Waddington v Revenue & Customs [2010] UKFTT 114 (TC) (10 March 2010)

DECISION

The appeal

1. In this appeal the Appellant is Adrian Waddington, who resides in Beverley, East Yorkshire. He appeals against the decision of HMRC to impose upon him a surcharge of £219.52 on income tax paid late by him, the decision having been notified to him on 14 July 2009, and HMRC having reviewed his appeal against that surcharge, and HMRC having upheld the surcharge on 11 August 2009. The surcharge was imposed in connection with the Appellant’s returns for the tax years 2007/08. The Appellant appealed to the tribunal by Notice of Appeal dated 1 September 2009.

2. At the hearing of this appeal the Appellant represented himself and gave evidence. The Respondents were represented by a higher Officer, Mr. Anthony Burke.

3. The issue in this appeal was whether the Appellant had a reasonable excuse for failing to pay the tax due on his self-assessment for 2007/08 by its due date.

4. Mr. Waddington gave evidence on his own behalf. No witness was called by HMRC.

Findings of fact

5. We found the Appellant to be a credible witness and we make our findings of fact accepting in full the Appellant’s version of events.

6. The Appellant is a chartered mechanical engineer working as an employee. His employers deduct income tax from his earnings in the normal way under the PAYE scheme. The Appellant receives dividends and net interest from his savings. He subscribes to the Institution of Mechanical Engineers and also has job expenses in connection with his employment. During the 1990s the Appellant had received and completed self-assessment forms in connection with his receipt of net interest and dividends from his savings, his professional subscription and his job expenses, but after the 1990s HMRC ceased to send him self-assessment forms. Until then the Appellant had always returned the self-assessment forms when he received these at the beginning of the tax year. The Appellant gave evidence that he had endeavoured to comply properly and expeditiously with all documents and correspondence from HMRC and had never in the past missed any deadlines.

7. Then in April 2008 the Appellant received a Tax Review form for the year ended 5 April 2008. That form notified the Appellant that he needed to fill in this form by 30 September 2008, so that HMRC could check if he had paid the right amount of tax for the tax year to 5 April 2008, and if his PAYE tax code for the tax year to 5 April 2009 was correct. The form also requested the Appellant to tell HMRC about any new kinds of taxable income or if he thought that he was not paying enough tax on his existing income. The Appellant duly completed that form in time on 25 September 2008, returning this to his Scunthorpe, North Lincolnshire Tax Office, on which he detailed his job expenses relating to his car, his subscription to his professional body, and the net interest and dividends that he received from his investments.

8. From 25 September 2008 to 13 January 2009 HMRC did not respond to the Appellant.

9. On 13 January 2009 HMRC in York wrote to the Appellant stating that although he had completed a P810 tax review form in September 2008, due to the level of his investment income he would need to complete a self-assessment return, which HMRC stated would be issued to the Appellant shortly.

10. At the very end of January 2009 the Appellant received by ordinary Royal Mail through his home letterbox a form of Tax Return 2008 from HMRC dated 22 January 2009. The front page of that tax return gave notice that the return must be made on the form of taxable income and capital gains for the year from 6 April 2007 to 5 April 2008. The form of tax return had a box headed “Deadlines”. That box stated as follows:

“Deadlines

We must receive your Tax Return by either

· Three months after the date this Notice was given – if you send us a paper return, or

· The later of 31 January 2009 or three months after the date this notice was given – if you file online.”

On the form HMRC notified that a £100 would be charged if the tax return was received after the appropriate deadline. Also tax must be paid by 31 January 2009, and late payment would lead to a charge of interest and possibly a surcharge.

11. The Appellant gave evidence that he could not reasonably make sense of the tax return document. He had received the document at home on virtually the last day of January 2009. He had already supplied all the details required to HMRC in his tax review form returned on 25 September 2008. He had no online facilities at home and could not possibly comply with one of the deadlines, of 31 January 2009, nor could he reasonably pay tax due by 31 January 2009 in circumstances in which HMRC had not calculated or notified him of how much tax he should pay. Furthermore, HMRC in sending the tax return 2008 form, had not enclosed a form SA102 on which to detail the income from his employment and expenses, but HMRC instead had sent him a form SA101 which was not applicable to his circumstances. The Appellant tried to make sense of the form and its stated deadlines. He believed that, as he could not possibly meet a deadline of 31 January 2009 due to HMRC sending the form so late, he would be permitted to comply with the other deadline for the return of the form, namely three months after the date of the notice. The Appellant completed the tax return form, giving the same information that he had given on his tax review form sent on 25 September 2008. In addition he made further enquiries and managed to obtain a blank form SA102 relating to his employment, which HMRC had not sent with the 2008 tax return form. He completed the information about his employment income on that form, although HMRC had already had the tax on his employment income under the PAYE scheme. The Appellant returned these forms to HMRC on 13 April 2009 with a covering letter. At this stage he still did not know how much additional tax was due from him to HMRC. He also could not make any sense of the words on the tax return 2008 that he must pay any tax due by 31 January 2009, having only received the tax return around that date. The Appellant reached a reasonable conclusion that the forms that he was receiving from HMRC were confusing and contradictory, and the only deadline that seemed to make sense was that he had to send the forms back as paper returns within three months of 22 January 2009. Having returned the forms on 13 April 2009 he considered that he had reasonably complied with the deadlines.

