[2011] UKFTT 397 (TC)

TC01252

Appeal number TC/2011/747

Interest on overdue tax – section 86 TMA 1970 – whether right of appeal to the tribunal
Surcharge under section 59C TMA – whether reasonable excuse for failure to pay on time

FIRST-TIER TRIBUNAL

TAX 

	SOHAIL SHAHZAD	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: CHARLES HELLIER
						HARVEY ADAMS

					
Sitting in public at Holborn Bars, London on 31 March 2011

Mr Shahzad in person

Anthomy Wallace for the Respondent

© CROWN COPYRIGHT 2011

DECISION

Late Appeal
1.	On 24 January 2011 Mr Shahzad signed a notice of appeal which was received by the tribunal on 27 January 2011. In the notice he indicated that he was appealing against the decision of HMRC contained in a letter dated 15 December 2010. In that letter HMRC’s appeals review officer concluded that surcharges made in respect of tax due for the years 2004/05 to 2006/07 should be maintained.
2.	In the section of the notice of appeal dealing with reasons for making a late appeal, Mr Shahzad says that HMRC were late in replying to correspondence and that he is unhappy with the interest and penalty charges “applied due to negligence on HMRC’s behalf”. In the Grounds of Appeal Mr Shahzad again complains about delays which cost him penalties and interest, but says that £6,400 had been agreed as the tax payable. [DEAL WITH DELAYS. DEAL WITH 6,400.]
3.	It was therefore possible to construe Mr Shahzad’s notice of appeal as seeking to appeal against (a) assessments, (b) interest and (c) penalties. 
4.	Before us, Mr Shahzad accepted that the amounts of tax assessed for the relevant years were correctly determined. His complaint was about the interest and penalties and the variation with time in the total amount HMRC were seeking. 
5.	We concluded that Mr Shazad’s appeal concerned interest and penalties only: he was not seeking to appeal the assessments
6.	The relevant assessments were made on 18 January 2010. If Mr Shahzad had been seeking to appeal against them, his appeal should have been made by 18 February 2010. Given the circumstances in which the assessments were made (which we explain below) we would not have given leave to appeal against them out of time. 
7.	The next question is whether or not his appeal in relation to interest and penalties was out of time (and if so whether it should be allowed to proceed nevertheless). The first of those questions falls to be judged by reference to the time taken to lodge his notice of appeal after the letter of 15 December 2010 which contained HMRC’s decision in relation to the surcharges.
8.	Where HMRC have conducted a review and written to the taxpayer with its outcome, section 49G TMA requires any appeal to be made within the period of 30 days commencing with the date of the letter in which HMRC set out their conclusions. In this case that letter was dated 15 December 2010, and the period would therefore finish on 14 January 2011. Mr Shahzad’s notice of appeal was therefore made outside the permitted period. In such a case the appeal may be heard only if the tribunal consents.
9.	It seemed to us that in this case consent should be given. Not only did  Christmas fall within the period, but given the confusion that Mr Shahzad exhibited about his liabilities it seemed just that his concerns should be aired so far as possible.
Interest liabilities
10.	As we have noted, Mr Shahzad’s notice of appeal complains of the interest charges which had been made. Mr Wallace submitted that the tribunal had no jurisdiction to hear an appeal against the charge to interest. He invited us to strike out that part of the appeal which related to interest under rule 8(2)(a) of the tribunal’s rules. 
11.	The tribunal is created by statute and has the power to hear appeal only in relation to those matters in relation to which parliament gives a right of appeal to this tribunal. Thus for example, section 59C provides for a surcharge where tax is not paid on time but provides, in subsection (9), that “an appeal may be brought against the imposition of a surcharge”. Such an appeal therefore lies to this tribunal. 
12.	But section 86 TMA, which provides that unpaid tax shall carry interest provides for no right of appeal. In this context we note that whereas certain liabilities of taxpayers arise only after HMRC take an administrative action by making a determination or an assessment, where a specific right of appeal is given, the liability to pay interest arises without any requirement for it to be assessed or determined.  Section 86 merely provides that unpaid tax “shall carry interest at the rate applicable…”. 
