Executors of the Estate of Mr Simon Verdegaal
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 September 2014 |
| Neutral Citation | [2014] UKFTT 878 (TC) |
| Date | 09 September 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 878 (TC)
Judge Anne Redston, Mr David E Williams CTA (Fellow)
Mr Kevin Edwards, of MHA MacIntyre Hudson, appeared for the Appellants
Mrs N Stove, Officer of HM Revenue and Customs, appeared for the Respondents
Income tax - Penalties and surcharges for late payment - Penalties for late filing - Interaction with inheritance tax IHT200 form - Outside the time limit to amend - Provisional returns not filed - Whether actions of advisers provided reasonable excuse - No - Whether reliance on advisers provided reasonable excuse - No - Whether special circumstances - No - Appeals dismissed and penalties upheld.
[1]This is the appeal by the executors of the estate of Mr Simon Verdegaal ("Mr Veredegaal") against surcharges and penalties for late payment of self-assessment ("SA") tax liabilities and penalties for late filing of SA returns.
[2]The total sum appealed was £24,061.62. The surcharges and penalties related to three tax years, 2008-09, 2009-10 and 2010-11 as set out below.
[3]In relation to 2008-09:
(2) First penalty for late filing, of £100
(3) Second penalty for late filing, of £31.
[4]In relation to 2009-10:
(2) First and second penalties for late filing, each of £100.
(3) First and second surcharges for late payment, each of £1,119.81.
[5]In relation to 2010-11
(2) Late filing penalty of £100.
(3) Daily penalty for late filing of £900.
(4) Six month late filing penalty of £300.
(5) Second six month late filing penalty of £9,035.
(6) 30 day late payment penalty of £9,335.
(7) Six month late payment penalty of £1,821.
[6]The Tribunal dismissed the executors' appeals other than in relation to the £900 daily penalties; the appeal against those penalties has been adjourned at the request of the parties until after publication of the Upper Tribunal's decision in R & C Commrs v Donaldson ("Donaldson"), which was heard in July 2014 but at the date of this hearing had not yet been published. The parties agreed that the Tribunal should then make a decision on the daily penalties on the basis of the findings of fact made in this hearing, unless we consider it necessary to ask for further submissions on the law once the Donaldson decision has been published.
[7]Mr Edwards accepted on behalf of the executors that the payments and filing which triggered the surcharges and penalties had all been late. There was also no issue with the delivery of the notices, the calculation of the amounts charged or with the timing of the executors' appeals.
[8]The single issue in the case was whether the executors had a reasonable excuse for the late filing of one or more of the SA returns and/or for the late payment of the tax due following submission of those returns.
[9]Different legislation applies to late filing and late payment, and the law changed with effect from 5 April 2010, so four sets of statutory provisions need to be considered. The legislation so far as relevant to this appeal can be found in the Appendix. However, for ease of reference, we have also set out in this part of the decision notice, the provisions relating to reasonable excuse.
[10]The legislation on reasonable excuse which applied to the 2008-09 and 2009-10 late filing penalties is at Taxes Management Act 1970 ("TMA") Taxes Management Act 1970 section 93s 93(8)(a). It states that "if it appears that, throughout the period of default, the taxpayer had a reasonable excuse for not delivering the return" the Tribunal may set the penalty aside.
[11]No late payment surcharge was issued for 2008-09. The legislation which applied to the 2009-10 late payments is at TMA s 59C(9)-(10):
-
(9)On an appeal under subsection (7) above that is notified to the tribunal Taxes Management Act 1970 section 50 subsec-or-para 6section 50(6) to (8)of this Act shall not apply but the tribunal may-
(a) if it appears that, throughout the period of default, the taxpayer had a reasonable excuse for not paying the tax, set aside the imposition of the surcharge; or
(b) if it does not so appear, confirm the imposition of the surcharge.
(10)Inability to pay the tax shall not be regarded as a reasonable excuse for the purposes of subsection (9) above.
[12]The Finance Act 2009 ("FA 2009"), Sch 55, para 23 sets out the reasonable excuse provisions which apply to late filing of returns from 2010-11.
(1)Liability to a penalty under any paragraph of this Schedule does not arise in relation to a failure to make a return if P satisfies HMRC or (on appeal) the First-tier Tribunal or Upper Tribunal that there is a reasonable excuse for the failure.
