Ian James Cubberley v Revenue & Customs [2011] UKFTT 239 (TC) (11 April 2011)
[2011] UKFTT 239 (TC)
TC01103
Appeal number: TC/2010/05983
Self-assessment
- penalty - interest - surcharge for late payment of tax - whether
insufficiency of funds a reasonable excuse - no - request for Time to Pay -
whether HMRC’s failure to return call a reasonable excuse - no - appeal
dismissed
FIRST-TIER TRIBUNAL
TAX
IAN
JAMES CUBBERLEY Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
ANNE REDSTON (PRESIDING MEMBER)
RICHARD THOMAS
(TRIBUNAL MEMBER)
Sitting in
public at Field House, 15 Breams Buildings, London EC4A on 24 March 2011
The
Appellant appeared in person
Helen Thorn,
of HM Revenue and Customs Appeals and Reviews Unit, for the Respondents
© CROWN COPYRIGHT
2011
DECISION
1. This is Mr
Cubberley’s appeal against the surcharge imposed for late payment of his
2008/09 income tax. The issue in the case was whether he had a reasonable
excuse for late payment.
The legislation
2. The
statutory provisions relating to the imposition of surcharges are at Taxes
Management Act s 59C. So far as relevant to this Appeal, they are as follows:
Surcharges on unpaid income tax and capital gains tax
(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.
(4)-(5) …
(6) A
surcharge imposed under subsection (2) or (3) above shall carry interest at the
rate applicable under section 178 of the Finance Act 1989 from the end of the
period of 30 days beginning with the day on which the surcharge is imposed
until payment.
(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.
(8) Subject
to subsection (9) below, the provisions of this Act relating to appeals shall
have effect in relation to an appeal under subsection (7) above as they have
effect in relation to an appeal against an assessment to tax.
(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.
(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.
The
evidence
3. The
Tribunal was provided with a bundle of documents by HMRC. This included the correspondence
between the parties; Mr Cubberley’s Self Assessment (SA) Statement of Account; a
screen print of HMRC’s “Action History” in relation to Mr Cubberley (with two
entries, one for 2 March and one for 11 March 2010) and a Witness Statement
from Mr Watson, HMRC Assistant Officer East Kilbride. Mr Watson also gave oral
evidence via a video link. Mr Cubberley provided copies of his correspondence
and gave oral evidence .
The
facts
4. From this
evidence the Tribunal found the following facts
5. In the
year to 5 April 2009, Mr Cubberley had gross annual income in excess of
£100,000. In May and June 2009 he paid off some or all of his credit card debts.
6. In May
2009 Mr Cubberley became aware that his employer was facing significant financial
problems as a result of difficulties with a particular construction project. The
position worsened when other expected contracts did not materialise. By the
autumn his position with the company was becoming untenable and he was made
redundant.
7. He
obtained further work but at a much lower salary. His take-home pay reduced to
around 20% of its previous level. He thus experienced a steep and unexpected
drop in his income. His personal position was particularly difficult because he
and his wife had their first child in September.
8. During the
autumn period Mr Cubberley converted the loft in his house to provide a bedroom
for his son. This cost around £15,500. He was also committed to a mortgage and
was finding it difficult to make the repayments. His home was in negative
equity and he could not borrow against the property.
9. In January
2010 he was reminded by his former employer’s accountant that he had to pay the
balance of his outstanding tax for the 2008/09 tax year, and that this payment
was due on 31 January 2010. The sum in question was £19,064.
10. Mr Cubberley called HMRC on
telephone number 0845 3667824. He informed them he could not pay the full
amount of tax owed and explained that he had lost his job and was living
largely on his savings. He asked for a Time To Pay arrangement. He was told
that he would be called back by HMRC. He did not make a note of the name of the
person to whom he spoke, and HMRC have no record of the call. However, we
believed Mr Cubberley’s evidence that he did telephone HMRC, and we also find
that he explained his position and was told that he would be contacted.
11. However, he received no call
from HMRC. On 11 March 2010 he received a letter dated 2 March from HMRC’s Debt
Management Department threatening recovery action for the outstanding sum.
12. At 12.40 on the same day Mr
Cubberley called HMRC using the number given on the letter, and spoke to Mr
Watson. The content and length of this call is disputed and we discuss it
further below.
