Sellers
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 January 2021 |
| Neutral Citation | [2021] UKFTT 27 (TC) |
| Date | 27 January 2021 |
| Court | First-tier Tribunal (Tax Chamber) |
[2021] UKFTT 27 (TC)
Judge Rupert Jones, Gill Hunter
Value added tax– Default Surcharges – VATA 1994, s. 59(7) and 71 – Income tax – Late filing and late payment penalties – FA 2009, paras. 23 and 16 of Sch. 55 and 56 – Forty-one penalties between 2007 and 2017 – Issue: reasonable excuse – C & E Commrs v Steptoe [1992] BVC 142, Perrin v R & C Commrs [2018] BTC 513 and Raggatt v R & C Commrs [2019] BTC 501 considered – Self-employed barrister – Late payment of fees by government agencies: legal services commission (LSC) and crown prosecution service (CPS) – Cash flow difficulties caused by large aged debt when the LSC and CPS were slow to pay – Appeal dismissed for all VAT default surcharge periods – Appeal allowed for one income tax late payment penalty for reasonable excuse – No special circumstances.
[1] The issue in this appeal is whether Mr Sellers (“the Appellant”), a practising barrister, has established a reasonable excuse for the late filing and payment of his VAT and self-assessed Income Tax such that forty-one surcharges and penalties imposed upon him by Her Majesty's Revenue and Customs (“HMRC”) between 2007 and 2017 should be cancelled.
[2] The Appellant contends that he has a reasonable excuse for late payment of these taxes because the government agencies who were due to pay his fees for advocacy in the criminal courts, such as the Crown Prosecution Service (“CPS”), Legal Aid Agency (“LAA”) and Legal Services Commission (“LSC”), failed to pay him within stipulated or reasonable timescales. He submits that he was unable to pay one branch of the government (HMRC) because another branch of government, the executive agencies of the CPS, LSC or LAA, delayed or were unreasonably slow to make payments due to him which severely restricted his cash flow and ability to meet his tax liabilities.
[3] The appeal concerns forty-one surcharges and penalties issued by HMRC to the Appellant, totalling £37,568.42, as follows:
- twenty-one default surcharges for Value Added Tax (VAT) totalling £13,209.42 for the periods 09/07, 03/08, 12/08, 09/09, 12/09, 03/10, 06/10, 09/10, 03/11, 06/11, 09/11, 12/11, 03/12, 06/12, 09/12, 03/13, 06/13, 09/13, 12/13, 03/14, and 12/14 for late filing and/or late payment issued in accordance with section 59 of the VAT Act (VATA) 1994.
- one self-assessment (SA) late filing penalty for the 2010–11 tax year, in accordance with Schedule 55 of the Finance Act (FA) 2009.
- nineteen SA late payment penalties totalling £24,359.00 for the tax years 2010–11, 2011–12, 2012–13, 2013–14, 2014–15, 2015–16 and 2016–17, issued in accordance with Schedule 56 FA 2009.
[4] The surcharges, penalties and relevant dates of filing and payment are shown in the Schedule of Defaults and Payments for each respective tax, Appendices 1 and 2 to this decision.
[5] The Schedules of Defaults and Payments for the VAT and SA were completed in July 2019. Therefore, the information contained on payments made by the Appellant but received after this time is not included. This does not affect the substantive appeal, which concerns the original late payment and/or filing.
[6] HMRC relied on a bundle of documents. The Appellant's evidence consisted of two witness statements and oral evidence that he gave during the hearing, including answering a number of the Tribunal's questions.
[7] We found the Appellant to be an honest and open witness who went out of his way to be helpful. His answers were fair and reasonable. We recognise that he has suffered payment difficulties and struggled financially during the relevant years. We have real sympathy for the toll this has taken on him personally. There is also no doubt that he was well intentioned throughout this period, wanting to meet his tax liabilities, and that the matters in question have caused him significant stress. Much to his credit, the Appellant has made active changes to adjust his finances and settled all his tax liabilities in recent years. In 2019 and 2020 he as paid around £92,000 to HMRC in respect of outstanding taxes by working as a lecturer and continuing in practice. The outstanding sums still owed to HMRC are limited to some of the penalties or surcharges in question.
[8] We find the following facts on the balance of probabilities.
[9] The Appellant is a barrister and registered for the purpose of VAT as a sole proprietor with effect from 1 April 1996. He submitted his VAT returns on a quarterly basis.
[10] The Appellant's history of defaults in filing returns and making VAT payments is shown in the document “Default Surcharge Schedule of Defaults and Payments” (see Appendix 1). This shows that the Appellant was in the default surcharge regime from VAT period 09/07 onwards until 06/15. This document also shows when the default surcharges under appeal were issued.
