[2011] UKFTT 483 (TC)
TC01330
Appeal number: TC/2011/01522
Self-assessment
- surcharge for late payment of tax - whether insufficiency of funds a
reasonable excuse – no – appeal dismissed
FIRST-TIER TRIBUNAL
TAX
JUDITH
GOLDWATER (deceased) Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
AND CUSTOMS Respondents
TRIBUNAL:
ANNE REDSTON (PRESIDING MEMBER)
The Tribunal determined the
appeal on 2 June 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 15 February 2011 and
HMRC’s Statement of Case submitted on 8 April 2011.
© CROWN COPYRIGHT
2011
DECISION
1. This is
the appeal by Mr Daniel Goldwater, executor of Mrs Goldwater’s estate, against:
(1)
two surcharges, each of £204.45, in respect of Mrs Goldwater’s 2008-09
self-assessment (“SA”) tax; and
(2)
two further surcharges, each of £310.45, in respect of her 2007-08 SA tax.
2. There is
no dispute that the tax for both years was not paid by the surcharge trigger
dates. The issue in the case is whether there was a reasonable excuse, such
that the surcharges should be discharged.
3. The Tribunal
decided that there was no reasonable excuse for either year and the appeal was
dismissed.
The
law
4. 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
5. The Tribunal
was provided with a bundle of documents. This comprised the correspondence
between the parties in relation to the Appeal; Mrs Goldwater’s SA Statement of
Account dated 9 December 2010 showing the surcharges; copies of the SA
self-calculations for 2007-08 and 2008-09, and HMRC’s Calculation Notice for
the same two years.
The
facts
Background
6. Mrs
Goldwater died in July 2010 at the age of 94.
7. In 2007 Mrs
Goldwater fell and fractured her hip. After a period in hospital she was
discharged but required 24 hour care. This was provided at her home, a flat in
Hampstead, and cost around £800 a week. In addition her food and living
expenses had to be paid for.
8. She owned
50% of the equity in her flat, on which a mortgage of £66,000 was taken out.
Some of the money raised was used to settle earlier (unspecified) income tax
liabilities; some was spent on her care. A further £6,000 was borrowed from
another son, Mr Stephen Goldwater.
9. By 21
August 2008 Mr Daniel Goldwater had Power of Attorney and thus the authority to
manage his mother’s financial affairs.
10. At the time of her death Mrs
Goldwater owed six months of service charges in relation to her flat and had an
overdraft (of unspecified amount) at the bank.
11. Mr Daniel Goldwater was appointed
as the executor of her estate (together with his brother Mr Stephen Goldwater)
and it is in that capacity that he makes this Appeal.
Tax year 2007-08
12. On 30 January 2009 Mrs
Goldwater’s 2007-08 return was filed online by her accountants, Kershen Fairfax.
13. Her income for the year was
£37,302, of which £27,980 derived from land and property. After deduction of
her personal allowance she had a tax liability of £5,954.34.
14. This sum was due to be paid
on or before 31 January 2009. No tax was paid, and on 1 April 2009 HMRC issued the
first surcharge notice for 5% of the outstanding amount, namely £204.45.
15. The tax remained unpaid, and
on 11 August 2009 HMRC issued the second surcharge notice, a further £204.45.
16. As at the date HMRC filed
their Statement of Case for this Appeal (8 April 2011), over two years after
the due date, the tax remained unpaid.
Tax year 2008-09
17. On 26 January 2010 Mrs
Goldwater’s 2008-09 return was filed by the same accountants.
18. Her income for the year was
£31,665, of which £27,980 derived from land and property. After deduction of
her personal allowance, her taxable income was £31,655 and the tax due was £6,209.
19. This tax was due to be paid
on or before 31 January 2010. No payment was made, and on 1 April 2010 HMRC
issued the first surcharge notice, for 5% of the outstanding tax, being
£310.45.
20. The tax remained unpaid, and
on 11 August 2010 HMRC issued the second surcharge notice, being a further
£310.45.
21. Again, as at the date HMRC
filed their Statement of Case for this Appeal (8 April 2011), the tax remained
unpaid.
Mr
Daniel Goldwater’s submissions
22. Mr Daniel Goldwater
submitted that Mrs Goldwater had a reasonable excuse for non-payment of the tax
because she did not have sufficient liquid assets to make the payments.
23. He also said he ‘was unable
to borrow any money from the bank because I was informed I was too old’.
Although Mr Stephen Goldwater had lent his mother £6,000 ‘no more money was
available’.
24. He submitted that ‘there was
no question of Mrs Goldwater trying to avoid paying the tax. If she had not
intended to pay the tax, a tax return would not have been submitted on time
each year.’
25. Finally, he said that, as executors
of his mother’s estate, he and his brother will pay the tax at some point
between January 2011 and January 2012.
HMRC’s
submissions
26. HMRC say that all statements
of account after 21 August 2008 were sent to Mr Daniel Goldwater, who had power
of attorney for his mother. He was thus aware of the amounts due and the
payment dates.
27. They submit that insufficiency
of funds is precluded from being a reasonable excuse by TMA s 59C(10).
28. The surcharges were
correctly imposed because the tax was not paid by the due dates and there is no
reasonable excuse for late payment.
Decision
29. Under TMA s 59C(9)(a) the
Tribunal may set aside the surcharge if the Appellant had a reasonable excuse
for the late payment of her 2007-08 and 2008-09 income tax.
