Appeal Number: TC/2010/08459

[2011] UKFTT 208 (TC)

TC01073

Appeal number: TC/2010/08459

Late payment surcharge – Inability to pay – Whether reasonable excuse on the facts – No – Appeal dismissed – Section 59C Taxes Management Act 1970

FIRST-TIER TRIBUNAL

TAX

EDWARD BRINDLEY PITTAppellant

- and -

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMSRespondents

TRIBUNAL: JOHN BROOKS (TRIBUNAL JUDGE)

The Tribunal determined the appeal on 7 February 2011 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 dated 31 October 2010, HMRC’s Statement of Case submitted on 6 December 2010 and the Appellant’s Reply dated 1 January 2011.

DECISION

Introduction

1. Mr Edward Brindley Pitt appeals against a late payment surcharge in the sum of £1,197.93 imposed under s 59C Taxes Management Act 1970 (“TMA”) as a result of the late payment of tax for 2008-09.

2. Having considered the papers provided by both parties, a Decision Notice dismissing the appeal and containing a summary of the Tribunal’s findings of facts and reasons for the decision was released on 7 February 2011. On 21 February 2011, following receipt of the Decision Notice, Mr Pitt wrote to the Tribunal requesting full written findings and reasons for the decision.

Evidence

3. The evidence before the Tribunal was contained in the following documents:

(1) The Notice of Appeal dated 31 October 2010.

(2) The following documents sent with the notice of appeal:

(a) Self-assessment notice of appeal dated 30 April 2010,

(b) Request for review of HMRC’s decision [to impose the surcharge] dated 23 September 2010, and

(3) HMRC’s Statement of Case submitted 6 December 2010.

(4) The following documents attached to the Statement of Case:

(a) Mr Pitt’s 2008-09 tax calculation,

(b) Mr Pitt’s appeal to HMRC dated 30 April 2010,

(d) Mr Pitt’s request for a review dated 23 September 2010,

(e) HMRC’s ‘Conclusion of Review’ letter dated 19 October 2010,

(f) The Notice of Appeal dated 31 October 2010,

(g) Copy of HMRC’s online guidance regarding payment arrangements for businesses and individuals experiencing difficulties in paying the tax due in full and on time,

(h) Copy of a 2008-09 notice to file, and

(i) Copy of HMRC’s online guidance regarding payment deadlines.

(5) The Appellant’s Reply dated 1 January 2011 together with attachments.

Facts

4. From this evidence I find the following facts:

(1) Mr Pitt (58) had, until the financial crisis of 2008, worked as a high earning solicitor in the City of London. He had filed self-assessment tax returns since the start of the self-assessment system in 1996-97 and had been subject to a late payment surcharge in 1997-98.

(2) As a result of the 2008 financial crisis Mr Pitt lost his job at short notice. Although the date this occurred is not given it would appear, from the information provided in Mr Pitt’s request to HMRC for a review of the decision to impose the surcharge, to have been around the time of the collapse of Lehman Brothers in September 2008. He consequently suffered a severe drop in his income.

(3) Mr Pitt was subsequently able to find another job his but salary was less than a quarter of what he had previously earned.

(4) On 6 April 2009 HMRC issued Mr Pitt with a Notice to file a self-assessment tax return for 2008-09. This Notice stated the filing deadlines, 31 October 2009 for a paper return and 31 January 2010 if filed online.

(5) The Notice also stated under the heading “Paying your tax”, “Please make sure the payment reaches us on time, otherwise you will have to pay interest and possibly a surcharge.”

(6) Mr Pitt filed his self-assessment tax return online on 28 January 2010.

(7) By filing the return online his tax liability would have been automatically calculated and he would have known that he was required to pay £77,798.49 by 31 January 2010.

(8) As he expected to have been able to meet his tax liability through current earnings Mr Pitt had not set aside any funds to pay the tax. Although he had paid a substantial amount by 31 January 2010, because of the unexpected loss of his high earning job he could not afford to pay the all of the tax due on time and £23,958.75 remained outstanding on 28 February 2010.

(9) The balance was finally paid on 5 May 2010.

(10) Although HMRC’s website provides guidance for individuals who are experiencing difficulties in paying tax due in full before the payment deadline, Mr Pitt, who was unable to borrow from the bank, did not contact HMRC with proposals for payment in order to request time to pay.

(11) A Surcharge Liability Notice was issued by HMRC on 1 April in the sum of £1,197.93 being 5% of £23,958.75.

