First-tier Tribunal (Tax)

[2011] UKFTT 43 (TC)

TC00920

Appeal number: TC/2010/07868

Income Tax – reasonable excuse

FIRST-TIER TRIBUNAL

TAX

MRS KAREN O’CARROLL Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: RACHEL SHORT (TRIBUNAL JUDGE)  DAVID EARLE (MEMBER)

Sitting in public at Exeter on 1 December 2010

Mrs Karen O’Carroll  for the Appellant

Mr Darren Bradley, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.       This case concerns an appeal by Mrs O’Carroll, (the “Taxpayer”) against a surcharge under s 59C(2) Taxes Management Act 1970 in respect of the tax year ended 5 April 2009.

2.       As a preliminary matter the Tribunal agreed that the appeal should be allowed despite it having been submitted late and that HMRC’s skeleton argument should be accepted despite it having been received by the Tribunal and the Taxpayer on the day of the hearing.

3.       It was agreed between the parties that an amount of £16,474.98 of tax was due and was not paid by the Taxpayer by the due date of 31 January 2010 in respect the 2009 tax year.

4.       The question for the Tribunal was whether the Taxpayer had a “reasonable excuse” for not paying the tax due and that therefore the surcharge of £806.83 should be set aside under s59C  (9) Taxes Management Act 1970.

5.       HMRC explained that while the Taxpayer had entered into a time to pay arrangement, this was not put in place before the trigger date for the surcharge which was 28 February 2010.

6.       The Taxpayer submitted that she had a “reasonable excuse” for not paying the tax due on time as a result of a number of issues in her personal and business life at the relevant time.

7.       She explained that she had been through an acrimonious divorce, had had health issues and suffered a family bereavement during this period.

8.       The Taxpayer was a director of Ravenscroft Homes Limited, and she derived all of her income from that company.  During the relevant time the company was in severe financial difficulties.  The Taxpayer and her ex-husband were attempting to arrange for the sale of the business but were prevented from doing so as a result of conditions imposed by the company’s banks.  The company was put into administration on 8 March 2010.

9.       HMRC argued that a lack of funds due to the failure of the business did not constitute a reasonable excuse and the Taxpayer’s personal issues had not arisen during the relevant default period.  In particular her divorce was finalised before her 2006/7 tax return was submitted in January 2008, which described her as divorced.

10.    HMRC also argued that the date when the company went into administration was after the date when the surcharge was triggered and so could not constitute a reasonable excuse.

11.    The Taxpayer provided a number of additional pieces of evidence to the Tribunal which did not appear in her original appeal notice, in relation to both her personal issues and the affairs of the company.

12.    The Taxpayer explained that the company, which ran a nursing home, had been in difficulties since receiving a poor inspection report in 2008, but that the position had improved by 2009.  However the company’s bank insisted on imposing increased charges to the business from January 2010 which meant there was no alternative but to sell the business.

13.    During February 2010 the Taxpayer was hopeful that a sale of the business could be achieved, but by the end of February it was clear that this would not go ahead because of the charges being imposed by the bank.  Issues with the bank had also meant that the company’s bank accounts had been frozen in February and the Taxpayer and her husband had to support the company from their own resources.

14.    Administrators were appointed to the company formally on 8 March, although it was accepted that they would be appointed from 23 February.  The administrators originally told the Taxpayer that she would be kept on as an employee of the company, but in fact terminated her contract in early April 2010.

15.    During this time the Taxpayer also had health issues and was told that a close family member was suffering from cancer, resulting in his death in September 2010.

16.    The sale of the company was finally achieved in mid-November 2010.

17.    Taking account of the evidence provided by the Taxpayer in relation to the difficulties faced by the business on which she depended for her income during the relevant period of default, the Tribunal concluded that the Taxpayer had a reasonable excuse for not paying her tax throughout  the period of default.

18.    The Taxpayer had behaved throughout as a reasonable business person, but the decision of the bank to insist on imposing high charges thus preventing a business sale and the decision of the administrators to terminate her employment were unexpected and outside her control.  For this reason the Tribunal decided that the Taxpayer’s appeal should be allowed.

19.    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.

TRIBUNAL JUDGE: RACHEL SHORT

RELEASE DATE: 11 JANUARY 2011