First-tier Tribunal (Tax)

[2013] UKFTT 619 (TC)

TC03006

 Appeal number: TC/2013/02254

Income Tax – late payment penalties – Paragraphs 3(2) and 3(3) of Schedule 56 Finance Act 2009 – reasonable excuse – no - proportionality – no  - appeal dismissed

FIRST-TIER TRIBUNAL

TAX CHAMBER

CHARLOTTE GAYNOR Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE & CUSTOMS Respondents

TRIBUNAL: G. NOEL BARRETT LLB (Presiding Member)

The Tribunal determined the appeal on 13^th September 2013 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 which is dated 29^th March 2013, HMRC’s Statement of Case submitted on 23^rd July 2013 and the previous directions issued in respect of the appeal.

© CROWN COPYRIGHT 2013

DECISION

Introduction

1.       This is an appeal against two late payment penalties for late payment of self-assessment tax due on the Appellant’s self-assessment tax return for the tax year 2010-11, which return was received electronically by HMRC on 8^th August 2012. The first penalty in the sum of £436 was calculated at the rate of 5% of the tax remaining outstanding (£8,720), after the expiry of 30 days from the due date (31^st January 2012); and the second penalty in the sum of £436 was calculated at the rate of 5% of the tax then remaining outstanding after the end of the period of 5 months from the penalty date (2^nd March 2012). The Appellant’s payment was not actually received by HMRC until 25^th September 2012.

2.       The Appellant appeals on the basis firstly that she has a reasonable excuse for the late payment and secondly on the grounds of unfairness or proportionality as to the amount of the penalty.

3.       The Taxes Management Act 1970 (“TMA”) section 8 states that a person issued with a Self-Assessment return must return it to HMRC on or before 31 October after the end of the tax year in question (if it is filed on paper) or on or before 31 January after the end of the tax year in question (if it is filed electronically), “the specified date”.

4.       The provisions of paragraphs (1)1 and (1)4 of Schedule 56 Finance Act (FA) 2009 operate such that a penalty is payable where the tax payer fails to pay an amount of tax 30 days after the specified date, the “penalty date”.

5.       The provisions of paragraph 3(2) Schedule 56 FA 2009 set the rate of the penalty payable under paragraph 1(1) at 5%.

6.       Paragraphs 3(3) and 3(4) Schedule 56 FA 2009 impose a further penalty at the rate of 5% of any amount of tax unpaid after the end of the period of 5 months after the penalty date.

7.       Under paragraph 9 of schedule 56, FA 2009, if HMRC find that there are special circumstances they may reduce the penalty, but special circumstances does not include ability to pay.

8.       Paragraph 9 of schedule 56, FA 2009 states:-

9.               I was provided with the correspondence between the parties, the Appellant’s Notice of Appeal dated 29^th March 2013 and HMRC’s Statement of Case submitted on 23^rd July 2013. The Appellant did not file a reply to HMRC’s Statement of Case. I was also provided with a copy of the Directions issued on the 18^th June 2013 together with specimen generic copies of information available to Tax Payers from HMRC’s web site on Self-Assessment.

10.    In view of the apology and admission of late filing and late payment contained within the Appellant’s Accountant’s letter of 8^th August 2012, I find that there is no dispute by the Appellant as to the facts of the late filing or late payment.

11.    Therefore the matters to be considered and determined are firstly as to whether any special circumstances arise; secondly as to whether the Appellant has a reasonable excuse for late filing and late payment; and thirdly as to whether the penalties, as in the Appellants submission, are disproportionate or unfair.

12.    Whilst the legislation does not define special circumstances, it is accepted that for circumstances to be special they must be as per Viscount Dilhorne at 983 in Crabtree v Hinchcliffe (Inspector of Taxes) [1971] 3 AER 967 “exceptional abnormal or unusual”. Or as Lord Justice Lane said in Clarkes of Hove Ltd v Bakers Union [1979] AER 152 “something out of the ordinary run of events”

13.    I do not accept that there are any such special circumstances in this matter which HMRC ought to have taken into account. The facts are indeed very straightforward, as submitted by the Appellant’s accountants:-

14.    There was nothing in my finding, “exceptional abnormal or unusual”, or “something out of the ordinary run of events”, about the Appellants mistaken belief or understanding in these circumstances.

15.    The burden of proving reasonable excuse rests upon the Appellant.

16.    The standard of proof is upon the balance of probabilities.

17.    There is no statutory definition of what amounts to a reasonable excuse, however I  accept as has been generally established that a reasonable excuse is normally an unexpected or unusual event which is either unforeseeable or beyond the tax payer’s control and which prevents the tax payer from complying with their obligation. I further accept that in certain cases a combination of unexpected and foreseeable events may, when viewed together, amount to a reasonable excuse.

18.    It is unfortunate that the Appellant choose not to file a reply to HMRC’s Statement of case and also unfortunate that the Appellant did not produce any evidence, from her Bank or otherwise, in support of her misunderstanding about her interest being taxed at source.

