First-tier Tribunal (Tax)

[2011] UKFTT 112 (TC)

TC00988

Appeal number TC/2010/08324

INCOME TAX – Surcharge for late payment of tax – Was there a reasonable excuse? No on the facts - Was the penalty disproportionate? No on the facts

FIRST-TIER TRIBUNAL

TAX

                                            Mr SIMON COOPER                                        Appellant

                                                                      - and -

                                THE COMMISSIONERS FOR HER MAJESTY’S

                                                   REVENUE AND CUSTOMS                             Respondents

                        TRIBUNAL: ADRIAN SHIPWRIGHT  (TRIBUNAL JUDGE)

                                                SANDI O’NEILL              (TRIBUNAL MEMBER)

Sitting in public at 68 Lombard Street, London EC3V 9LJ on 17 January 2011

The Appellant did not appear

PS Maffia of HM Revenue and Customs, appeared for the Respondents

                                             © CROWN COPYRIGHT 2011

DECISION

1.        The Appellant did not appear for the hearing at the appointed time and place. Having waited for the Appellant to appear the Tribunal being satisfied that the Appellant had been notified of the hearing and that reasonable steps had been taken to notify the parties of the hearing and considering that it was in the interests of justice to proceed with the hearing proceeded with the hearing under Rule 33 (Hearings in a party's absence) of the Tribunal Rules.

2.        The Tribunal decided that the appeal be dismissed.

3.        This is an appeal by Mr Simon Cooper (“the Appellant”) against a surcharge for the late payment of tax (“the Surcharge”[1]).

4.        The Surcharge was for £618.06 and related to the year ending 5 April 2009.  It was made under section 59C Taxes Management Act 1970. The Surcharge was reduced subsequently to £413.43 as the taxable profits had been reduced which lowered the tax geared penalty. We proceeded on the basis that the lower amount was the amount of the penalty i.e. £413.43. We confirm its calculation and the amount.

5.        The Surcharge was contained in a Surcharge Notice dated 3 April 2010 (“the Notice”).  The Surcharge was upheld on review. This was notified by letter dated 29 September 2010 by the Respondents (“HMRC”).

6.        The Appellant was issued with a notice to file a tax return for 2008-2009 on 6 April 2009. The due date for filing was 31 October 2009 for a paper return and 31 January 2010 if the return was filed online.     

7.        The Appellant filed his return for 2008-2009 on 10 September 2009.  It did not include a self assessment of the tax due. HMRC issued a tax calculation for the period on 17 December 2009. This showed a balancing payment of £12,361.23 due. This was subsequently reduced.

8.        The due date for payment for the year 2008-2009 was 31 January 2010. This is the date when the money is to be received by HMRC not when the taxpayer dispatches it.

9.        Payment was not made by the due date. It was not received by HMRC till after the time when the provisions imposing a surcharge apply. We find this as a fact.

10.    A payment of £21,496.32 was treated as received by HMRC on Monday 1 March 2010. This is 29 days after the due date. It was actually received on 2 March 2010 which is 30 days after the due date. It is the date HMRC receive the money that matters here not the date shown in the Appellant’s bank statement when the money is debited from his account.

11.    HMRC issued the Notice originally imposing a surcharge of £618.06 as set out above. This was 5% of £12,361.23.

12.    The Self Assessment was amended on 30 November 2010 reducing the balance outstanding to £8,268.60.The penalty was reduced to £413.43 (5% of the revised figure).

13.    Section 59C TMA allows (inter alia) the Tribunal to set aside the Surcharge if the Appellant shows a reasonable excuse for late payment that lasted throughout the period of default.

14.    Reasonable excuse is not defined for these purposes but is generally considered to be an exceptional event outside the taxpayer’s control.

15.    In outline, the Appellant contended as follows.

(1)          "I attempted to pay on 2 February 2010, but due to an oversight by my parents their cheque was not supported by the necessary funds, so payment sent to HMRC did not clear. This family misunderstanding took some time to sort out.

(2)          A payment date of 1 March 2010 was given by HMRC to the payments. This was only one day late".

(3)          There was a reasonable excuse in the circumstances.