12. Accordingly the Appellant explained that he attempted to muddle his way through the documentation in good faith, providing information to HMRC which was no different to the information that he had previously supplied on 25 September 2008, following which he had had no correspondence from HMRC until their form at the end of January 2009.

13. The next occurrence was when the Appellant received a tax calculation from HMRC dated 19 June 2009 advising him that under the self-assessment £4,390.57 was due from the Appellant, in addition to the tax previously received by HMRC from the Appellant’s employers under the normal PAYE scheme.

14. The Appellant was perplexed as he believed that his tax affairs and income had not materially changed from year to year, and he had not previously received an income tax bill of that size. He did not consider that it was appropriate to pay £4,390.57 unless he could ascertain and understand how HMRC had calculated this sum. In an attempt to understand the situation the Appellant telephoned the Helpline of HMRC who could not sort matters out on the telephone, so the Appellant took an afternoon off from work to go to see his nearest tax office, which is in Hull. Having made an appointment he attended at that office, but was told by an officer there at the interview that HMRC could not look into any of his tax affairs or calculations as HMRC’s computer “was down”. The Appellant left that interview on 15 June 2009 no wiser. The Appellant had asked at the interview if it was likely that he would be liable to a surcharge whilst he was investigating this matter, but was not told by the officer that he might be liable to a surcharge. The Appellant stating in evidence at the hearing that if he had been told of a surcharge he would have actually made immediate payments rather than waiting for the result of his investigation.

15. As HMRC had been unable to explain either their calculation to him, or the basis of their calculation, the Appellant went to a private tax accountant at his own expense to work out the figures for him.

16. The Appellant paid this additional tax due from him of £4,390.57 on 20 June 2009.

17. Mr. Burke clarified at the hearing, that after HMRC had received the Appellant’s tax return 2008, HMRC delayed in putting the return onto HMRC’s system, because of the number of returns received from tax payers by HMRC, and Mr. Burke clarified that it was not until 5 June 2009 that the Appellant’s return was put onto the system. Mr. Burke clarified that before that date on 27 May 2009 a 5% surcharge had been attracted for non payment by 27 May 2009, and accordingly by the time that HMRC had sent to the Appellant a tax calculation in June 2009, the surcharge of £219.52, namely a 5% surcharge had already been triggered by HMRC, although at the time the Appellant had not been aware of this.

18. When the Appellant was notified that a surcharge had been triggered against him, he appealed against the surcharge on tax paid late. On 14 July 2009 HMRC notified the Appellant that HMRC did not agree that the Appellant had a reasonable excuse for not paying his tax liability by the due date. The Appellant was notified that he could request HMRC to carry out an independent review of that decision. The Appellant duly requested HMRC to conduct an independent review. The Appellant was notified on 11 August 2009 that HMRC had reviewed the Appellant’s case but concluded that the decision of HMRC should be upheld. HMRC in the letter of 11 August 2009 considered that the 2008 return issued to the Appellant in January 2009 had to be sent back by 29 April 2009 (which the Appellant had complied with) but the due date for payment of any tax due on that return was 29 April 2009. HMRC considered that tax remaining unpaid 28 days after 29 April 2009 was subject to a 5% surcharge, and that therefore the surcharge trigger date was 27 May 2009. HMRC stated in the letter that HMRC were sorry that the Appellant received incorrect advice during his interview on 15 June 2009, but maintained that the surcharge deadline of 27 May 2009 had already passed by then. The Appellant was advised in the letter of his right of appeal to a tribunal.

19. The Appellant sent his Notice of Appeal to the Tribunals Service on 1 September 2009. He set out the circumstances in his notice of appeal, complaining about the delays on the part of HMRC after they received his tax review form, the late sending out by HMRC of his tax return 2008 in January 2009, the misleading information in HMRC’s documents, the lack of proper advice by HMRC to him when he telephoned the Helpline and attended at an interview with the officer in Hull, and maintained that he had a reasonable excuse in respect of the surcharge, requesting the return to him of the surcharge of £219.52 which he had in fact paid on 17 July pending the appeal processes.

