Julie Dovey v Revenue & Customs (Rev 1) [2012] UKFTT 190 (TC) (13 March 2012)
DECISION
1. This is
Mrs Dovey's appeal against the imposition of a 5% surcharge for failing to pay
her 2009-10 self-assessment (“SA”) tax liability by the surcharge trigger date
of 28 February 2011. The surcharge was £1,927.16.
2. The
Tribunal decided that the appeal was dismissed
3.
There was no dispute that the tax was paid late; the issues were:
(1)
whether Mrs Dovey had a time to pay (TTP) agreement in place;
(2)
if not, whether Mrs Dovey had a reasonable excuse for the late payment;
(3)
whether the surcharge was disproportionate and/or unfair; and
(4)
whether the Tribunal had jurisdiction over HMRC’s compliance with the
Taxpayer’s Charter, and if so, whether HMRC had breached any undertaking given
in that Charter.
The
law
4. Under SA,
the due date for payment of any amount not already settled (eg via PAYE or
payments on account) is 31 January after the end of the tax year in question
(Taxes Management Act 1970 (“TMA”) s 59B(4)).
5. Where any
SA tax remains unpaid on the day following the expiry of 28 days from the due
date, the taxpayer is liable to a surcharge equal to 5% of the unpaid tax (TMA
s 59C(2)).
6. 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% of
the unpaid tax (TMA s 59C(3)).
7. If the
taxpayer appeals the imposition of the surcharge, the Tribunal has power to set
it aside if it finds that the taxpayer had a reasonable excuse for the late
payment; alternatively, it may confirm the surcharge (TMA s 59C(9)). It has no
power to reduce the amount.
8. Inability
to pay is specifically excluded from being a reasonable excuse by TMA s
59C(10).
The
evidence
9. The
Tribunal was provided with the correspondence between the parties, and between
the parties and the Tribunal (set out on the frontispiece of this Decision).
Included with that correspondence were the following documents:
(1)
Photocopies of diary pages for Mrs Dovey’s brother, Paul Rhodes, for 13
and 14 January 2011.
(2)
A schedule of Mrs Dovey’s tax payments between 17 May 2011 and 19
September 2011.
(3)
A copy of HMRC’s Taxpayer’s Charter.
(4)
A letter to the Tribunals Service from Mr Rhodes, dated 16 December
2011.
(5)
Summaries of recent First-tier Tribunal cases in which the question of reasonable
excuse was raised, together with an article from Taxation Magazine dated
9 November 2011, entitled “Not fair” by Allison Plager.
(6)
HMRC’s telephone call record relating to Mrs Dovey’s SA position, for
the period from 14 February 2011 to 15 March 2011.
The
facts
10. From that evidence the
Tribunal finds the following facts.
11. Mrs Dovey’s taxable income
for the tax year 2009-10 was £124,679.26. Her taxable income for the previous
year was £52,251.
12. On 14 January 2011 Mr Rhodes
says he called HMRC to ask for a Time to Pay (“TTP”) arrangement for Mrs Dovey;
he provided his diary extract as confirmation. HMRC have no record of this
call. On the basis of the evidence provided, I find that this call was made.
13. Mrs Dovey’s 2009-10 tax
return was filed online on 31 January 2011 and the self-calculation of the tax
due was completed.
14. On 1 February, tax of
£26,000 was paid.
15. Both parties accept that on
1 February 2011 Mrs Dovey’s agent, Sheppard, Rockey & Williams (“the
agent”) called HMRC, and that on 14 February Mr Rhodes called HMRC. HMRC have
not recorded the content of these calls. The agent says, and Mr Rhodes has
provided a written statement confirming, that these calls were to ask for a
time to pay (“TTP”) arrangement. I accept the evidence given by the agent and
Mr Rhodes and find that these requests were made.
16. Mr Rhodes and HMRC agree
that at least one further call was made on 16 February 2011
HMRC have a detailed note which shows two calls, one at 12.58 and one at 15.37.
17. HMRC’s first note of call
says:
“ TP to call back – MRS
JA DOVEY(TP) to cb by 16/02/2011, will c/b with payment plan – had better than
expected year. WLAIS.”
18.
The second note of call reads:
“Tele call from tp inst
arrgt refused warned Distraint...hardship – PAUL RHODES (Auth person) Brother
adv TP did not put enough money aside for tax due in Jan, money which was set
aside was paid on 01/02/11 of £26k. Adv TP does not have any savings, Offered
to pay £10k p/m, adv cannot accept as we are looking for it to be cleared
before the july pyt or before jan payt if to include POA2, adv will refer to
recovery for next action, brother adv to contact him. WLAI.
