[2011] UKFTT 215 (TC)

TC01080

Appeal number TC/2010/02391

INCOME TAX- self-assessment - default surcharge for late payment of tax -reasonable excuse - S59C(9) TMA 1970 - whether dispute with HMRC relating to previous tax years amounts to reasonable excuse for non/late payment of tax -no - appeal dismissed. 

FIRST-TIER TRIBUNAL

TAX 

DAVID DENNIS 
		Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: Paulene Gandhi (Tribunal Judge)
					Ruth Watts Davies MHCIMA FCIPD 

Sitting in public at Reading on 6 October 2010

Mr Dennis in person for the Appellant

Mr Colin Brown Presenting Officer of HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.     Mr Dennis acting in person requested full written findings of fact and reasons for the decision.  

2.    This is an appeal against both the first and second surcharges imposed for late payment of income tax for the years ending 5 April 2006, 5 April 2007, and 5 April 2008.  

3.     Oral evidence was given by Mr Dennis, the Appellant. 

The law 
4.     Section 7 Taxes Management Act 1970 ("TMA") states that every person who is chargeable for income tax and has not received a notice requiring them to complete a Tax Return for that year shall within six months of the end of the year give notice to an officer of the Board of Inland Revenue that they are so chargeable.

5.    Section 9(1) TMA states that every return should contain the self-assessment, unless the return is made and delivered in line with s9(2) TMA, in which case HMRC will do the calculation.
 
6.      Section 59B(3) TMA states that in a case where the person - 
“(a)  gave the notice required by Section 7 of this Act within six months from the end of the year of assessment, but
(b)  was not given notice under Section 8 or 8A of this Act until after the 31st October next following that year,
The difference shall be payable or repayable at the end of the period of three months beginning with the day on which the notice under Section 8 or 8A was given.”   

7.     Section 59B(4) TMA states that in any other case, the difference shall be payable or repayable on or before 31 January next following the year of assessment.

8.     Section 59C(2) TMA states that where any tax remains unpaid on the day following the expiry of 28 days from the due date, the taxpayer shall be liable to a surcharge equal to 5 % of the unpaid tax.

9.    Section 59C(3) TMA states that where any of the tax remains unpaid following the expiry of 6 months from the due date, the taxpayer shall be liable to a further surcharge equal to 5 % of the unpaid tax.

10.   Section 59C(7) TMA states that an appeal may be brought against the imposition of a surcharge under sub-s (2) or (3) above within the period of 30 days beginning with the date on which the surcharge is imposed.

11.     Section 59C(9) TMA states on an appeal under sub-s (7) above s 50(6) to (8) of this Act shall not apply but the Commissioners may-
“(a) if it appears to them 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 to them, confirm the imposition of the surcharge.”
12.   Section 59C(10) TMA states that inability to pay is specifically excluded as a reasonable excuse for the purpose of s9.
13.   Section 59C(12)TMA defines the period of default and means the period beginning with the due date and ending with the day before that on which the tax due was paid.

14.    Section 118(2) TMA, so far as is material to this appeal, provides as follows:
"... where a person has a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and after the excuse ceased he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased."

The Facts 
15.    There is no dispute between the parties as to the relevant facts.

16.   The failures are as follows:
Period		Surcharge				Amount
2005/2006   	IT surcharge for late payment     	£62.60
2005/2006 		2nd IT surcharge for late payment 	£62.60
2006/2007 		IT surcharge for late payment 	£203.77
2006/2007 		2nd IT surcharge for late payment 	£203.77
2007/2008 		IT surcharge for late payment 	£216.69
2007/2008 		2nd IT surcharge for late payment 	£216.69

Chronology
2005-06
17.   For the tax return for the year ending 5 April 2006 the filing date was 31 January 2007.  A paper return was filed on 31 January 2007.  Mr Dennis calculated his own tax liability at £3,236.  
 
18.   This was due as two payments on account of £1,618 which were due for payment or before 31 January 2007.
19.    An initial surcharge notice in the sum of £161.80 was issued on or a few days after 23 March 2007 and a further surcharge notice of the same amount was issued on or a few days after 24 August 2007.

20.  HMRC reallocated payments of £1,984 against the 2005-06 tax liability which resulted in the surcharges being reduced to £62.60 each. The liability for 2005-06 was therefore deemed to have been paid in full on 19 August 2009.

