First-tier Tribunal (Tax)

[2011] UKFTT 530 (TC)

TC01377

Appeal number: TC/2010/07536

Reasonable Excuse – income tax/capital gains tax.

FIRST-TIER TRIBUNAL

TAX

Mr JOHN GALLAGHER Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS Respondents

TRIBUNAL: Rachel Short (TRIBUNAL JUDGE)

William Haarer (MEMBER)

The Tribunal determined the appeal on 26 January 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 22 April 2011,  HMRC’s Statement of Case submitted on 5 November 2010 and the Appellant’s Reply dated 29 November 2010.

© CROWN COPYRIGHT 2011

DECISION

1. This was an appeal against a surcharge raised under Section 59C(2) Taxes Management Act 1970 following late payment of tax for the year 2008 – 2009.

The facts

2.  The Appellant filed his 2008-9 tax return on line on 29 January 2010. Payment of tax was due on 31 January 2010.  The Appellant submitted an amended tax return on 28 April 2010 reducing the amount of tax due for the period to £41,697.90.  HMRC issued a surcharge notice on 12 March 2010 and a statement of account on 27 June 2010.  The tax was eventually paid on 29 June 2010 and a surcharge of £2084.89 was levied by HMRC.

The arguments

3. The Appellant has appealed against this surcharge of £2,084.89  on the basis that he was not aware that the relevant tax payment was due on 31 January 2010.  The tax payment related mainly to capital gains in respect of the sale of a warehouse made in 2009 and the Appellant had no previous experience of paying capital gains tax.

4. The Appellant had employed an accountant to file a return in respect of the capital gains and assumed that he would be notified of any tax due. He had agreed a “time to pay” arrangement with HMRC in respect of payments due during 2008 and assumed that he could rely on this arrangement for the 2009 payments.

5. The Appellant’s business was struggling and it was difficult for him to pay the surcharge amount.

6. The Appellant also refers, in his reply of 29 November 2010, to the fact that his partner’s father was ill and died on 25 February 2010.  This meant that the Appellant was less diligent in managing his tax affairs than would otherwise have been the case.

7. HMRC have stated that since the Appellant submitted his tax return on line, he would have been notified of the amount due as part of that process. They also point out that the Appellant cannot rely on the failure of his accountant to excuse his failure to pay the tax due on time.

8. HMRC also state that while a “time to pay” arrangement had been made for the June – December 2008 period,  they have no record of such an arrangement being made prior to the 28 February 2010 due date for the payment of this tax liability.

Decision

9. In order to set aside the surcharge under s 59C(2) Taxes Management Act 1970 the Appellant has to demonstrate that he has a “reasonable excuse” for non payment throughout the relevant period of default, which for these purposes is from the due date of 31 January 2010 until the date when payment of the tax was made, 29 June 2010.

10. There is no statutory definition of “reasonable excuse” but there are a number of previous decisions in this area as well as guidance from HMRC which suggest that a “reasonable excuse” will exist only where unforeseen circumstances, beyond the control of the taxpayer, have prevented the tax being paid.  The Appellant has raised a variety of points which might amount to a “reasonable excuse” but the Tribunal does not think that any of them, taken either in isolation or together, amount to a reasonable excuse.

Reliance on his accountant

11.  There are a number of authorities which make it clear that reliance on a third party, such as an accountant, do not generally constitute a reasonable excuse, other than in relatively extreme circumstances where an agent has engaged in fraud or other criminal activities.  There is no suggestion that such circumstances were present here.

Did not know that tax was due

12.  Similarly ignorance of the requirement to make a tax payment on the part of a taxpayer does not constitute a reasonable excuse for these purposes.  The Tribunal agrees with HMRC that the onus is on the taxpayer to ensure that tax is paid on time.  In this instance the Appellant and his advisers had previously entered into a time to pay arrangement and should have known both that one was not in place for the 2008 – 9 tax payment and the formalities required to set one up.

Death of partner’s father

13. Death or bereavement of a close relative can amount to a “reasonable excuse” for these purposes, but that excuse has to subsist for the whole of the default period. The Appellant does refer to the time spent supporting his partner up to the time of her father’s death in February, but there is no evidence to suggest that this bereavement continued to disrupt the Appellant’s business affairs for the whole of the following four months until payment was eventually made at the end of June.

Business was struggling

14.  Finally, the Appellant has argued that his shortage of funds should be taken account of.  Again, while there are extreme circumstances, such as in the Steptoe case ([1991]STC 302), when a sudden shortage of funds beyond the taxpayer’s control can constitute a reasonable excuse, normal cash flow problems suffered by a business do not generally amount to a reasonable excuse.  No evidence has been provided that the lack of available funds here arose as a result of anything other than a period of difficult trading.

15. For these reasons and on the basis of the statements which we have seen from HMRC and the Appellant  we have concluded that the Appellant does not have a reasonable excuse throughout the period of default  and so dismiss this appeal.

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.

Rachel Short

TRIBUNAL JUDGE

RELEASE DATE: 5/8/2011