(a)           HMRC did not inform the Appellant that the cheque had not cleared;

(b)          he was informed that the bank transfer would take place immediately on 26 February 2010;

(4)          when the Appellant spoke to HMRC on 8 March 2010 he was informed the account was clear in that no further payments were due. The amount of the Surcharge is "wholly disproportionate to the gravity of the offence". The Tribunal discharged the penalty on that basis in Enersys Holdings UK Ltd v HMRC [2010] UK FTT 20 (TC).

(5)          Accordingly, the appeal should be allowed

16.    In outline, HMRC contended as follows.

(1)          It is the taxpayer's responsibility to pay tax on time. The notice requiring the Appellant to make a tax return made it clear that penalties and interest could otherwise arise.

(2)          The payment was not made on the due date and was received more than 28 days after the due date. Accordingly, the surcharge provisions were engaged and the Surcharge is payable unless the Appellant can show a reasonable excuse i.e. an exceptional event outside the Appellant's control.

17.    We find that:

(1)          the tax due was not paid on 31 January 2010, the due date. It is the Appellant’s responsibility to ensure payment is received by HMRC on the due date. It is not his parents’ obligation. The payment was not one day late- it was received by HMRC 29 days late and it is the date of receipt by HMRC that matters;

(2)          the Appellant has not shown a reasonable excuse for not making the payment on time nor that that excuse lasted throughout the period of default;

(3)          accordingly, the statutory conditions for the imposition of the Surcharge were met;

(4)          Electronic payments usually need three banking days to clear as is make plain in HMRC’s documentation and website. Making payment on Friday 26 February 2010 does not leave three clear banking days till 28 February 2010, a Sunday, the date the surcharge would be triggered;

(5)          There is no duty on HMRC to tell the taxpayer that the taxpayer’s cheque has “bounced”.   

(6)          The Surcharge was not issued till 3 April 2010 so it would not have shown up on 8 March 2010. The conversation with HMRC does not waive the Surcharge. It had not even been issued then.

(7)          Subject to the Human Rights Act point discussed next the Surcharge was properly imposed and is due and we so find.

18.    The Appellant has sought to raise the question of proportionality and human rights in the light of the Enersys case.

19.    The Enersys case concerned VAT and engaged “a Community obligation” (see paragraph 26). It seems to have been accepted that there was no material difference between community law and the Human Rights Convention (see paragraph 27).

20.    It was said at paragraph 64 in the Enersys case “the courts and tribunals should also not strike down a scheme or an individual penalty save in exceptional circumstances”. We do not consider that there were exceptional circumstances here and we so find. Payment was made late and even when first made late the cheque “bounced”.

21.    It was said by Mr Bishopp at paragraph 69 in the Enersys case:

“I am quite willing to accept—indeed experience of its operation tells me—that the default surcharge regime, by and large, produces a fair penalty, or at least one which is not obviously disproportionate to the offence, albeit I have particular misgivings about the absence of any correlation between the period of delay and the amount of the penalty. But, as I have indicated, the penalty imposed in this case is in my view wholly disproportionate to the gravity of the offence—it is, as Simon Brown LJ put it in Roth, “not merely harsh but plainly unfair”—and I am not persuaded, in the absence of any justification of it, that it can be saved by the state’s margin of appreciation. It is, in my view, one of those exceptional cases which the tribunal had in mind in Greengate Furniture”.

22.    We do not consider the Surcharge to be plainly unfair in the circumstances of this case and we so find.

23.    There is also discussion of mitigation in the Enersys case. We note that section 59C(11) TMA provides:

“(11)     The Board may in their discretion—

(a)     mitigate any surcharge under subsection (2) or (3) above, or

(b)     stay or compound any proceedings for the recovery of any such surcharge,

and may also, after judgment, further mitigate or entirely remit the surcharge”.

24.    The position is thus not on all fours as the position in the Enersys case and is thus distinguishable as there is a power of mitigation for the Board and the drafting of the legislation is different.  The legislation relevant to this hearing is different and does not give rise to a penalty that is plainly unfair and is one that could be mitigated. We are also told in Enersys not to strike down a scheme or an individual penalty save in exceptional circumstances (see above). We find that there are no exceptional circumstances here.

25.    Accordingly, we reject the Human Rights argument on the facts of this case. It may be harsh but the Surcharge as reduced is not plainly unfair.

26.    Consequently, the appeal is dismissed as no reasonable excuse within the meaning of the legislation has been shown and the Human Rights argument has been rejected.

27.    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

RELEASE DATE: 10 FEBRUARY 2011