21.   The period of default is from 31 January 2007 to 18 August 2009 i.e. 931 days.

2006- 07
22.   For the tax return for the year ending 5 April 2007 the filing date was 31 January 2008.  A paper return was filed on 31 January 2008. Mr Dennis again self calculated his tax liability and therefore knew the sum payable by the due date of 31 January 2008.    The tax liability for the year was £4,075.52. 

23.  This was due as two payments on account of £1,618 each and a balancing payment of £839.52 which were due for payment on or before 31 January 2008.

24.    An initial surcharge notice in the sum of £203.77 was issued on or a few days after 14 March 2008 and a further surcharge notice of the same amount was issued on or a few days after 11 August 2008.

25.   HMRC reallocated payments against the 2006-07 tax liability.  To date the balance of £3,867.50 of the tax liability for 2006-07 has not been paid. 

26.    The period of default is from 31 January 2008 to 18 May 2010 i.e. 839 days.

2007-08
27.   The filing date for the tax return for the year ending April 2008 was 31 October 2008 for a paper return or 31 January 2009 if filed online.  An online return was filed on 29 January 2009. As Mr Dennis filed the return on line the tax liability was automatically calculated and Mr Dennis therefore knew the sum payable by the due date of 31 January 2009.  The tax liability for the year was £4,333.90. 

28.   This was due as two payments on account of £2,037.76 each and a balancing payment of £258.38 which were due for payment on or before 31 January 2009.

29.    An initial surcharge notice in the sum of £216.69 was issued on or a few days after 1 April 2009 and a further surcharge notice of the same amount was issued on or a few days after 11 August 2009.

30.    To date the tax liability for 2007-08 has not been paid. 

31.    The period of default is from 31 January 2009 to 18 May 2010 i.e. 473 days.

Mr Dennis’ submissions
32.   From Mr Dennis' grounds of appeal dated 15 December 2009 and his various correspondence it is clear that Mr Dennis accepts he has not paid his tax liability.  He states that due to HMRC's incapability of addressing a constantly growing list of outstanding issues he has deferred payment until the matters of concern to him have been adequately addressed.

33.    In his grounds of appeal Mr Dennis states:
"... this deferral was not tantamount to a refusal to pay tax, although it may have been thus interpreted, but rather an expression of my unwillingness to do so (a) while I had no guarantee of payments being correctly allocated and (b) whilst the issues of contested surcharges and interest remained unaddressed and unresolved ..."

34.   In his request for a review dated 20 January 2010 Mr Dennis reiterated the grounds of appeal and further stated:
"... just as "there are no provisions in the Taxes Acts appertaining to self assessment which permit the payment of tax ... to be deferred beyond the due and payable date", there are equally no provisions permitting (a) the repeated misallocation of tax payments and (b) the appalling catalogue of administrative ineptitude by Mr West’s predecessors which has given rise to this protracted dispute and which has caused untold distress to myself and my family. In this connection I shall be pursuing the case of compensation against HMRC in due course ..." 

35.    In his submission to the tribunal dated 5 March 2010 Mr Dennis further states:
 "... The surcharges were imposed because I had withheld the payment of tax in light of (a) Mrs O'Neill's failure to honour her repeated undertaking to cancel earlier erroneous surcharges, (b) because earlier payments had been made with the proviso that they should be allocated to tax due and not to the disputed surcharges and interest, although in fact they continue to be misallocated, and (c) because, despite agreeing to arrange their reallocation solely to tax, Mrs O'Neill failed to do so ... Mr West, supported by HMRC Appeals Unit, has, however, rejected my appeal against surcharges for the years 2005-06 to 2008-09 should be cancelled, despite the fact that during this period the position which gave rise to Mrs O'Neill's cancellation of surcharges for the earlier period remained the same ..."

HMRC’s submissions
36.  Mr Dennis has been making self-assessment returns since 1996/97, at the commencement of the system. He is experienced with the self-assessment system and therefore fully aware of when and why surcharges are imposed. 

37.   The individual tax returns and the associated return guidance warn of the consequences if tax is paid late.  The initial surcharges were not imposed until the tax payments for the years in question were more than 28 days overdue and the further surcharges were imposed as the relevant tax payments remained unpaid more than six months after the due date.

38.   The late payment surcharge notices clearly informed Mr Dennis to pay any outstanding tax to avoid further interest and surcharges and whom he was to contact if he was unable to pay. 

39.    HMRC’s standard operating practice when allocating payments is to allocate to the earliest debt first, whether that be surcharge or tax etc unless otherwise instructed by the taxpayer at the time the payment is made. However if payments are allocated incorrectly and HMRC are subsequently notified a manual reallocation can be made.

