[2012] UKFTT 678 (TC)
TC02349
Appeal number:
TC/2012/07148
TYPE OF TAX – –PAYE –appeal
against the penalty imposed for the late payment of PAYE- Schedule 56 Finance
Act 2009- directors’ daughter diagnosed with terminal brain tumour in March
2010 and died in October – reasonable excuse for months 1-7 – unreliability of
payments by clients not a reasonable excuse – penalty confirmed for other
months
FIRST-TIER TRIBUNAL
TAX CHAMBER
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FROST GROUP
LIMITED
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Appellant
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- and -
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THE COMMISSIONERS
FOR HER MAJESTY’S
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Respondents
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REVENUE &
CUSTOMS
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TRIBUNAL:
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JUDGE SANDY RADFORD
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MRS ELIZABETH BRIDGE
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Sitting in public at Bedford Square , London on 17 September 2012
Mr J Frost, director of the
Appellant, for the Appellant
Mrs E Gardiner, Officer of
HMRC, for the Respondents
© CROWN COPYRIGHT
2012
DECISION
1.
This is an appeal against the penalty of £2,682.98 for the late payment
of PAYE in eight of the twelve months in the tax year 2010/11.
The legislation
2.
Penalties for the late payment of monthly PAYE amounts were first
introduced for the tax year 2010/11. The legislation is contained in Schedule
56 to the Finance Act 2009 (“Schedule 56”). Schedule 56 covers penalties for
non- and late payment of many taxes: paragraph 1(1) (which applies to all
taxes) states that a penalty is payable where the taxpayer fails to pay the tax
due on or before the due date.
3.
Paragraph 6 (which relates only to employer taxes such as PAYE) states
that the penalty due in such a case is based on the number of defaults in the
tax year, though the first default is ignored. The amount of the penalty
varies as provided by sub-paragraphs (4) to (7):
(4)
If P makes 1, 2 or 3 defaults during the tax year, the amount of the penalty is
1% of the amount of tax comprised in the total of those defaults.
(5)
If P makes 4, 5 or 6 defaults during the tax year, the amount of the penalty is
2% of the amount of tax comprised in the total amount of those defaults.
(6)
If P makes 7, 8 or 9 defaults during the tax year, the amount of the penalty is
3% of the amount of tax comprised in the total amount of those defaults.
(7)
If P makes 10 or more defaults during the tax year, the amount of the penalty
is 4% of the amount of tax comprised in those defaults.
In this and other paragraphs of Schedule 56 “P” means a
person liable to make payments.
4.
Under paragraph 11 of Schedule 56 HMRC is given no discretion over
levying a penalty:
11(1) Where P is liable to a
penalty under any paragraph of this Schedule HMRC must –
(a)
assess the penalty,
(b)
notify P, and
(c)
state in the notice the period in
respect of which the penalty is assessed.
(3)
An assessment of a penalty under any paragraph of this Schedule—
(a)
is to be treated for procedural purposes in the same way as an assessment to tax
(except in respect of a matter expressly provided for by this Schedule),
(b)
may be enforced as if it were an assessment to tax, and
(c)
may be combined with an assessment to tax.
5.
Paragraphs 13 to 15 of Schedule 56 deal with appeals. Paragraph 13(1)
allows an appeal against the HMRC decision that a penalty is payable and
paragraph 13(2) allows for an appeal against the amount of the penalty.
Paragraph 15 provides the Tribunal’s powers in relation to an appeal which is
brought before it:
(1)
On an appeal under paragraph 13(1)
that is notified to the tribunal, the tribunal may affirm or cancel HMRC’s
decision.
(2)
On an appeal under paragraph 13(2)
that is notified to the tribunal, the tribunal may-
(a)
affirm HMRC’s decision, or
(b)
substitute for HMRC’s decision
another decision that HMRC had the power to make.
(3)
If the tribunal substitutes its
decision for HMRC’s, the tribunal may rely on paragraph 9-
(a)
to the same extent as HMRC…[…],or
(b)
to a different extent, but only if
the tribunal thinks that HMRC’s decision in respect of the application of
paragraph 9 was flawed.
6.
Paragraph 9 (referred to in paragraph 15) states:
(1)
If HMRC think it right because of special circumstances, they may reduce the
penalty under any paragraph of this Schedule.
(2)
In sub-paragraph (1) “special circumstances” does not include –
(a) ability
to pay, or
(b) the
fact that a potential loss of revenue from one taxpayer is balanced by a
potential over-payment by another.
(3)
In sub-paragraph (1) the reference to reducing a penalty includes a reference
to-
(a) staying
a penalty, and
(b) agreeing
a compromise in relation to proceedings for a penalty.
7.
Paragraph 16 contains a defence of reasonable excuse, but an
insufficiency of funds is not a reasonable excuse unless attributable to events
outside P’s control. Nor is it such an excuse where P relies on another person
to do anything unless P took reasonable care to avoid the failure; and where P
had a reasonable excuse for the failure but the excuse has ceased, P is to be
treated as having continued to have the excuse if the failure is remedied
without unreasonable delay after the excuse has ceased.
Background and facts
8.
Mr Frost gave evidence that he is an insolvency practitioner who started
on his own in 2006. In 2008 and 2009 he appointed employees. It had been
impossible to find any other partners and he and his wife held the shares of
the appellant.
9.
He explained that 2010 had been a very difficult year. His daughter was
diagnosed with a brain tumour in 2006 and given the all clear in January 2010.
However, in March 2010 the doctors informed them that she was terminal and she
died in October 2010.
10.
Both he and his wife spent much time taking their daughter to hospital
appointments and his wife stayed at home with their daughter from the time of
the terminal diagnosis.
11.
He confirmed that he had spoken to HMRC but inevitably he spoke to them
on his mobile phone from the hospital car park where he had no papers or
knowledge of his reference number.
12.
He stated that it was not possible to invoice for fees in respect of the
insolvency until the cases were complete and as a result of the credit crunch
everything was taking more time.
13.
In May 2010 he appointed an accountant to come in once a week to help
with the appellant’s financial affairs due to the absence of his wife.
HMRC’s submissions
14.
Mr Gardiner was concerned that HMRC had not been informed of the
pressures put on Mr and Mrs Frost by the illness of their daughter.
15.
She submitted that insufficiency of funds was not a reasonable excuse
for the late payment of the PAYE.
16.
She submitted that there was no one-off unique cash flow problem so the
shortage of funds could be dismissed as a normal business hazard.
17.
She submitted that the penalty regime had been properly publicised and
the appellant should be well aware of it.
Appellant’s submissions
18.
Mr Frost submitted that the appellant’s finances were dependent on when
the insolvency cases settled.
19.
He submitted that before his daughter was sick his wife used to work
four days a week but once his daughter became ill she had to take more and more
time off work. Even after his daughter’s condition improved his wife was never
able to come back to work.
20.
Mr Frost submitted that once his daughter was diagnosed terminal, his
wife stayed at home with her full time.
Findings
21.
The Tribunal found that the terminal illness of the directors and shareholders’
daughter was a reasonable excuse for the initial late payments of PAYE for the
relevant tax year.
22.
We found that it would have been impossible for the directors to keep up
with the administration whilst dealing with their personal tragedy.
Decision
23.
The penalty in respect of months 1-7 are hereby cancelled. As month 8
will no longer count as a default being the first default of the relevant tax
year, we confirm the penalty in respect of months 9 and 10.
24.
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.
SANDY
RADFORD
TRIBUNAL JUDGE
RELEASE DATE: 31 October 2012