30. The Tribunal notes that the
only excuse put forward by Mr Goldwater is the lack of liquid funds available
to pay Mrs Goldwater’s tax. He made no submission on the grounds of his
mother’s state of health. The Tribunal has been told only that she had a fall
causing a fractured hip; it has been given no information as to her mental
capacity in the period leading up to her death.
31. In any event, Mrs Goldwater
had given her son power of attorney to act on her behalf, and this was in place
by August 2008, well before the first due date for payment of the 2007-08 tax
liability. HMRC have stated that Mr Daniel Goldwater was fully aware of the
amounts due and the payment dates and he has not disputed this.
Assessment of the evidence
32. The evidence provided to the
Tribunal is that Mrs Goldwater’s gross income was around £32,000 in both years.
This is £615 a week, less than the £800 cost of her care. In addition there would
be food, utility and other bills.
33. The care alone thus cost
around £41,600 (52 x £800), so it is reasonable to assume that her overall
expenditure was at least £45,000 in each of the years in question.
34. To fund the shortfall
between income and outgoings, £66,000 was raised from the mortgage and £6,000
from her younger son. The evidence is incomplete as to how much of the former
was used to pay for her care, and how much for other things, including the
settling of earlier income tax liabilities. The Tribunal has also not been told
when the mortgage was raised.
35. It is thus not possible to
establish, from the evidence, how much money was available to Mrs Goldwater
between 31 January 2009 (when she was required to pay her 2007-08 tax
liability) and 31 July 2010 (the trigger date for the second surcharge on her
2008-09 liability).
36. However, the Tribunal
accepts that on the balance of probabilities, all Mrs Goldwater’s liquid funds
were being used to pay for her care and her other basic needs.
Insufficiency of funds – the Steptoe approach
37. The reason the tax was not
paid on time was because insufficient liquid funds were available, once Mrs
Goldwater’s home care and other outgoings were accounted for.
38. Mr Daniel Goldwater submits
that this is sufficient to establish a reasonable excuse; HMRC say that an
insufficiency of funds is barred by statute from constituting a reasonable
excuse.
39. Although HMRC are correct, the
courts have held that, on occasion, the reason for the shortage of funds can
constitute a reasonable excuse, see Customs & Excise Commissioners v
Steptoe [1992] STC 757 (“Steptoe”). 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 decision of Sir Stephen Oliver QC in Stephen
Mutch v Revenue & Customs Commissioners [2009] UKFTT 288(TC).
40. 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.
41. The Tribunal thus applied
the approach set out in Steptoe to the facts of this case.
Mrs Goldwater’s liquid funds
42. The Tribunal first looked at
her liquid funds. A decision was made to spend at least £45,000 a year on Mrs
Goldwater’s care and her other outgoings. There is no evidence that any regard
at all was paid to the statutory obligation to pay Mrs Goldwater’s tax on time.
There was no ‘proper regard for the fact that the tax would become payable on
the particular dates’. The statutory obligation cannot be displaced simply
because taxpayers, even elderly and sick taxpayers, decide to spend their
available funds on home nursing.
43. This is the case even where,
as here, the executors now say that the liability will settled from her estate
(although the Tribunal notes in passing that this was not communicated to HMRC
until 19 December 2010, when Mr Daniel Goldwater asked for a HMRC review of the
decision not to allow his appeal).
44. The Tribunal also considered
whether the use of some of the £66,000 to pay earlier tax liabilities changed
the position, and found that it did not. The requirement in Steptoe is
that the taxpayer should have regard to the tax liabilities that are becoming
due (here, Mrs Goldwater’s 2007-08 and 2008-09 SA income tax); the use of funds
to settle historic liabilities is thus irrelevant.
Mrs Goldwater’s other possible sources of funds
45. Mrs Goldwater owned 50% of
the flat in which she lived, in an expensive part of London. A mortgage of £66,000
had been raised on her share of the flat but the Tribunal was not told how much
equity remained in the property. There is no evidence before the Tribunal that
the mortgage on the flat was the maximum that could be borrowed.
46. Mrs Goldwater also had land
and property assets giving rise to an annual income of £27,980. The identity of
these assets has not been communicated to the Tribunal, and in particular, no
evidence has been provided as to whether they could have been sold or
mortgaged.
47. The Tribunal accepts that
Mrs Goldwater had debts at the time of her death, including an overdraft (of
unspecified amount). It also accepts that she had borrowed £6,000 from Mr
Stephen Goldwater, and Mr Daniel Goldwater has told the Tribunal that he was
‘too old’ to be accepted as a borrower from a bank. However, in the Tribunal’s
view, it is far from clear that all available sources of funds had been
explored.
48. The Appellant has thus not
met the evidential burden of proof necessary to demonstrate to the Tribunal, on
the balance of probabilities, that the insufficiency of funds was an inevitable
consequence of Mrs Goldwater’s financial position.
Decision
49. The Tribunal thus finds that,
whether Mrs Goldwater’s liquidity or her other possible resources, or both
together, are considered, the Steptoe exception to the statutory
provision has not been satisfied. As a result, the reason for the insufficiency
of funds does not provide a reasonable excuse.
50. The appeal is therefore
dismissed.
51. 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
TRIBUNAL PRESIDING MEMBER
RELEASE DATE: 15 JULY 2011