13. Mr Cubberley subsequently
obtained a loan from a specialist lender at 9.68% interest in order to pay the
outstanding amount, which he did on 23 March 2010.
14. On 13 April 2010 Mr
Cubberley received a surcharge notice dated 3 April 2010, for £953.20, being 5%
of the amount unpaid on 28 February 2010. That is the subject of this appeal.
The telephone call on 11 March
15. Mr Watson gave evidence
before us that he had no recollection of the call between him and Mr Cubberley,
and that he thus assumed that the call had been “very brief due to the lack of
information”. He had made a note on Mr Cubberley’s “Action History” sheet which
said:
“TP
[taxpayer] hardship, tp isn’t earning enough to pay the mortgage at the moment
and can’t offer any pyt at present. WLAI”
16. Mr. Watson was asked by the
Tribunal what the abbreviation “WLAI” stood for. He said it stood for “Warning
of Legal Action Issued”. We assume this refers to action to collect the
outstanding income tax.
17. Mr Cubberley had confirmed
with BT that the call had lasted 10 minutes and 32 seconds. He also told us
that he was not kept on hold for more than a very short time. We accept his
evidence. We thus find as a fact that the conversation with Mr Watson lasted
around ten minutes.
18. Mr Cubberley told us that he
explained his financial position to Mr Watson who had told him that he “should
have put enough aside to pay my tax”, that he had been “living above his means”
and that he should obtain a bank loan or “ask a family member for the money”.
19. In response to questioning,
Mr Watson said that these phrases formed part of “an advisory list of things
that could be asked” provided to him by HMRC. We again accept Mr Cubberley’s
evidence and find as a fact that these comments were made by Mr Watson.
20. Mr Watson had provided a
written Witness Statement to the parties and the Tribunal in advance of the
hearing. This Statement makes no mention of the fact that the phrases quoted by
Mr Cubberley form part of the HMRC script; in it, Mr Watson simply denies any
recollection of the conversation. Mr Cubberley went to some considerable effort
to secure Mr Watson’s attendance at the hearing. Had he not done so, this
evidence would not have been available to us. We are grateful to Mr Cubberley
for ensuring that Mr Watson gave evidence in person.
21. Mr Cubberley also said that
he complained to Mr Watson that he found his attitude “insulting and condescending”
and wanted to speak to another member of staff. As a result, he says, Mr Watson’s
attitude changed and he was promised that “no further action would be taken”
and that he would be contacted by another department. Again we accept Mr
Cubberley’s evidence and find as a fact that these promises were made by Mr
Watson.
The
parties’ submissions
22. Mr Cubberley submitted that
HMRC had promised to call him back in January with a view to organising a Time
to Pay arrangement and had failed to do so.
23. Furthermore, Mr Watson had
promised that “no further action” would be taken, and Mr Cubberley was thus
shocked to receive the surcharge notice.
24. Mr Cubberley also said that
he was in financial difficulties at the time and had made “every effort and
possible communication to sort out this matter”. He had also taken out a loan
at a very high interest rate in order to settle the debt. He asked that the
surcharge be set aside.
25. In HMRC’s written
submissions, they say that:
(1)
Mr Cubberley self-calculated the tax liability and filed online and thus
knew how much tax was due and when it was to be paid;
(2)
he had been registered for SA since 1996 and was experienced with that
system;
(3)
the responsibility for paying tax rests “firmly on the taxpayer’s shoulders
to fulfil their obligations completely.”
26. Before us, Ms Thorn added
the further submissions that under TMA s 59C, inability to pay the tax is not a
reasonable excuse. Furthermore, Mr Cubberley could have borrowed money earlier
and paid the tax on time. He thus did not have a reasonable excuse and she
asked that the surcharge be confirmed.
Decision
27. Under TMA s 59C(9)(a) the
Tribunal may set aside the surcharge if Mr Cubberley had a reasonable excuse
for the late payment of his 2009/10 balancing payment. We considered three
possible reasonable excuse defences: insufficiency of funds, reliance on the
call made in January, and reliance on the call made to Mr Watson.
