Edward Brindley Pitt v Revenue & Customs [2011] UKFTT 208 (TC) (24 March 2011)
[2011] UKFTT 208 (TC)
TC01073
Appeal number: TC/2010/08459
Late
payment surcharge – Inability to pay – Whether reasonable excuse on the facts –
No – Appeal dismissed – Section 59C Taxes Management Act 1970
FIRST-TIER TRIBUNAL
TAX
EDWARD
BRINDLEY PITT Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
JOHN BROOKS (TRIBUNAL JUDGE)
The Tribunal determined the
appeal on 7 February 2011 without a hearing under the provisions of Rule 26 of
the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 (default
paper cases) having first read the Notice of Appeal dated 31 October 2010,
HMRC’s Statement of Case submitted on 6 December 2010 and the Appellant’s Reply
dated 1 January 2011.
© CROWN COPYRIGHT
2011
DECISION
Introduction
1. Mr
Edward Brindley Pitt appeals against a late payment surcharge in the sum of
£1,197.93 imposed under s 59C Taxes Management Act 1970 (“TMA”) as a result of
the late payment of tax for 2008-09.
2. Having
considered the papers provided by both parties, a Decision Notice dismissing
the appeal and containing a summary of the Tribunal’s findings of facts and
reasons for the decision was released on 7 February 2011. On 21 February 2011,
following receipt of the Decision Notice, Mr Pitt wrote to the Tribunal
requesting full written findings and reasons for the decision.
Evidence
3. The
evidence before the Tribunal was contained in the following documents:
(1)
The Notice of Appeal dated 31 October 2010.
(2)
The following documents sent with the notice of appeal:
(a)
Self-assessment notice of appeal dated 30 April 2010,
(b)
Request for review of HMRC’s decision [to impose the surcharge] dated 23
September 2010, and
(c)
Letter in response to HMRC’s 19 October 2010 ‘Conclusion of Review’
letter dated 23 October 2010.
(3)
HMRC’s Statement of Case submitted 6 December 2010.
(4)
The following documents attached to the Statement of Case:
(a)
Mr Pitt’s 2008-09 tax calculation,
(b)
Mr Pitt’s appeal to HMRC dated 30 April 2010,
(c)
HMRC decision letter dated 26 August 2010,
(d)
Mr Pitt’s request for a review dated 23 September 2010,
(e)
HMRC’s ‘Conclusion of Review’ letter dated 19 October 2010,
(f)
The Notice of Appeal dated 31 October 2010,
(g)
Copy of HMRC’s online guidance regarding payment arrangements for businesses
and individuals experiencing difficulties in paying the tax due in full and on
time,
(h)
Copy of a 2008-09 notice to file, and
(i)
Copy of HMRC’s online guidance regarding payment deadlines.
(5)
The Appellant’s Reply dated 1 January 2011 together with attachments.
Facts
4. From
this evidence I find the following facts:
(1)
Mr Pitt (58) had, until the financial crisis of 2008, worked as a high
earning solicitor in the City of London. He had filed self-assessment tax
returns since the start of the self-assessment system in 1996-97 and had been
subject to a late payment surcharge in 1997-98.
(2)
As a result of the 2008 financial crisis Mr Pitt lost his job at short
notice. Although the date this occurred is not given it would appear, from the
information provided in Mr Pitt’s request to HMRC for a review of the decision
to impose the surcharge, to have been around the time of the collapse of Lehman
Brothers in September 2008. He consequently suffered a severe drop in his
income.
(3)
Mr Pitt was subsequently able to find another job his but salary was
less than a quarter of what he had previously earned.
(4)
On 6 April 2009 HMRC issued Mr Pitt with a Notice to file a
self-assessment tax return for 2008-09. This Notice stated the filing
deadlines, 31 October 2009 for a paper return and 31 January 2010 if filed
online.
(5)
The Notice also stated under the heading “Paying your tax”, “Please make
sure the payment reaches us on time, otherwise you will have to pay interest
and possibly a surcharge.”
(6)
Mr Pitt filed his self-assessment tax return online on 28 January 2010.
(7)
By filing the return online his tax liability would have been automatically
calculated and he would have known that he was required to pay £77,798.49 by 31
January 2010.
(8)
As he expected to have been able to meet his tax liability through
current earnings Mr Pitt had not set aside any funds to pay the tax. Although he
had paid a substantial amount by 31 January 2010, because of the unexpected
loss of his high earning job he could not afford to pay the all of the tax due on
time and £23,958.75 remained outstanding on 28 February 2010.
(9)
The balance was finally paid on 5 May 2010.
(10)
Although HMRC’s website provides guidance for individuals who are
experiencing difficulties in paying tax due in full before the payment
deadline, Mr Pitt, who was unable to borrow from the bank, did not contact HMRC
with proposals for payment in order to request time to pay.