19. The Appellant was given the opportunity
to comment on these call notes and has not disputed their content. I therefore
accept this record as factually accurate.
20. Although not taking issue
with the content, the agent did complain that parts of the call note were
redacted. HMRC say that the redactions were “to remove information which is not
pertinent to the appeal.”
21. It is clear from the face of
the document that most of the redactions are of the user ID, and the other
three consist of a single word at the end of a call record. On the balance of probabilities
I find that the deleted words are names or other information which would
identify the HMRC staff who took the calls, and that as a result they do not
change the content of the material being submitted as evidence.
22. On 15 March 2011 Mr Rhodes called
HMRC again, but failed to obtain their agreement to a TTP.
23. On 1 April 2011, HMRC issued
a surcharge for £1,927.16, being 5% of the 2009-10 liability outstanding on 28 February
2011.
24. On six occasions between 16
March 2011 and 17 May 2011, Mrs Dovey made part-payments of the 2009-10 outstanding
liability, so that the full amount due for that year was settled by 17 May
2011.
25. On 17 May 2011, Mr Rhodes proposed,
on Mrs Dovey’s behalf, that she enter into a TTP arrangement of £20,000 a month
from 25 June 2011 to 25 September 2011, to cover both the first and second
payments on account for 2010-11. HMRC accepted this TTP arrangement.
The
agent’s submissions on behalf of Mrs Dovey
26. The agent puts forward a
number of grounds of appeal: Mrs Dovey’s compliance with a TTP agreement; reasonable
excuse; lack of proportionality; unfairness, and treatment not in accordance
with the Taxpayer’s Charter. He also says that HMRC have not proved their case
as they are required to do under the law. I set out his submissions in more detail
below.
Compliance with a TTP
agreement
27. The agent argues that, in
terms, HMRC did offer and Mrs Dovey did comply with, a TTP agreement.
28. He says that during the call
on 15 February, HMRC said “we are looking for it to be cleared before the July
pyt” and that “this is what happened, with the balance of the 2009-10 tax all being
paid well before then on 17 May 2011.”
29. The HMRC call notes also say
“or before January payt if to include POA2” and this again happened, with the
balance of the 2010-11 instalments all being paid well before then on 19
September 2011. He says “so again, our client complied with HMRC’s Time to Pay
requirement.”
Reasonable excuse
30. If there was no TTP
agreement, he submits that Mrs Dovey had a reasonable excuse. He says that her
brother asked repeatedly for a TTP arrangement before the surcharge trigger
date; that HMRC promised to call back but failed to do so.
31.
Mr Rhodes’ evidence is that on each of the occasions he called HMRC:
“I made proposals for
how the tax due could be settled. These proposals were never formally refused;
the members of the Revenue staff merely explained that they were unable to
accept them as they went beyond the parameters someone of their grade could
accept. Obviously it could not be left like that, so I asked HMRC how the
proposals could be progressed. It was agreed that they would arrange for
someone of an appropriate grade to call me back – unfortunately no-one ever
called back until 17 May 2011.”
32. The agent says that a TTP
agreement was arranged on 17 May 2011, and that “if the Collector had rung back
before 28 February with these proposals, a TTP agreement would have been in
force and no surcharge would have been levied.”
33.
He also says that:
“the time limit for
agreeing a Time to Pay arrangement was only exceeded due to multiple HMRC
failures...[Mrs Dovey] has tried to comply with HMRC’s systems on numerous
occasions and has been prevented from doing so by breakdowns in the
administration of the system.”
34. A further “reasonable
excuse” is that the tax due for 2009-10 was “more than double” that for the
previous year and “as her accounting date is late in the year, this large
increase was not known until near the due date and couldn’t be planned for.”
35. Finally, he says that the
term “reasonable excuse” should “be given their ordinary and natural meaning”.
This is a quotation from the recent First-tier Tribunal case of Walton
Kiddiwinks Private Day Nursery [2011] UKFTT 479(TC), of which an analysis
was provided for the benefit of the Tribunal.
36. The agent also supplied a copy
of an article from Taxation magazine discussing reasonable excuse,
together with a summary of 13 other recent Tribunal cases dealing with that
question. He sought to draw the Tribunal’s attention to similarities between
Mrs Dovey’s case and these other cases where the taxpayer had succeeded.
Proportionality, fairness
and the Taxpayer’s Charter
37. The agent says that “EEC
legislation states that penalties must be commensurate with the offence and the
failure was caused by HMRC not by our client.”
38. He also says that “HMRC have
not acted fairly when their delays have resulted in a TTP agreement not being
in place in time.”