[11] On 3 January 2018, the Appellant's Agent requested a review of the default surcharges and for a copy of their client's ledger. HMRC responded as follows:
- On 19 January 2018, HMRC sent a copy of the ledger to the Appellant.
- On 1 March 2018, HMRC reviewed the surcharges issued to the Appellant for the VAT periods 03/11, 06/11, 09/11, 12/11, 03/12, 06/12, 09/12, 03/13, 06/13, 09/13, 12/13, 03/14, 12/14, 06/15, 09/16 and 12/17. As a result of this review, the surcharge issued for the 06/15 VAT period and the help letter issued for the 09/16 VAT period were removed. Subsequent periods were adjusted accordingly.
[12] On 27 March 2018, the Appellant submitted his appeal to the Tribunal against the VAT default surcharges.
[13] The Appellant registered for self-assessment of his income tax of his profits as a self-employed barrister with effect from 1 March 1995.
[14] The Appellant's penalty history is set out in the Appendix “Self-assessment Schedule of Penalties and Payments” (Appendix 2). It shows that the Appellant has been issued with one late filing penalty and nineteen late payment penalties for tax years 2010–11 to 2016–17. This schedule shows when the penalties under appeal were issued.
[15] On 3 January 2019, the Appellant's Agent requested a review of the self-assessment penalties issued to the Appellant. On 22 January 2019, HMRC responded, rejecting their request for a review as it was late.
[16] On 14 February 2019 the Appellant submitted his appeal to the Tribunal against the self-assessment penalties.
[17] The appellant's appeal to HMRC under s31A Taxes Management Act 1970 (“TMA 1970”) was made outside the statutory deadline. HMRC did not object to the appeal being heard by the Tribunal even though the appeal to HMRC was submitted late. The ultimate decision on admitting the appeal rests with the Tribunal. Given that HMRC stated in their Statement of Case HMRC that they have no objection to the taxpayer's appeal under s31A being made late we are satisfied that HMRC have now given consent under s49(2)(a) TMA 1970.
[18] It is not in dispute that the Appellant is unable to appeal interest due on penalties that have been issued. HMRC accept that if the Tribunal allows the appeal, any associated interest will be cancelled. Equally, if the Tribunal dismisses the appeal any interest is due and payable.
[19] The Appellant has not disputed that he received, the notices to file the returns and make the tax payments, the default surcharge notices and self-assessment penalty notices under appeal. The burden is upon HMRC who have proved that these notices were given.
[20] The Appellant does not dispute that he filed his returns and/or paid late in respect of the VAT and self-assessment liabilities. The issue in dispute is whether the Appellant had a reasonable excuse for such late filing and payments.
[21] In summary, the Appellant believed he had a reasonable excuse for all late payments such that the tribunal should overturn the imposition of the late payment penalties, surcharges and interest charged thereupon. He believed he had a reasonable excuse in that he was unable to meet his tax liabilities as a result of significant delays in payment by the Legal Services Commission (“LSC”) or Legal Aid Agency (“LAA”) and the CPS of fees that were earned for advocacy services provided by him when prosecuting or defending legally aided clients in the criminal courts. He believed that the payment delays at the material times are well documented and experienced by a number of self-employed barristers.
[22] The Appellant was called to the Bar in November 1994 and practised predominantly in the criminal courts from 2000 onwards. The overwhelming majority of his income was therefore derived either from the Legal Services Commission and its successor, from 1 April 2013, the Legal Aid Agency (for defence advocacy) or the Crown Prosecution Service (for prosecution advocacy). He believed that the reduction in publicly funded fees in recent years is well known and documented. What he believed was not so well publicised are the delays in payment experienced by practitioners.
[23] He believed he was one of many individuals at the criminal Bar who fell into financial difficulties as a result of very poor cash flow from public funds. His aged debt from those two agencies of the Crown began to rise and peaked at £81,926 in September 2010 and £66,000 in May 2013. He exhibited a schedule of his levels of aged debt which is set out beneath. The peaks of his aged debt occurred in June to December 2010, September to December 2012 and May to November 2013 are highlighted in bold:
| Date | total | qeb | 23 |
| 01/01/2009 | £28,139.46 | £28,139.46 | |
| 01/03/2009 | £25,956.58 | £25,956.58 | |
| 01/06/2009 | £11,907.34 | £11,907.34 | |
| 01/09/2009 | £23,894.68 | £23,894.68 | |
| 01/12/2009 | £15,408.2 | £15,408.2 | |
| 01/01/2010 | £24,698.35 | £24,698.35 | |
| 01/03/2010 | £20, 100.17 | £20,100.17 |
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