First-tier Tribunal (Tax)

[2011] UKFTT 233 (TC)

TC01098

Appeal number: TC/2010/09345

PAYE. Reasonable excuse.

FIRST-TIER TRIBUNAL

TAX

YUSUF BUDIADI Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL:  GERAINT JONES Q.C.

The Tribunal determined the appeal on 29 March 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 10 December 2010,  HMRC’s undated Statement of Case.

© CROWN COPYRIGHT 2011

DECISION

1.       On 31 December 2007 the appellant, Mr Budiadi, left his employment with UBS. He was paid up to date. On an unspecified date after the cessation of his employment,  but prior to 5 April 2008, the appellant received a further payment from UBS. That company treated the payment under the normal PAYE provisions but deducted only basic rate tax from the payment and not, as was appropriate, anything to reflect the fact that the appellant was liable to higher rate income tax. The appellant says that he was unaware that his erstwhile employer had not deducted all tax that was properly deductible and payable by it to HMRC or that there was any further tax liability that would accrue if he submitted a tax return.

2.       Eventually, probably after but UBS had supplied end of year details to HMRC the appellant was sent a blank tax return in April 2010 which he duly completed. HMRC wrote to the appellant on the 2 August 2010 thanking him for the completed return for the fiscal year ended 5 April 2008. The same letter went on to say that it is an individual's responsibility to ensure that the correct amount of tax is paid at the appropriate due date and it went on to say that as the higher rate tax should have been paid by 31 January 2009, surcharges at 28 days thereafter and at six months thereafter were being levied. The amount of the surcharges, subject to this appeal, totals £210.44.

3.       The appellant's tax return for the fiscal year ended 5 April 2008 was received by HMR see on 29 July 2010 and, when processed on the next day, showed a tax liability of £2104.40. That sum should have been paid by the 31 January 2009 had the appellant known that the full amount of tax had not been deducted by his erstwhile employer and had he sent in a tax return.

4.       The appellant has paid only £500; that being on the 31 August 2010. The Case Statement from HMRC says that there is £1604.40 remaining unpaid for that tax year. In my judgement that is a factor that should be left out of account as the sole issue subject in this appeal is whether the appellant had a reasonable excuse for his failure to pay by 31 January 2009.

5.       HMRC correctly contends that the surcharge is due and payable unless the appellant can establish that he has a reasonable excuse for the entire period of relevant delay. However, incorrectly, HMRC contends that "a reasonable excuse" necessarily involves some exceptional event within or without the taxpayer’s control. That involves HMRC putting an unjustified gloss upon the ordinary English words that Parliament has chosen to use. A "reasonable excuse" is just that and does not, as a matter of statutory interpretation, require that there should have been some exceptional event whether within or without the appellant's control.

6.       HMRC further contends that the late filing of the return cannot itself be regarded as a reasonable excuse for the late payment of the tax liability. That must depend upon why late filing took place. I readily accept that ignorance of the law may not amount to a reasonable excuse. In this case the appellant does not rely upon ignorance of the law. He says that, as a matter of fact, he believed that the appropriate tax had been deducted by his erstwhile employer under the PAYE provisions and he was not on notice that there was anything that he should declare to HMRC. Whilst there may be an onus upon the appellant to make the declaration/return, a person can only declare that which he knows or believes ought to be declared. If the state of his mind is that there is nothing to declare because he has made a mistake of fact, that, in my judgement, can in appropriate circumstances amount to a reasonable excuse. It may not be an exceptional circumstance but that does not prevent it amounting to a reasonable excuse.

7.       I accept that the appellant, as he has contended in his Notice of Appeal, believed that all necessary tax had been deducted under the PAYE system; that is what would have happened when he was an employee. He had no reason to believe that the situation would be any different once he ceased to be an employee.

8.       In those circumstances I am satisfied that a reasonable excuse does exist in this appeal and that the surcharge amount to which I have referred above, should be discharged.

9.       However, the appellant has still not paid the full amount of tax due. Any reasonable excuse must have ceased upon him being informed of his additional tax liability and so, if HMRC seeks interest or lawfully imposes any surcharges or penalties for any period thereafter, it is highly unlikely that the appellant could properly contend that there is any reasonable excuse relating thereto.

10.    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.