39. The agent attached a copy of
the Taxpayer’s Charter and said that “our client has not received reasonable or
fair treatment” in accordance with that Charter.
HMRC’s
submissions
40. HMRC rely on their call
records and say that Mr Rhodes was advised on 15 February that his TTP
proposals for Mrs Dovey’s outstanding liability were not acceptable, and “was
warned that the case would be subject to recovery action.” Furthermore, they
say that there is no record of HMRC agreeing to call the taxpayer back to agree
how the tax would be paid. Moreover, after the call on 15 February on which TTP
was refused, Mr Rhodes did not make contact for a further month, after the
surcharge trigger date.
41. Although a TTP agreement was
made on 17 May 2011, this related only to the 2010-11 payments on account: no
TTP agreement was ever made for the 2009-10 liability. As there was no TTP agreement
in place on 28 February 2011, the surcharge was correctly imposed.
42. HMRC submit that the SA
system is based on voluntary compliance. It is essential that taxpayers feel
confident that the system does not reward non-compliance. They say that Mrs
Dovey has been within SA since 1998-99 and is experienced with the system
“including the due dates for payment”; she has been surcharged on five
occasions since 2001.
43.
They say their understanding of a “reasonable excuse” is as follows:
“The term must be given
its normal everyday meaning. HMRC take this to mean that it is an unexpected or
unusual event, either unforeseeable or beyond a person’s control, which
prevents him/her complying with an obligation when he otherwise could have
done.
It is necessary to
consider the actions of the taxpayer from the perspective of a prudent taxpayer
exercising reasonable foresight and due diligence, having proper regard to
their responsibilities under the tax acts.”
44. They say that Mrs Dovey does
not have a reasonable excuse for her late payment.
Discussion
45. Having considered the
evidence and the submissions, my analysis of the case is as follows.
Did
Mrs Dovey comply with a TTP agreement?
46. I deal first with the
agent’s submission that, in terms, Mrs Dovey did comply with a TTP agreement.
47. An agreement is a contract,
which requires offer and acceptance. On 16 February 2011 Mr Rhodes made an
offer, which HMRC refused: the note of call reads “Offered to pay £10k p/m, adv
cannot accept.”
48. The HMRC Officer then indicated
terms on which an agreement might be possible: “we are looking for it to be
cleared before the july pyt or before jan payt if to include POA2”. I read this
as in the nature of pre-contract negotiations rather than as a counter-offer.
But even if it was an offer, it was not accepted by Mr Rhodes. The conversation
concludes with “adv will refer to recovery for next action, brother adv to
contact him.”
49. The absence of any
acceptance on the part of Mr Rhodes is underlined by the fact that on 15 March
2011 he called again, trying to agree a TTP: if one had already been accepted,
this call would have been unnecessary.
50. I thus reject the argument
that there was a TTP agreement in place before the surcharge trigger date.
Reasonable
excuse: meaning
51. Both parties agree that the
term “reasonable excuse” must be given its normal and natural meaning. HMRC
then say that it means “an unexpected or unusual event, either unforeseeable or
beyond a person’s control.” This is, however, not the “normal and natural”
meaning of the term.
52. Moreover, it is difficult to
see how this part of HMRC’s reasonable excuse formulation fits with their more
balanced second paragraph, namely that “it is necessary to consider the actions
of the taxpayer from the perspective of a prudent taxpayer exercising
reasonable foresight and due diligence, having proper regard to their
responsibilities under the tax acts.”
53. For his part, the agent provided
the Tribunal with a summary of cases in which a reasonable excuse has been
found, and sought to draw parallels with Mrs Dovey’s position. While other
decisions of this Tribunal have persuasive authority, whether or not a
reasonable excuse exists can only be decided by considering the facts of an
individual case. I agree with Judge Shipwright’s dicta in Rowland v
HMRC [2006] STC (SCD) 536 at [18] that a reasonable excuse is “a matter to
be considered in the light of all the circumstances of the particular case”
54. I also find that “all the
circumstances” must be considered in the context of the taxpayer’s statutory
responsibilities. I find helpful guidance in the Judge Mosedale’s dicta
in B&J Shopfitting Services v R&C Commrs [2010] UKFTT 78 (TC) at
[14] that “an excuse is likely to be reasonable where the taxpayer acts in the
same way as someone who seriously intends to honour their tax liabilities and
obligations would act.”
Does Mrs Dovey have a
reasonable excuse?
55. SA taxpayers have a
statutory responsibility to pay their outstanding tax by 31 January after the
end of each tax year. My starting point is that the responsible taxpayer would
plan ahead so as to ensure this obligation was met. From that starting point I
consider whether Mrs Dovey had a reasonable excuse for not meeting her
obligation.
