It might well have been the case that by then it was too late for him to obtain such evidence, an earlier indication would probably not have made any difference in this case, but in another might well do so and might avoid the necessity and expense of an appeal hearing. In the Statement of Case it is said in relation to reasonable excuse that  ‘there are no supporting tax authorities’, which is not the case; as shown by the 2003 authority produced by Mr Compton in the above paragraph. Some time had to be taken up at the tribunal dealing with the statement in the statement of case that the period in question ran from 31 January 2009 to 30 August 2010, a statement which is plainly wrong. 

17.    We accept that it would be preferable if there were medical evidence in this case but we have taken account not only of Mr P.A. Atkinson’s evidence as to his brother’s physical state which, as stated above, we accept, but also have been supported in our view of his reliability by the alacrity and competence with which he acted on his brother’s behalf. We have also taken account of Mr Atkinson’s previous good record of compliance in tax matters. We found that the comment in the statement of case that he had compounded his problems by failing to deal with received mail appropriately only showed the officer in question’s failure to understand the nature of stress. Had Mr Atkinson been able to deal with his mail that would have been evidence that he was not suffering from stress. We are satisfied that the illness was such that it provided Mr Atkinson with a reasonable excuse throughout the relevant period. For all these reasons we allowed this appeal.

18.    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.

MISS J C GORT

TRIBUNAL JUDGE

RELEASE DATE: 20 December 2011