Coales
| Jurisdiction | UK Non-devolved |
| Judgment Date | 26 July 2012 |
| Neutral Citation | [2012] UKFTT 477 (TC) |
| Date | 26 July 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2012] UKFTT 477 (TC)
Judge Guy Brannan
Income tax - surcharge under TMA 1970, Taxes Management Act 1970 section 59C subsec-or-para 2s. 59C(2) - whether reasonable excuse - test for reasonable excuse: objective or subjective - authorities considered - appeal dismissed
The First-tier Tribunal decided that a taxpayer had no reasonable excuse for not paying his tax liability within 28 days from its due date in accordance with the Taxes Management Act 1970 ("TMA 1970"), Taxes Management Act 1970 section 59C subsec-or-para 2s. 59C(2). The taxpayer might have been misled by his previous employer's information that HMRC would call him, but that did not absolve him from reporting his income and establishing its correct tax treatment. As a reasonable taxpayer, he would have taken steps at an earlier stage to establish his full tax liability. The Tribunal also considered that the taxpayer was notified of the due date for payment or of the fact that paying the tax after the due date could result in a surcharge. The fact that the taxpayer could not pay the full amount of the tax due within the 28 days did not of itself constitute a reasonable excuse under TMA 1970, Taxes Management Act 1970 section 59C subsec-or-para 10s. 59C(10).
The taxpayer appealed against a surcharge imposed by HMRC under TMA 1970, Taxes Management Act 1970 section 59C subsec-or-para 2s. 59C(2) in respect of late payment of his income tax for the tax year ended 5 April 2010.
In or around April 2009, the taxpayer was made redundant. He subsequently received a redundancy payment, the basic rate tax of which was deducted at source under the Pay As You Earn ("PAYE") system. His employer informed him that if there was further liability, HMRC would directly charge him extra tax at some stage after the year 2010. After being made redundant, he started to work for a new employer in June 2009 and then for another employer in September 2009. That time, he thought that the submission of Form P45 and tax details would prompt HMRC to get in touch with him.
The taxpayer contacted HMRC directly in February 2011. On 9 May 2011, HMRC issued a tax return to him for the year ended 5 April 2010. After he submitted his tax return, HMRC calculated his additional income tax liability of £11,076.80. Such calculation was notified to him on 12 July 2011, indicating that interest and surcharges would be charged on payments after a due date. On 23 August 2011, HMRC issued a statement of account showing the tax due to be paid on 16 August 2011. On 7 October 2011, HMRC issued a surcharge notice in the amount of £553.84. The taxpayer eventually paid the tax liability on 25 October 2011 and sought review of HMRC's surcharge decision on 17 December 2010. He claimed that the surcharge was unfair and that he had no experience of the self-assessment system. HMRC upheld their original decision.
The taxpayer contended that he was not aware of any due date for payment of the additional income tax or of the fact that he could become liable to a surcharge. He felt aggrieved of the surcharge because he even initiated to contact HMRC to finalise his tax liabilities despite his previous employer's information that it was HMRC who would contact him. He added that he did not take any steps to hide the fact that he had a liability and did not challenge the substantive income tax liability, only the surcharge. Thus, he considered that he was being penalised for being an honest and trustworthy person.
HMRC maintained that the taxpayer was made aware of the due date of paying the additional income tax by their statement of 23 August 2011 and calculation issued on 12 July 2011. They noted that the taxpayer took no steps to contact them to arrange a time-to-pay arrangement. They argued that the taxpayer's inability to pay or ignorance of the law was not a reasonable excuse.
Whether the taxpayer had a reasonable excuse for failing to pay the additional income tax within 28 days from the 16 August 2011 due date.
Held, dismissing the taxpayer's appeal:
Under TMA 1970, Taxes Management Act 1970 section 59C subsec-or-para 2s. 59C(2), the five per cent surcharge becomes payable if the tax is not paid within 28 days of the due date. That surcharge, however, can be set aside under TMA 1970, Taxes Management Act 1970 section 59C subsec-or-para 9s. 59C(9)(a) if it appears that throughout the period of default, the taxpayer had a reasonable excuse for not paying the tax. The onus is on the taxpayer to satisfy the Tribunal that there was a reasonable excuse. In this appeal, the Tribunal found guidance in Clean Car Co LtdVAT[1991] BVC 568 which clearly explained that the test of whether there was a reasonable excuse was an objective one.
The word "reasonable" imports the concept of objectivity; whilst the words "the taxpayer" recognise that the objective test should be applied to the circumstances of the actual (rather than some hypothetical) taxpayer. The test contained in the statute is not whether the taxpayer has an honest and genuine belief but whether there is a reasonable excuse. It is true that the absence of a genuine and honest belief would usually indicate that the excuse could not be reasonable, but its presence does not mean that the excuse is necessarily reasonable. Moreover, the concept of reasonable excuse is not confined to tax law and is to be found in many other statutory contexts, particularly in the criminal law.
Here, the taxpayer had no reasonable excuse for not paying the tax within 28 days from the due date. The Tribunal accepted that he might have been misled (or, more likely, misinterpreted the comments made) by his previous employer and that he genuinely believed that HMRC would contact him. This did not, however, absolve him from the obligation to report his income and to establish its correct tax treatment. As a reasonable taxpayer, he would have taken steps at an earlier stage to establish his full tax liability, whether by contacting HMRC or by taking professional advice. However, none of this rendered him liable to the surcharge under appeal. He became liable to the surcharge because he did not pay the outstanding tax within 28 days from the due date. Once HMRC determined his tax liability and sent him the statement dated 23 August 2011, he should have settled the outstanding tax more promptly and within the 28-day time limit. He did not do so.
The Tribunal considered that the taxpayer was on notice of the due date for payment or of the fact that paying the tax after the due date could result in a surcharge. Moreover, the fact that the taxpayer said he could not pay the full amount of the tax due within the 28 days did not of itself constitute a reasonable excuse (TMA 1970, Taxes Management Act 1970 section 59C subsec-or-para 10s. 59C(10)). The taxpayer had given no explanation as to what could have caused his shortage of funds and had not indicated that there were any unusual circumstances which prevented him from settling his tax bill.
1.This is an appeal against a surcharge imposed under Taxes Management Act 1970 section 59C subsec-or-para 2section 59C(2) Taxes Management Act 1970 ("TMA") in respect of a late payment of income tax for the tax year ended 5 April 2010.
2.The appellant was made redundant in or around April 2009. He received a redundancy payment in the income tax year ended 5 April 2010. Basic rate tax was deducted at source under the PAYE system.
3.His employer informed him: "If there is a [further] liability the HMRC will charge you the extra tax direct to you at some stage after 2010."
4.After being made redundant the appellant started work with a new employer in June 2009. The appellant moved employment again in September 2009 and stated that he thought that the submission of Form P 45 and tax details would prompt HMRC to get in touch with him.
5.It was not until February 2011 that the appellant contacted HMRC directly. He received a communication from HMRC several weeks after contacting HMRC's national helpline. HMRC issued a tax return to the appellant for the year ended 5 April 2010 on 9 May 2011. This tax return noted that interest and possibly a surcharge would be charged in respect of late payments of tax. The new filing date for this return was 16 August 2011 (Taxes Management Act 1970 section 8section 8 TMA).
6.HMRC allege that they received an unsatisfactory paper return from the appellant on 27 May 2011 which was returned on 7 June 2011. No evidence was produced to substantiate this claim.
7.A satisfactory paper return was received by HMRC on 7 July 2011. The return was processed on 12 July 2011 and HMRC calculated that the appellant...
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