Accounting date
56. Mrs Dovey realised,
apparently in January 2011, that she would be unable to pay most of the tax by
the due date. Her agent says that she was unable to plan for this liability
because “her accounting date is late in the year [and] this large increase was
not known until near the due date.”
57. The Tribunal has not been
told when Mrs Dovey’s accounting period ends. But the statutory rule for the
self-employed is that the tax for a given fiscal year is based on the profits
of the accounting period which ends in that fiscal year.
If Mrs Dovey’s accounting period was 5 April, then the year to 5 April 2009
would fall within the 2009-10 fiscal year. Any accounting period which finished
after 5 April 2009 would fall within the 2010-11 fiscal year.
58. Thus Mrs Dovey’s
self-employment profits must have arisen at least nine months before 31 January
2011, the due date for the payment of her taxes. It is difficult to accept that
she was unable to plan for the liability. On the evidence provided, I do not
find that her increased profits, or the due date, provide her with a reasonable
excuse.
Attempts to agree a TTP
59. The agent relies in
particular on the argument that Mrs Dovey (or others on her behalf) had sought
to obtain a TTP before the surcharge trigger date: if HMRC had called them
back, such an agreement would have been obtained, and therefore no surcharge
would have been incurred.
60. There is, of course, no
statutory right to a TTP; whether one is provided or not is a matter of HMRC’s
discretion. And as I have already found, no TTP agreement was concluded before
the surcharge trigger date.
61. As at 28 February 2011, Mrs
Dovey had no reason to think that she would be given a TTP agreement, and there
is nothing in the conversations between HMRC and Mr Rhodes which would allow
her to place any reliance on such an agreement materialising. HMRC had told Mr
Rhodes that the tax had to be paid. A taxpayer’s rejected requests for a TTP do
not amount to a reasonable excuse for late payment.
62. The agent insists that HMRC
said they would call back: HMRC deny that any such promise was made. Even if
such a promise had been made, waiting for a call-back in the hopes of agreeing
a TTP which HMRC had already rejected does not amount to a reasonable excuse.
63. The agent also asserts that
a TTP would have been given, had HMRC called back sooner. This is mere
speculation and does not provide a reasonable excuse. Moreover, no TTP was ever
provided in relation to the 2009-10 amounts.
Burden of proof
64. Before concluding, I note
that the agent states, correctly, that in penalty cases the burden of proving
that a penalty is due is on HMRC (Jussila v Finland (73053/01) ECtHR
(Grand Chamber)); he says that HMRC have failed to prove their case.
65. It is for HMRC to prove that
there has been a default which is liable to the surcharge. As Mrs Dovey was clearly
late in paying her tax, they have proved the default. The evidential burden of
proving Mrs Dovey had a reasonable excuse for that default then shifts to her.
66. On the basis of the evidence
and the submissions, I agree with HMRC that Mrs Dovey did not have a reasonable
excuse for the late payment, and find that HMRC have proved their case to the
civil standard as they are required to do (R &C Commrs v Khawaja [2009]
EWHC 687(Ch)).
Proportionality
67. The agent says that the
surcharge is disproportionate, and a breach of EEC law. HMRC make no
submissions in response.
68. The Human Rights Act 1998
obliges the Tribunal to comply with Convention rights, which require that there
be “a reasonable relationship of proportionality between the means employed and
the aim pursued”, see Gasus Dosier-und Fördertechnik GmbH v Netherlands
(Application 15375/89) (1995) 20 EHRR 403.
69.
In International Transport Roth GmbH v Home Secretary [2003] QB 728 at [26] Simon Brown LJ set out the test for assessing proportionality. He
said:
“…
it seems to me that ultimately one single question arises for determination by
the court: is the scheme not merely harsh but plainly unfair so that, however
effectively that unfairness may assist in achieving the social goal, it simply
cannot be permitted? In addressing this question I for my part would recognise
a wide discretion in the Secretary of State in his task of devising a suitable
scheme, and a high degree of deference due by the court to Parliament when it
comes to determining its legality. Our law is now replete with dicta at the
very highest level commending the courts to show such deference.”
70. The “not merely harsh but
plainly unfair” test sets a high threshold before a court or tribunal can find
that a penalty, correctly levied on the taxpayer by statutory provisions set by
parliament, should be struck down as disproportionate. Perhaps higher still is
the threshold set by Waller LJ in R (Federation of Tour Operators) v HM
Treasury [2008] STC 2524 at [32], when he said that the penalty in that
case was disproportionate as it was “devoid of reasonable foundation”.
