[2011] UKFTT 61 (TC)

TC00939

Appeal number TC/2010/07793

INCOME TAX – Surcharge on unpaid income tax (Taxes Management Act 1970 s.59C) – Whether a reasonable excuse for late payment – Appeal dismissed

FIRST-TIER TRIBUNAL

TAX

MR MAYUR BODANI  Appellant

-       and –

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL:   Dr Christopher Staker (Tribunal Judge)

MS H FOLORUNSO (Tribunal Member)

Sitting in public in London on 11 January 2011

Mr Andrew Otchie for the Appellant

Mr Paul Reeve for the Respondents

DECISION

Introduction

1.     This is an appeal against default surcharges imposed pursuant to s.59C of the Taxes Management Act 1970 (the “TMA”) in respect of the late payment by the Appellant of amounts of tax in respect of his 2005/06 and 2006/07 tax returns.

The relevant legislation

2.     Section 59C of the TMA states in relevant part as follows:

(1) This section applies in relation to any income tax or capital gains tax which has become payable by a person (the taxpayer) in accordance with section 55 or 59B of this Act.

(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 per cent of the unpaid tax.

(3) Where any of the tax remains unpaid on the day following the expiry of 6 months from the due date, the taxpayer shall be liable to a further surcharge equal to 5 per cent of the unpaid tax.

...

(5) An officer of the Board may impose a surcharge under subsection (2) or (3) above; and notice of the imposition of such a surcharge—

(a) shall be served on the taxpayer, and

(b)  shall state the day on which it is issued and the time within which an appeal against the imposition of the surcharge may be brought.

...

(7) An appeal may be brought against the imposition of a surcharge under subsection (2) or (3) above within the period of 30 days beginning with the date on which the surcharge is imposed.

...

(9) 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 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.

...

(12) In this section—

“the due date”, in relation to any tax, means the date on which the tax becomes due and payable;

“the period of default”, in relation to any tax which remained unpaid after the due date, means the period beginning with that date and ending with the day before that on which the tax was paid.

The hearing, evidence and arguments

3.     At the hearing, the Appellant was represented by his counsel, Mr Otchie.  The Appellant attended and gave oral evidence, and certain documents were also produced on behalf of the Appellant, including a skeleton argument.  HMRC were represented by Mr Reeve.

4.     This appeal relates to several late payments, namely the balancing payment for 2005/06 and first instalment 2006/07, both of which were due on 31 January 2007, the second instalment 2006/07 due on 31 July 2007, and the balancing payment 2006/07 due on 31 January 2008.  All of these payments were made on 12 June 2009.  The due amount of each payment, and their due dates, and the amounts of the default surcharges imposed, and the date of actual payment, are set out in paragraph 1 of the HMRC’s statement of case.  Those details were agreed by the parties.  It was agreed by the parties at the hearing that the only issue in the present appeal is whether the Appellant has a reasonable excuse for the late payments for purposes of s.59C of the TMA.  HMRC accepts that the Appellant has a reasonable excuse for the period 5 December 2006 until 4 February 2008, but does not accept that the period of reasonable excuse extended beyond then. 

5.     Mr Bodani is a specialist medical practitioner.  In his evidence he gave details of various difficulties he was experiencing from September 2006 when he moved from Scotland to Kent to assume a new professional appointment, until the time of payment of the amounts of tax in issue in June 2009.  These difficulties included medical problems both physical and mental, marital breakdown, separation from other family members who were in Newcastle while he was in Kent, and the burdens of responsibility in his new position. 

6.     We consider it unnecessary to set out in full the evidence and submissions of the parties.  Further details are contained in the record of proceedings.

The Tribunal’s views

7.     The Tribunal has considered all of the evidence and submissions before it as a whole.  Failure to mention a particular item of evidence does not mean that the Tribunal has not considered it.

8.     HMRC accepts that the Appellant has a reasonable excuse for the period 5 December 2006 until 4 February 2008.  The issue in dispute is whether the period of reasonable excuse extends until the date of payment, 12 June 2009, some 16 months after the end of the period conceded by HMRC.

9.     In respect of a given payment, surcharges were imposed under both sub-sections (2) and (3) of s.59C of the TMA.  A taxpayer becomes liable to the former when he has been in default for 28 days, and becomes additionally liable to the latter if he or she is still in default after 6 months.  In the event that a taxpayer has a reasonable excuse for a period that extends for more than a month after the due date, but less than six months after the due date, this would mean that the Appellant had a reasonable excuse at the time that liability arose for the former surcharge, but not at the time that liability arose for the latter.  HMRC submits that in such a case, the taxpayer would be nonetheless still be liable for both default surcharges.  HMRC argues that under the wording of s.59C(9) and (12), in respect of an amount due, unless the Appellant has a reasonable excuse for the whole period from the due date for payment until the date of actual payment, the Appellant will be liable to pay each applicable default surcharge.  On consideration of the wording of the legislation, the Tribunal accepts that interpretation.