(2)For the purposes of sub-paragraph (1)-
(a) an insufficiency of funds is not a reasonable excuse unless attributable to events outside P's control,
(b) where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the failure, and
(c) 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 ceased.
[13]The legislation on reasonable excuse in the context of late payment penalties for 2010-11 is FA 2009, Finance Act 2009 schedule 56 subsec-or-para 16Sch 56, para 16. This is identical to that for late returns, other than that the words "failure to make a return" are replaced by "failure to make a payment."
[14]HMRC provided a bundle containing relevant correspondence between the parties. Mr Edwards provided a response to HMRC's Statement of Case, with 11 attachments. In addition, as Mr Edwards was the partner at MacIntyre Hudson who had acted for the executors in relation to the filing of the returns, he also gave oral evidence. He was cross-examined by Mrs Stove on behalf of HMRC and answered questions from the Tribunal. We found him to be a credible witness.
[15]On the basis of that evidence, we make the following findings of fact.
[16]Mr Verdegaal died on 29 March 2005, at the age of 91. Some time previously he had appointed his two sons, John and Michael, as executors. Before Mr Verdegaal's death, Mr Michael Verdegaal suffered a serious accidental injury which had some lasting effects on his state of health, and Mr John Verdegaal had moved to Tasmania.
[17]Mr Verdegaal's affairs were complicated. He had numerous shareholdings in many countries and a property in Peterborough for which the executors hoped to obtain planning permission.
[18]The executors appointed Roythorne & Co1, a firm of solicitors in Spalding, Lincolnshire, to deal with the estate. The partner responsible was a Mr Graham England. He asked Mr Alan Swann, a partner in MacIntyre Hudson,2 Peterborough, to prepare the estate accounts as well as the SA returns for the two tax years before Mr Verdegaal's death. There was no formal letter of engagement: Mr Edwards described it as a "subcontracting" arrangement.
[19]The IHT200 form was submitted to HMRC by Roythornes on 4 August 2005.
[20]Mr Swann died unexpectedly in December 2007, but had completed the SA returns for the two years before Mr Verdegaal's death. However, the estate had still not been finalised.
[21]On Christmas Day 2008, the property in Peterborough (for which planning permission had been refused) burnt down. The whole property was professionally valued as having been worth £600,000 before the fire. The insurance company paid £500,000 into the estate. This was a "capital sum derived from an asset" under the Taxation of Chargeable Gains Act 1992 ("TCGA"), Taxation of Chargeable Gains Act 1992 section 22 subsec-or-para 1s 22(1)(b). MacIntyre Hudson were instructed by Roythornes to calculate the related capital gains tax. Planning permission was subsequently given and the land was sold on 21 December 2010 for just over £1m.
[22]In July 2009 Mr Edwards took over the case. He realised there was no formal engagement letter and this was issued to the executors and returned signed on 15 July 2009. It specifically covered both the capital gains calculation on the part-disposal and also, more generally, the SA returns for all periods from the year of Mr Verdegaal's death.
[23]As Mr Edwards began to carry out his task, he came to the view that some shares had been omitted from the IHT200 form, that some had been included at too low a value and others at too high a value. He realised this would have implications for the values of the relevant shares for CGT purposes at the date of Mr Verdegaal's death, because it is that value which establishes the base cost for disposals by the executors. On 21 November 2011, he wrote to Roythornes, attaching a detailed analysis of the problem areas. MacIntyre Hudson and Roythornes then corresponded, seeking to confirm the position in respect of each shareholding
[24]On 14 February 2012 MacIntyre Hudson had notified HMRC of chargeability in relation to the executors' SA obligations from the date of Mr Verdegaal's death. Attached to that letter was a schedule of taxable income up to and including 5 April 2011; MacIntyre Hudson said in the letter that they "hope to be in a position to supply with [sic] the capital gains tax computations in the near future."
[25]On 29 March 2012, HMRC issued Trust and Estate tax returns for the years 2008-09, 2009-10 and 2010-11, together with a request for a statement of income received and assets disposed of for the period from 29 March 2005 to 5 April 2009. The due date for submission of the SA returns was 5 July 2012, three months from the issue date (HMRC allowed a few more days for postal delays).
[26]On 15 May 2012, Roythornes wrote to HMRC seeking to amend the IHT200. Attached to the letter was a schedule setting out the proposed new probate values. HMRC responded on 5 July 2012, saying that the application to amend the return was...
To continue reading
Request your trial