First-tier Tribunal (Tax)

[2014] UKFTT 189 (TC)

TC03329

Appeal number: TC/2011/09621

PAYE & CT – LATE LODGING OF EMPLOYER’S ANNUAL RETURN AND CT RETURN– BOOKKEEPER OFF SICK – LACK OF FUNDS DUE TO DOWNTURN IN BUSINESS DUE TO RECESSION – LACK OF ACTION BY APPELLANTS  -  WHETHER REASONABLE EXCUSE - NO – APPEAL DISMISSED

FIRST-TIER TRIBUNAL

TAX CHAMBER

The Tribunal determined the appeal on 3 February  2014 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 Notices of Appeal dated 9 November   2011 (with enclosures), and HMRC’s Statements of Case submitted on 19 January 2012(with enclosures).

© CROWN COPYRIGHT 2014

DECISION

1 The appellants  appeal against two decisions made by  HMRC. The first is to impose flat rate penalties of £1000 for each of the  accounting periods ending 30 April 2008 and 2009 and tax related penalties for late filing of Company Tax (CT) returns   of £1567.30 for the  2008 accounting period and  £1908.30 for 2009. The second decision was to impose penalties  of £1200, £700 and £300 respectively for the tax years to 5 April 2008, 2010 and 2011   in terms of Section 98A (2) and (3) of the Taxes Management Act 1970,  for late submission of the Employer’s Annual Return. The Annual Returns were to be filed online by  19^th May following the end of a tax year. The returns were submitted on 1 May 2009, 7 December 2010 and 20 July 2011.

2. The grounds of appeal are the same in each appeal. The appellants say that at the end of 2007 their bookkeeper had a mental breakdown which resulted in a lot of time off. This coincided with a downturn in business due to  the current recession. The bookkeeper was at work sporadically and the appellants did not want to upset or pressure her so the accounts and tax obligations got behind. They could not afford to pay another bookkeeper and in any event any thought of this made their bookkeeper anxious and  worried  that she would lose her job. The bookkeeper is now recovered and the accounts and tax affairs are up to date. They say the amount of penalties is daunting for a small company  in the midst of a recession and they are struggling to pay.

 3. The position of HMRC is that it was the responsibility of the appellants  to ensure that their tax obligations were met. The CT guide is clear that if there is a difficulty in filing the return on time HMRC should be warned in advance and an arrangement may be reached. Estimated figures can be submitted to avoid penalties. Information on this is widely available.  The appellants could have avoided the tax-related penalties by either submitting the returns on time or estimating and paying the tax liability within 18 months of the end of the relevant accounting period.  HMRC set out their understanding of ’reasonable excuse’ and say  that the appeal does not contain anything which shows that either something unforeseen delayed filing of the returns or that the filing of the returns was outside the control of the company at any time.

4. So far as the second appeal is concerned,  again HMRC contend that the  responsibility for filing the returns lay with the employers and though they are sympathetic with the circumstances of the bookkeeper there is no evidence that this had a direct effect on the ability of the appellants to comply with their tax obligations. The appellants registered as employers in 1996 and ought to be fully aware of their obligations. They ought to have arranged their affairs so that the returns could be filed on time. There is no record of the appellants advising HMRC of their difficulties or of them seeking advice or an extension to the filing date. HMRC say, relative to both appeals, that there is a Business Payment Support Service designed to meet the needs of all businesses affected by the recession who have difficulty paying monies owed to HMRC and details of this service is in the public domain.   HMRC conclude that the appellants have not established that on a balance of probabilities there is a reasonable excuse for their failures to meet their obligations

5. I have given careful consideration to the evidence before me. If a person is to rely on reasonable excuse, this must have existed for the whole of the period of default. A reasonable excuse is normally an unexpected or unusual event, either unforeseeable or beyond the person’s control, which prevents him from complying with an obligation when he otherwise would have done. The matter has to be considered in the light of the actions of a reasonable prudent tax payer exercising foresight and due diligence and having proper regard for his responsibilities under the Taxes Act.  

6. I accept that the appellants were put in a difficult position by the illness and absence of their bookkeeper and that out of loyalty to her and a lack of funds they chose not to employ a replacement but it seems that they simply allowed the penalties to accrue and did nothing to avoid them.  It seems there was no effort to contact HMRC for advice on whether there were options available to them. The appellants must have been aware that tax returns had not been done and if they were not they ought to have been. If they did not want to trouble the bookkeeper they could have sought information from HMRC. In all the circumstances I must agree with HMRC that the appellants have not established that on the balance of probabilities they have a reasonable excuse for their failure to meet their obligations under the Taxes Acts.

6. I dismiss both appeals. 

7.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.

N A BAIRD

TRIBUNAL JUDGE

RELEASE DATE: 14 February 2014