19.    The Appellant received interest amounting to £49,937, on what must have been sizeable capital investments. I accept HMRC’s submission that the Appellant ought to have been able to calculate, or at the very least notice, whether tax had or had not been deducted at source from this sum – the difference, being the amount assessed, in the sum of £9,361.29. Furthermore the Appellant’s bank statements should have confirmed to the Appellant whether or not interest had or had not been deducted at source.

20.    The Appellant further submitted that she had been going through;

21.    Unfortunately again, no evidence has been provided by the Appellant as to when those divorce proceedings actually commenced or when they were concluded, nor as to what, if any professional advice the Appellant received during those on-going divorce proceedings, nor as to what effect, if any, the divorce proceedings had on the Appellant’s cognitive ability.  

22.    I accept that matters such as divorce can impact, on some individuals very seriously and affect an individual’s ability to reason and run their affairs as effectively as otherwise. The Appellant however has provided no evidence of the effect on her, other than that briefly contained in her application for this Appeal; and the details contained in her accountant’s letter of the 8^th August 2012.

23.    The Appellant has not in this appeal for the reasons that I have provided established, on the balance of probabilities, that she has a reasonable excuse for late submission and/or late payment.

24.    I accept that the amount of the penalty imposed may seem to the Appellant harsh. However I do not believe that the penalty is either “plainly unfair” in the terms of the earlier case of Enersys HoldingsUK Limited v HMRC [2010] UKFTT 20, nor in my opinion is the penalty devoid of reasonable foundation. The penalty has been imposed by HMRC strictly in accordance with the legislation as enacted by Parliament, and the penalty itself increases proportionally with the length of the defaults. I am not satisfied therefore that the penalty imposed is in any way disproportionate. 

25.    The purpose is to penalise tax payers for not paying by the due date.

26.    As the tribunal in Dina Foods Ltd v HMRC [2011] UKFTT 709 (TC) observed at [41] and [42] and which we follow;

“41. The issue of proportionality in this context is one of human rights, and whether, in accordance with the European Convention on Human Rights, Dina Foods Ltd could demonstrate that the imposition of the penalty is an unjustified interference with a possession. According to the settled law, in matters of taxation the State enjoys a wide margin of appreciation, and the European Court of Human Rights will respect the legislature’s assessment in such matters unless it is devoid of reasonable foundation. Nevertheless, it has been recognised that not merely must the impairment of the individual’s rights be no more than is necessary for the attainment of the public policy objective sought, but it must also not impose an excessive burden on the individual concerned. The test is whether the scheme is not merely harsh but plainly unfair so that, however effectively that unfairness may assist in achieving the social objective, it simply cannot be permitted.

42. Applying this test, whilst any penalty may be perceived as harsh, we do not consider that the levying of the penalty in this case was plainly unfair. It is in our view clear that the scheme of the legislation as a whole, which seeks to provide both an incentive for taxpayers to comply with their payment  obligations, and the consequence of penalties should they fail to do so, cannot be described as wholly devoid of reasonable foundation. We have described earlier the graduated level of penalties depending on the number of defaults in a tax year, the fact that the first late payment is not counted as a default, the availability of a reasonable excuse defence and the ability to reduce a penalty in special circumstances. The taxpayer also has the right of an appeal to the Tribunal. Although the size of penalty that has rapidly accrued in the current case may seem harsh, the scheme of the legislation is in our view within the margin of appreciation afforded to the State in this respect.”

27.    Furthermore as recently decided by the Upper Tribunal in Hok v HMRC [2012 UKUT 363 (TCC)] at paragraph 41, which I again follow, this tribunal has in any event no judicial review function, nor can this tribunal apply principles of common law in determining the penalty. As such this tribunal cannot therefore interfere with the penalties laid down by Parliament simply on the grounds of unfairness. The Upper Tribunal confirmed at paragraph 56 of their decision in Hok that;

“Once it is accepted, as for the reasons we have given it must be, that the First-tier Tribunal has only that jurisdiction which has been conferred on it by statute, and can go no further, it does not matter whether the Tribunal purports to exercise a judicial review function or instead claims to be applying common law principles; neither course is within its jurisdiction”

28.    As a result it is clear to me that I do not have the power to allow this appeal on the grounds of proportionality. In any event, even if this was not the case, as the Appellant has not provided any evidence as to the effect of the penalties on her, she has therefore failed to discharge the burden of proof in this regard. It is not therefore necessary for me to consider the issue of proportionality any further, (even if I was minded to do so), which I am not.

29.    For the reasons I have given, I do not accept that there were Special Circumstances in this appeal nor that the Appellant has a reasonable excuse for not making her return and not paying tax by the due date, nor that the Appellant has established that the penalties were disproportionate or unfair.

30.    In the circumstances I therefore dismiss the appeal and confirm the two penalties, each in the sum of £436.

31.    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.