13.	It seems to us that the absence of a right of appeal against interest is consistent with the scheme of the legislation. Where a liability to tax has been assessed the taxpayer may appeal against it. If no appeal is made, or when the appeal is determined,  the assessed (or adjusted ) tax will be a liability due to HMRC. If unpaid, interest on that liability then becomes payable as a result of section 86. The provision is merely mechanical and calls for no excersise of judgement. Nor can it generally be seen as penal rather than compensatory. If HMRC calculate the interest wrongly (by using the incorrect, rate, period or principal amount) and take action in the Courts for recovery then the taxpayer can dispute his liability, saying “that is not the amount due under section 86.” In such a case the relevant Court would be able to give relief. 
14.	In this case Mr Shahzad says that HMRC’s negligence caused him to incur an extra interest liability. Even if that is the case it does not provide a direct defence against his liability under section 86. Instead Mr Shahzad’s remedy may lie elsewhere – if appropriate by making a claim against HMRC for the loss caused by the alleged negligence. Such an action would not be before this tribunal. 
15.	We conclude that we do not have the power to consider Mr Shahzad’s complaint in relation to the interest on overdue tax.
The Surcharges
16.	The formal part of this decision therefore relates only to the surcharges confirmed in HMRC’s letter of 15 December 2010. 
17.	In that letter  HMRC assert that the following surcharges were due: 
(1)	In respect of 2004/05 liabilities : nil
(2)	In respect of 2005/06 liabilities  two charges of £159.48  
(3)	In respect of 2006/07 liabilities : two charges of £216.84 
18.	After some doubt and discussion at the hearing about the calculation for the surcharge amounts, HMRC wrote to the tribunal and Mr Shahzad on 8 April 2011 indicating that the surcharges for 2005/05 should be of £85.45 rather than £159.48. 
19.	Section 59C TMA provides for the imposition of surcharges. It applies where income tax which has been assessed has been paid late. It provides that if the tax is unpaid for more than 28 days a surcharge of 5% of the unpaid tax arises (subsection (2)), and separately, under subsection (3), that an additional surcharge of 5% of the unpaid tax arises if the tax continues unpaid for 6 months. 
20.	Mr Shahzad did not dispute that tax had become due under the assessments made for 2005/06 and 2006/07 or that such tax had not been paid in full within 6 months of the due date.  Thus at first sight he became liable in respect of each year to surcharges at the rate of 5% of the unpaid tax. 
21.	Subsection (9) however provides that if it appears to the tribunal that “throughout the period of default, the taxpayer had a reasonable excuse for not paying the tax” it may set aside the imposition of the surcharge. But subsection (10) provides that “Inability to pay the tax shall not be regarded as a reasonable excuse for the purposes of subsection (9) above. We consider that subsection (10) does not prevent the reasons for an inability to pay constituing a reasonable excuse.
22.	A number of differently phrased but similar reasons have been advanced by or on behalf of Mr Shazad for his failure to make payment on time. In appeals made to HMRC by or on behalf of Mr Shahzad  against the surcharges in April 2010, a stated reason for the non payment was that Mr Shahzad’s solicitor was trying to settle one payment to cover all the past years. And in his request for a review of the surcharges Mr Shahzad says “we have agreed to pay £5,000 in total for 3 years review. I…have spoken to Miss Harson [with] whom we agreed £5,000 to pay in instalments. So we assume this is all a mistake.” In his grounds of appeal to the tribunal Mr Shahzad says, after mentioning what he says was Miss Harmson’s delay, “We had agreed figure of £6,400 for the tax bill to have it fully paid off in which Miss Harmson agreed but when we asked her for the figure she hesitated…”.
23.	Mr Shahzad told us that he had been given different figures fo his liability from time to time. He was not unwilling to pay if he could: he just wanted to know the amount of his liability.
Our factual findings
24.	HMRC started an investigation into Mr Shahzad’s tax affairs in March 2008. There were meetings following which Mr Shahzad’s advisers prepared a disclosure report. The report disclosed that Mr Shahzad had not declared certain rental income and benefits in kind from his employer. (Neither had the employer returned them.) The report concluded that additional tax of £8,531 in respect of the benefits and £2,285 in respect of the rental income was due. Assessments were issued by HMRC on 18 January 2010 for the relevant years. These totalled £10,626.22 (being slightly less than the total of the amounts in the report because different tax rates were used by HMRC). During the period from the start of the investigation to 18 January Mr Shahzad made payments on account of his liability totalling £4,400. 