40.   Mr Dennis calculated his own tax liability for the years under appeal and therefore knew how much tax was due and when it needed to be paid.  Legislation obliges Mr Dennis to pay each year’s tax liability in full by the due date unless it can be demonstrated that to do so would cause hardship in which case a payment plan may be arranged. In this case there is no evidence of any such hardship.

41.    Mr Dennis by his own admission accepts that the tax is due and payable.
42.  Although Mr Dennis has provided an abundance of correspondence most of it has no bearing on this appeal.  Mr Dennis chose not to pay his tax on time because HMRC had not sorted out problems with earlier years to his satisfaction. HMRC have procedures in place for taxpayers to appeal against decisions and complain about the handling of their tax affairs. However there is no provision within the taxes legislation which permits a taxpayer to defer payment of tax which is legally due and payable either because there were problems with previous tax years or because they were not satisfied that payment would not be allocated against a tax only charge.

43.  Mr Dennis could have made payment stipulating exactly where he wished his payment to be allocated as he did with the payments on account for 2008-09.

44.   HMRC accept that mistakes were made in relation to the tax years prior to 2005-06 however none of these prevented Mr Dennis from paying his tax liability for the years 2005-06 to 2007-08 on time. 

45.  Additionally although HMRC have addressed and continue to address Mr Dennis’ issues, Mr Dennis has to date still not paid the outstanding tax liability for 2006-07 or 2007-08.  

46.   As the tax was paid late or is still outstanding therefore both the initial and further 5% surcharges have been correctly imposed.  Payment of his tax liability was entirely within the control of Mr Dennis and nothing exceptional prevented him from paying his tax by the due dates. 

Discussion
47.   Given that it is not in dispute that Mr Dennis’ tax liability has been paid late or not at all we consider whether there was any reasonable excuse for the failure to pay the outstanding tax by the due date for the tax years 2005-06 to 2007-08.

48.   There is no definition in the legislation of a “reasonable excuse” 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)). 

49.    However Steptoe v R&C Commrs [1992] STC 527 requires the Tribunal to take for comparison a person in a similar situation to that of the actual taxpayer who is relying on the reasonable excuse defence. 
50.   As set out in Stephen Mutch v HMRC [2009] UKFTT 288 (TC) the assumed reasonable competent tax payer must be taken to have exercised reasonable foresight. Then the reasonable tax payer must be taken to have exercised due diligence and a proper regard for their tax obligations.  

51.  Mr Dennis has withheld payment of his tax liabilities for the relevant years because of his dispute with HMRC in relation to previous tax years.  Further in his view since previous surcharges were cancelled and the factual situation has not changed the surcharges for the periods under appeal should also be cancelled.

52.   It is not necessary to go into the details of Mr Dennis' difficulties with HMRC save to note that they have been ongoing for many years before the tax years that we are considering in this appeal.

53.  We understand why Mr Dennis has not paid all of his tax liability given the difficulties he has had with communicating with Mr West’s predecessors at HMRC.  However Mr Dennis accepts that his tax liability of around £8000 (excluding any surcharges and interest) is still outstanding. 

54.   Mr Dennis self calculated his tax liability and therefore would have known how much was due and the dates on which payments were due.  

55.  In our view a dispute with HMRC, however frustrating and difficult, does not amount to a reasonable excuse.  Mr Dennis made a conscious decision not to pay his tax liability on time or at all for a three-year period but all the difficulties he has relied upon are in relation to a different period of time.  They do not relate to the tax years we have to consider.

56.   In our view there was nothing preventing Mr Dennis from paying his tax liability for the tax years under appeal and making it clear to HMRC how he wanted these payments to be allocated whilst at the same time continuing to dispute issues relating to the earlier tax years. This in our view is how a reasonable tax payer exercising due diligence and having a proper regard for their tax obligations would have behaved.  We therefore find that not paying his tax for the tax years under appeal because of a dispute with HMRC over earlier tax years does not amount to a reasonable excuse.    

57.  We accept that Mrs O'Neill of HMRC cancelled numerous surcharges however none of these are relevant to the periods that we must consider and she has a wider discretion then the tribunal.  We, the tribunal, can only consider the tax years which are the subject matter of the appeal before us.  

 Conclusions
58.  The imposition of the surcharges is confirmed and the appeal is therefore dismissed.

59.  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.

TRIBUNAL JUDGE
RELEASE DATE: 29 MARCH 2011

Amended pursuant to rule 37 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 on 11 May 2011.