(12) The surcharge was upheld following a review by HMRC and on 31 October 2010 Mr Pitt appealed to the Tribunal.

Law

5. Section s 59C TMA provides that where tax remains unpaid after the due date for payment a taxpayer is liable to a surcharge equal to 5% of the unpaid tax. The Tribunal may set aside a surcharge if it appears that the taxpayer had a reasonable excuse for not paying the tax throughout the period of default but if there does not appear to be a reasonable excuse the surcharge will be confirmed.

6. There is no definition if ‘reasonable excuse’ in the legislation which “is a matter to be considered in the light of all the circumstances of the particular case” (see Rowland v HMRC [2006] STC (SCD) 536 at [18]).

7. Although s 59C(10) TMA provides that an inability to pay “shall not be regarded as a reasonable excuse” as a result of the decision of the Court of Appeal in Customs and Excise Commissioners v Steptoe [1992] STC 757, which considered a similar provision in the VAT legislation, it is necessary to consider the underlying causes of the inability to pay to determine whether there is a reasonable excuse for the default.

Submissions

8. In his Notice of Appeal Mr Pitt explains how he lost his job in the City at short notice as a result of the 2008 financial crisis and had difficulty in obtaining the funds to meet his 2008-09 tax liability. He contends that it is clear from HMRC guidance that surcharge not automatic in all cases and that the imposition of surcharge in this case is unreasonable having regard to his circumstances especially as he has been a taxpayer for 45 years sometimes paying significant amounts of tax.

9. HMRC in their Statement of Case refer to s 59C TMA contending that a reasonable excuse is something exceptional or outside the taxpayer’s control and does not include an inability to pay. It is argued that as Mr Pitt has been making self-assessment returns since 1996-97 he is experienced with the system and due dates for payment. Also as Mr Pitt had been subject to a surcharge in 1997-98 he was aware of the self-assessment surcharge system. Although HMRC acknowledge Mr Pitt’s financial difficulties it is submitted that as his level of income had been reduced well in advance of the due date for payment he could have sought a time to pay arrangement with HMRC and if had he done so he would not have been liable to the surcharge.

10. In his Reply to HMRC’s Statement of Case Mr Pitt again refers to the sudden drop in his income due to 2008 financial crisis and contends that he was not given a proper warning that he could be liable to a surcharge. With regard to the surcharge in 1997-98 Mr Pitt explains that although he disagreed with its imposition he did not appeal against that surcharge as it would have meant a day away from the office to attend a hearing. He also contends that it is necessary to consider the underlying cause of an inability to pay to ascertain if there is a reasonable excuse and submits in this case that as a result of the sudden loss of his job and time it took at his age (58) to re-establish himself he does have a reasonable excuse.

Discussion and Conclusion

11. The issue in this case is whether Mr Pitt has a reasonable excuse for the late payment of his tax and not whether the imposition of the surcharge by HMRC was reasonable. In determining this issue it is necessary to have regard to all the circumstances including any underlying cause of the inability to pay the tax.

12. It is clear that Mr Pitt did not pay the balance of the tax due by the due date because he was unable to do so and that the underlying cause of this was the dramatic fall in his income after the loss of his job in the autumn of 2008. However, the due date for payment of the tax for 2008-09 was 31 January 2010 more than a year after Mr Pitt had lost his high earning position in the City.

13. Mr Pitt, who had been making self-assessment tax returns since 1996-97 was, in my judgment, aware of both the due date for payment of tax and that he would have a substantial tax liability for 2008-09 as a result of the high income he enjoyed during the year. Also he had been warned in the Notice to file, issued by HMRC on 6 April 2009, that a surcharge could be imposed on tax paid late. As someone who had filed his self-assessment tax return online he would have known of the existence of HMRC’s website and should have been aware of how to use it to obtain advice when his circumstances changed as he must have realised at that time that he would experience difficulties in meeting his tax liability having paid significant amounts of tax over the previous 45 years. He had ample opportunity to contact HMRC with proposals for payment of the tax, which may have prevented the surcharge being imposed, but did not do.

14. In the circumstances, having taken account of the underlying causes of his inability to pay the tax on time which is itself specifically precluded from being a reasonable excuse by s 59C(10) TMA, I am unable to find that Mr Pitt has a reasonable excuse for the late payment of his tax for 2008-09.

15. The appeal is therefore dismissed and surcharge confirmed.

16. 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.