71. I find that the 5% surcharge
imposed on Mrs Dovey is not disproportionate, for the following reasons:
(1)
It is proportionate to the tax underpaid, so that the higher the liability,
the more the surcharge.
(2)
The taxpayer has 28 days after the due date before the surcharge is
triggered to make a full or part payment. This means that a taxpayer who, like
Mrs Dovey, has filed her return on the due date, knows exactly what her
liability is and has a further four weeks to organise for it to be paid.
(3)
Part-payment of the liability before the surcharge trigger date reduces
the surcharge: it does not relate to the liability outstanding on the tax due
date, and this increases the flexibility and fairness of the regime.
(4)
HMRC are prepared to consider TTP arrangements which, if accepted, will
prevent the surcharge being triggered. This provides for the possibility of mitigation,
tailored to the individual taxpayers’’ circumstances. The fact that HMRC
refused mitigation in Mrs Dovey’s case does not make the surcharge disproportionate.
Fairness
72. Although there is currently
uncertainty as to the extent of the Tribunal’s jurisdiction over issues of
fairness,
I have gone on to consider the position if the Tribunal does have that
jurisdiction.
73.
The obligations of a statutory body such as HMRC to act fairly are
succinctly summarised in Halsbury’s Laws:
“If
the repository of a power exceeds its authority, or if a power is exercised
without lawful authority, a purported exercise of power may be pronounced
invalid. The lawful exercise of a statutory power presupposes compliance not
only with the substantive, formal and procedural conditions laid down for its
performance but also with implied requirements governing the exercise of
discretion. All statutory powers must be exercised in good faith, and for the
purpose for which they were granted. The repository of a power must have regard
to relevant considerations and not allow itself to be influenced by irrelevant
considerations.”
74. Against that background I
consider the agent’s claim that HMRC have acted unfairly. Firstly, he says that
HMRC’s refusal of the request for a TTP was unfair. On 16 February 2011 Mr
Rhodes told HMRC that Mrs Dovey had “not put enough money aside” and “does not
have any savings”. It cannot possibly be the case that a statutory body, tasked
with the collection of taxes, acts unfairly when it refuses to grant a TTP to someone
who simply failed to put aside sufficient money to pay her taxes.
75. Secondly, the agent says “the
surcharge...would not have arisen if a Time to Pay arrangement had been in
place, and this did not happen because of repeated basic failures by HMRC.”
76. The “repeated basic
failures” is HMRC’s alleged failure to call Mr Rhodes back. Despite the
reference to “repeated”, the only dates on which such a promise would have any
effect on the surcharge was the call made on 16 February 2011:
subsequent calls were made after the surcharge trigger date.
77. HMRC deny that any such
promise was made, and in respect of 16 February 2011 their submissions are
supported by the call record. The agent says that the promise was made, and put
forward Mr Rhodes’ letter as evidence. That letter begins with a list of calls,
and concludes by saying “it was agreed they would arrange for someone of the appropriate
grade to telephone me back.” There is no link between a specific call and this
final sentence.
78. I find Mr Rhodes’s evidence
to be general and imprecise. In relation to the second call on 16 February 2011
I prefer the clear, contemporaneous evidence relied on by HMRC.
79. I thus find that no promise
to call-back was made before the surcharge trigger date. It is not necessary to
consider whether a failure to call back amounted to a breach of fairness –
although on the facts of this case, even had such a promise been made, in my
judgement more would be required before there was any breach of fairness by
HMRC.
The Taxpayer’s Charter
80. Finally, the agent asserts that
HMRC are in breach of the Taxpayer’s Charter.
81. The statutory basis for this
Charter is at s16A, Commissioners for Revenue & Customs Act 2005, as
amended by Finance Act 2009, s 92(1).
82. It reads:
Charter of
standards and values
(1) The
Commissioners must prepare a Charter.
(2) The
Charter must include standards of behaviour and values to which Her Majesty's
Revenue and Customs will aspire when dealing with people in the exercise of
their functions.
83. The Charter thus sets out
standards to which HMRC “will aspire”. Taxpayers do not have a right of appeal
to this Tribunal if HMRC fail to live up to those aspirations.
84. Whether or not HMRC have
lived up to their Charter when dealing with Mrs Dovey is thus not a matter for
this Tribunal, although I do not discern any failure on the facts of this case.
Decision
85. For the reasons set out
above, I find that Mrs Dovey’s appeal fails and the surcharge is confirmed in
the amount of £1,927.16
86. 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: 13 March 2012
Amended pursuant to rule 37 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber), Rules 2009 on 24 March 2012.