Insufficiency of funds
28. Although HMRC are right to
say that statute precludes insufficiency of funds being a reasonable excuse, Steptoe
v R&C Commrs [1992] STC 527 (“Steptoe”) is authority for finding
that the cause of that insufficiency may constitute such an excuse. Although
that decision was in a VAT context, this Tribunal has accepted that the same
approach should be taken to direct taxes - see for example the recent decision
of Sir Stephen Oliver QC in Stephen Mutch v Revenue & Customs
Commissioners [2009] UKFTT 288(TC).
29. The Steptoe approach
requires the Tribunal to take for comparison a person in a similar situation to
that of the actual taxpayer who is relying on the reasonable excuse defence.
The Tribunal must then ask itself, with that comparable person in mind,
whether, notwithstanding that person’s exercise of reasonable foresight and of
due diligence and a proper regard for the fact that the tax would become
payable on the particular dates, those factors would not have avoided the
insufficiency of funds which led to the failures.
30. In 2008/09 Mr Cubberley had
an income of well over £100,000. From May 2009 he was aware that his employer
was in difficulties. In that month, or the next, he paid off some or all of his
credit card bills. In the autumn he was made redundant but still spent £15,500 converting
the attic. He knew that the market for government contracts had dried up, and
that employment prospects were bleak.
31. While we have considerable
sympathy for his financial predicament, and for his understandable wish to
provide a bedroom for his son, we also find that the test in Steptoe is
not met. Mr Cubberley had a tax bill as a result of his high earnings in the
previous year. The amount was known to him, and not a surprise. A person of
reasonable foresight would have ensured that sufficient money had been held
back to pay the tax. In particular, that person would have avoided
discretionary spending, such as the loft conversion. Thus we find that insufficiency
of funds in the Steptoe sense is not a reasonable excuse.
The call on 20 January
32. While we accept Mr Cubberley’s
evidence as to the existence and content of the call to HMRC, we do not go so
far as to agree that HMRC’s failure to call him back provides a reasonable
excuse.
33. Because there was no further
contact with HMRC, Mr Cubberley did not have a Time to Pay agreement by 31
January, when his tax was due, or by 28 February, the trigger point for the
surcharge.
34. The obligation to pay his
tax rested with Mr Cubberley. It was his responsibility, not HMRC’s, to make
enquiries about a Time to Pay agreement and to follow up when the call was not
returned. We find that it would have been reasonable for him to make a follow
up call and that HMRC’s failure to call him about a Time to Pay agreement is
not a reasonable excuse.
The call on 11 March
35. We agree with Mr Cubberley
that he was promised that “no further action would be taken” and understand
that he was then shocked to receive a surcharge notice. However, this call took
place after the trigger date for the surcharge notice (28 February). It was too
late to prevent the surcharge taking effect.
36. We thus find that the call
of 11 March does not provide Mr Cubberley with a reasonable excuse for not
paying the surcharge.
37. Under TMA s 59C(11) HMRC
have power to mitigate the surcharge, and we thus considered whether Mr
Watson’s promise that “no further action would be taken” was an undertaking
that no surcharge was payable. Had this been the case, Mr Cubberley may well
have had a legitimate expectation that the promise be kept. Whether this
Tribunal has the jurisdiction to consider legitimate expectations is currently
unclear (see Sales J in Oxfam v HMRC [2009] EWHC 3078 (Ch) at [68]).
38. We note, however, that
neither party sought to argue that surcharges were mentioned in the
conversation; furthermore the call was in the context of recovery action by
HMRC’s debt management office.
39. From this we conclude that
Mr Watson’s promise was that HMRC would not proceed further with recovery
action; it did not relate to surcharges. Mr Cubberley thus did not have a
legitimate expectation that no surcharge would be levied. We acknowledge, however,
that this distinction was not understood by Mr Cubberley.
Concluding comment
40. We found Mr Cubberley to be
an honest and straightforward witness who was angry at the way he had been
treated. Although we have dismissed his appeal, we agree that he tried to
resolve the position in advance, and that had HMRC called him back in January,
a Time to Pay agreement might well have been put in place and this appeal would
probably have been unnecessary.
41. 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.
ANNE REDSTON
PRESIDING MEMBER
RELEASE DATE: 11 APRIL 2011