10.  There is no definition in the legislation of what constitutes a “reasonable excuse” for purposes of s.59C of the TMA.  In the context of the present case, the Tribunal understand the expression to refer to a situation where a diligent taxpayer (that is, a taxpayer who is not seeking to avoid or be dilatory in his tax obligations), aware of his or her obligation to pay tax, has done everything that could reasonably be expected in the circumstances.  It “is a matter to be considered in the light of all the circumstances of the particular case” (see LaMancha Limited v HMRC [2010] UKFTT 638 (TC) at [13], quoting Rowland v HMRC [2006] STC (SCD) 536 at [18]).

11.  The Tribunal found the Appellant to be a credible witness, and accepts generally his description of the various difficulties he was suffering.  The Tribunal is sympathetic to his situation.  HMRC itself accepts that the Appellant has a reasonable excuse for a period from 5 December 2006 until 4 February 2008, the latter date being the date on which the Appellant returned to work after being discharged from hospital having suffered from a condition which was described as life threatening. 

12.  The Tribunal considers in the circumstances that the Appellant could not have been expected to have filed his tax returns and paid his tax the very next day after his return to work.  The Tribunal accepts that it must have taken him some period of time after that to get his affairs back in order.  The Tribunal also accepts that because of his ongoing health and other problems, it would have taken him longer than normal to get his affairs back in order.

13.  The Appellant’s evidence is that he was absent from work during a period from 8 December to 12 December 2007, when he was hospitalised, and then following his discharge until 4 February 2008.  On his own evidence, he otherwise continued to work throughout the period from when he assumed his new position in Kent in September 2006 until the date that the tax was paid in June 2009.  The Appellant’s evidence was to the effect that his capacity to work was diminished.  However, there is no suggestion that he was not fit to practise as a specialist medical practitioner throughout this period, and he did in fact continue to work in a position of significant responsibility. 

14.  The Appellant’s evidence is further that he knew he had to file his tax returns and pay tax, and he knew what needed to be done.  He had previously been filing tax returns and paying tax for some years.  The Appellant says that because of the difficulties he was experiencing, he was simply unable to grapple with it.  The evidence was that there was also a company through which the Appellant provided services, which added to the complexity of what needed to be done.  However, the evidence was that the documents necessary for preparing the tax returns were on hand.  If the Appellant was unable to do it himself, he could have enlisted assistance.  This is what he ultimately did.  His evidence is that a friend (who is not an accountant but rather an “intelligent layperson”) began working on his tax affairs in June 2008.  This friend then sent relevant details for the 2005/06 tax year to the Appellant’s accountants on 31 October 2008, and the details for the 2006/07 tax year to the Appellant’s accountants on 31 December 2008.  The accountants then prepared the Appellant’s tax returns for these two years, which were both filed on 26 May 2009.  The tax payments in issue in this appeal were then made on 12 June 2009, by means of a single payment by the Appellant of £50,000.

15.  Although the Tribunal accepts that the period of reasonable excuse extends beyond 4 February 2008, the issue is whether it extends as far as 12 June 2009, an additional 16 months.  The Tribunal notes that it took the Appellant some 4 months to bring in his friend to assist (February to June 2008).  Although thereafter his friend and accountants were taking care of preparing the tax returns, the Appellant was ultimately still himself responsible for his own tax obligations.  It took his friend some 4 and 6 months (in respect of the 2005/06 and 2006/07 tax years respectively) to get the necessary details to the accountants (June to October 2008 and June to December 2008 respectively).  It then took 5 to 7 months from the time that the accountants received the details for the tax returns to be prepared and filed (October 2008 to May 2009 for the 2005/06 tax year and December 2008 to May 2009 for the 2006/07 tax year).  Even after the tax returns were filed on 26 May 2009, it took approximately another two weeks for the tax payments themselves to be made, on 12 June 2009.  This is significant because it was said that a reason for not making the payments earlier was that the Appellant did not know how much had to be paid, as the tax returns had not been prepared.  Once the accountants had got to the point of calculating the relevant amounts, that reasoning no longer applied.

16.  The Tribunal is satisfied that the Appellant was not seeking to avoid or be dilatory in his tax obligations.  The Tribunal finds that he was aware of his obligations.  The Tribunal finds that the period of reasonable excuse extended beyond 4 February 2008, but that it could not extend indefinitely beyond that date.  The Tribunal finds this case to be finely balanced.  However, on its consideration of the circumstances as a whole, on the basis of the evidence and arguments before it, the Tribunal finds that the period of reasonable excuse did not extend until 12 June 2009.  The Tribunal is satisfied that in all of the circumstances, the Appellant could reasonably have been expected to make the payments sooner than that.

Conclusion

17.    For the reasons given above, the Tribunal dismisses the 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.

Christopher Staker

TRIBUNAL JUDGE

RELEASE DATE: 18 January 2011