(11)
A Surcharge Liability Notice was issued by HMRC on 1 April in the sum of
£1,197.93 being 5% of £23,958.75.
(12)
The surcharge was upheld following a review by HMRC and on 31 October
2010 Mr Pitt appealed to the Tribunal.
Law
5. Section
s 59C TMA provides that where tax remains unpaid after the due date for payment
a taxpayer is liable to a surcharge equal to 5% of the unpaid tax. The Tribunal
may set aside a surcharge if it appears that the taxpayer had a reasonable
excuse for not paying the tax throughout the period of default but if there
does not appear to be a reasonable excuse the surcharge will be confirmed.
6. There
is no definition if ‘reasonable excuse’ in the legislation which “is a matter
to be considered in the light of all the circumstances of the particular case”
(see Rowland v HMRC [2006] STC (SCD) 536 at [18]).
7. Although
s 59C(10) TMA provides that an inability to pay “shall not be regarded as a
reasonable excuse” as a result of the decision of the Court of Appeal in Customs
and Excise Commissioners v Steptoe [1992] STC 757, which considered a
similar provision in the VAT legislation, it is necessary to consider the
underlying causes of the inability to pay to determine whether there is a
reasonable excuse for the default.
Submissions
8. In
his Notice of Appeal Mr Pitt explains how he lost his job in the City at short
notice as a result of the 2008 financial crisis and had difficulty in obtaining
the funds to meet his 2008-09 tax liability. He contends that it is clear from
HMRC guidance that surcharge not automatic in all cases and that the imposition
of surcharge in this case is unreasonable having regard to his circumstances
especially as he has been a taxpayer for 45 years sometimes paying significant
amounts of tax.
9. HMRC
in their Statement of Case refer to s 59C TMA contending that a reasonable
excuse is something exceptional or outside the taxpayer’s control and does not
include an inability to pay. It is argued that as Mr Pitt has been making
self-assessment returns since 1996-97 he is experienced with the system and due
dates for payment. Also as Mr Pitt had been subject to a surcharge in 1997-98
he was aware of the self-assessment surcharge system. Although HMRC acknowledge
Mr Pitt’s financial difficulties it is submitted that as his level of income had
been reduced well in advance of the due date for payment he could have sought a
time to pay arrangement with HMRC and if had he done so he would not have been
liable to the surcharge.
10. In his Reply to
HMRC’s Statement of Case Mr Pitt again refers to the sudden drop in his income
due to 2008 financial crisis and contends that he was not given a proper
warning that he could be liable to a surcharge. With regard to the surcharge in
1997-98 Mr Pitt explains that although he disagreed with its imposition he did
not appeal against that surcharge as it would have meant a day away from the
office to attend a hearing. He also contends that it is necessary to consider
the underlying cause of an inability to pay to ascertain if there is a
reasonable excuse and submits in this case that as a result of the sudden loss
of his job and time it took at his age (58) to re-establish himself he does
have a reasonable excuse.
Discussion and Conclusion
11. The issue in
this case is whether Mr Pitt has a reasonable excuse for the late payment of
his tax and not whether the imposition of the surcharge by HMRC was reasonable.
In determining this issue it is necessary to have regard to all the
circumstances including any underlying cause of the inability to pay the tax.
12. It is clear that
Mr Pitt did not pay the balance of the tax due by the due date because he was
unable to do so and that the underlying cause of this was the dramatic fall in
his income after the loss of his job in the autumn of 2008. However, the due date
for payment of the tax for 2008-09 was 31 January 2010 more than a year after
Mr Pitt had lost his high earning position in the City.
13. Mr Pitt, who had
been making self-assessment tax returns since 1996-97 was, in my judgment,
aware of both the due date for payment of tax and that he would have a
substantial tax liability for 2008-09 as a result of the high income he enjoyed
during the year. Also he had been warned in the Notice to file, issued by HMRC
on 6 April 2009, that a surcharge could be imposed on tax paid late. As someone
who had filed his self-assessment tax return online he would have known of the
existence of HMRC’s website and should have been aware of how to use it to
obtain advice when his circumstances changed as he must have realised at that
time that he would experience difficulties in meeting his tax liability having
paid significant amounts of tax over the previous 45 years. He had ample
opportunity to contact HMRC with proposals for payment of the tax, which may
have prevented the surcharge being imposed, but did not do.
14. In the
circumstances, having taken account of the underlying causes of his inability
to pay the tax on time which is itself specifically precluded from being a
reasonable excuse by s 59C(10) TMA, I am unable to find that Mr Pitt has a
reasonable excuse for the late payment of his tax for 2008-09.
15. The appeal is
therefore dismissed and surcharge confirmed.
16. 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.
JOHN BROOKS
TRIBUNAL JUDGE
RELEASE DATE: 24 MARCH 2011