25.	Following the assessments Mr Shahzad’s accountants wrote to Miss Harmson requesting time to pay. She asked them to produce further information about Mr Shahzad’s inability to pay and to contact HMRC’s debt management unit. Yet the accountants wrote to Miss Harmson with a similar request only a few weeks later. At that stage Mr Shahzad’s net liability ignoring interest and surcharges was £6,226,22 (being the £10.626.22 less the £4,400). In April the accountants rang asking to negotiate, and saying that whilst the tax due was not disputed it was felt that this was a case where the employer who should have declared the benefit should help paying, but they had been unable to assist. 
26.	In August 2010 Mr Shahzad discussed his self assessment tax statement with Miss Harmson. This did not show the payments he had made on account. Miss Harmson had overlooked taking the steps necessary to ensure that these payment showed on the statement. After the call she arranged for a correction.
27.	On 21 September 2010 HMRC issued surcharge notices imposing surcharges under section 59C(3) (the 28 day surcharge).  On 23 September Mr Shahzad was sent a statement of account which showed these amounts as due, and a total amount due of £9,888.81. This included liabilities and credits arising as the result of the submission of his 2007/08 and 2008/09 returns. 
28.	. A statement of account sent on 6 December 2010 showed £9,939.13 as due. The difference between this amount and that in the earlier statement was accounted for by the continuing accrual of interest on unpaid liabilities.
29.	As a result of the review requested by Mr Shahzad the surcharges imposed were reduced to take account of the proper allocation of the payments on account which had been made, although HMRC still maintained that a surcharge was due.
Discussion
30.	Whilst we can understand that Mr Shahzad found the changes to the statement of account caused by the accrual of interest and the late adjustments for the payments on account confusing, it was plain to him that the bulk of the amount due related to tax assessments drawn from the conclusions to the investigation and with which he had no dispute. Granted that the statements did not early in 2010 show the payment he had made on account, but the fact that theses amounts were not properly accounted for did not in our view provide an excuse for not paying the amount of any balance which was due after allowing for those amounts.
31.	Given that Mr Shahzad accepted that the amounts of the assessments were due, any confusion caused by the statements did not in our view provide a reasonable excuse for paying at least the difference between the total of the assessment less the  payments on account already made.  He could have argued about the interest and the surcharges later.
32.	It seemed to us that after the January 2010 assessments Mr Shohzad expected that his net liability would be about £6,400. That was the approximate amount set out in a letter from Miss Harmson in February 2010, and was the amount of the assessments less the £4,400 paid on account. That amount changed however because of the accrual of interest, the effect of the 2007/08 and 2008/09 tax returns, and later because of the imposition of the surcharges. Had Mr Shahzad paid the net amount due shortly after the issue of the assessment, interest would not have accrued, and his net liability would have changed only in September as the result of his 2007/08 and 2008/09 tax returns.
33.	In correspondence with HMRC (Miss Harmson and the debt unit) Mr Shahzad’s accountants said that Mr Shahzad did not have the funds to make this payment. Were it not for section 59C(10) this might constitute a reasonable excuse for non payment, but that subsection prevents the mere lack of funds from being so treated. We heard no evidence as to the underlying reasons for any shortage of funds. 
34.	The amounts of the assessments were determined on 18 January. No excuse seemed to be put forward for the failure to pay within 28 days of that date, save perhaps insufficiency of funds. 
35.	We find that Mr Shahzad had no reasonable excuse for the failure to pay the 2005/06 and 2006/07 assessments on time.
Post Script
36.	At the hearing it was plain that Mr Shahzad was confused about the precise amount claimed by HMRC and its composition. HMRC undertook to write with a breakdown of the figure. Miss Harmson did so in a letter  to the tribunal and the Appellant of 8 April 2011 (some of the contents of that letter has been referred to elsewhere in this decision). 
37.	That letter in our view sets the position out clearly. Whilst interest may continue to accrue under section 86, Mr Shazad cannot now say that the position is unclear. 
38.	We would like to express our gratitude for Mr Wallace’s clear submissions.
Disposition
39.	We dismiss the appeal.
Right of Appeal
40.	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.

CHARLES HELLIER

TRIBUNAL JUDGE
RELEASE DATE: 20 JUNE 2011