Conclusions and decision

20. Having considered all the evidence in this appeal, and the law involved, we find that the Appellant had a reasonable excuse for failing to pay the tax due on his self-assessment for 2007/08 by its due date, which we find to be 29 April 2009.

21. There is no statutory definition of “reasonable excuse”, although section 118 of the Taxes Management Act 1970 (“TMA”) refers to a reasonable excuse for the purpose of the Act in which event a person should be deemed not to have failed to do anything required to be done within a limited time. We find that the Appellant had a reasonable excuse which existed for the whole period of default, which in the case of the Appellant was the period between 29 April 2009 to 20 June 2009 when payment was made of the tax due. The Appellant had not paid his tax by 27 May 2009 and had become liable to the surcharge of 5% of the unpaid tax under section 59C(2) of TMA 1970.

22. We find that the Appellant prior to 2007/08 had completed forms P810 on which he had been able to provide details of his income, and where if an underpayment of tax had occurred then this could be collected through his following year’s PAYE code.

23. In April 2008 the Appellant was sent the tax review form for the year ended 5 April 2008, which was required to be returned to HMRC by 30 September 2008. The Appellant complied with this by returning the form on 25 September 2008 setting out full details of his circumstances including his taxed savings and investment income, professional subscriptions and job expenses. The instructions on the form notified a tax payer that if the tax payer had paid too much or too little tax HMRC would contact the tax payer again. The Appellant heard nothing further from HMRC until the end of January 2009, when, without any explanation of why it was being sent, the Appellant received at his home by ordinary post the Tax Return Form 2008 for the tax year 2007 to 5 April 2008, which omitted a form SA102 giving details of employment. Although the tax return 2008 was dated 22 January 2009 it was only received by the Appellant at the end of January 2009. The Appellant had no online facilities at his home, and accordingly elected to return the form as a paper return. We found that the wording of HMRC’s form of tax return 2008 did not clearly and unambiguously notify the tax payer of his deadlines. We find that it was not reasonably clear to the Appellant as to what his deadlines were. He reasonably interpreted the form, in his circumstances, as being returnable by 22 April 2009, namely within three months after the date of the notice. He complied with that. In fact Mr. Burke explained that he had until 29 April 2009 under section 8(1)(A) of TMA, with the concession of HMRC allowing a week after three months from the date of issue. The Appellant had submitted his return well within the three months permitted.

24. The tax return 2008 had stated that the tax payer must pay any tax due by 31 January 2009. This made no sense to the Appellant who had only just received the tax return form and did not know how much tax to pay. It was not explained to the Appellant that not only did he have until 29 April 2009 to submit the return, but that the dates for submission and payment are the same under normal circumstances, by section 59B(3) TMA where payment of tax is also delayed by the same three months, and the legislation therefore allows for a three month period for both submission and payment of tax. HMRC failed to explain this to the Appellant.

25. The Appellant was waiting for HMRC to send him a statement of account and calculation of tax due from him, in addition to the tax that he had already paid under the PAYE scheme. HMRC did not explain to the Appellant that he had to calculate his own relevant tax to meet deadlines. HMRC delayed in putting onto their system the information that had been supplied by the Appellant not only in his tax review form of September 2008, but in his tax return of 2008, and it was not until 5 June 2009 that HMRC finally put the return onto the system. By that time in accordance with the legislation, unknown to the Appellant, the tax had been due on 29 April 2009, the 5% surcharge for late payment had already been triggered for 27 May 2009, although this was not notified in due time to the Appellant. We find that the Appellant did his best to sort matters out. He telephoned the helpline of HMRC who were unable to help, and he arranged an appointment with an officer at HMRC’s tax office in Hull. When he attended at that appointment no help or assistance was given to him. No explanation of calculations were made to him. The computer at HMRC’s premises at Hull was not functioning. The Appellant still did his best to attempt to understand the calculation of tax by going to see an accountant, and, within five days of the date of the interview at Hull on 15 June 2009 with HMRC, he had paid the tax. He was notified of a 5% surcharge, which he appealed, but which he actually paid pending the appeal process.

26. We find that the Appellant had genuinely attempted to sort out his tax affairs, to return documents promptly, and to pay the tax properly due from him. We find that he had been misled by the lack of clarity and ambiguity in the documents he received from HMRC. We find that a reasonable tax payer would have difficulty in understanding the forms issued by HMRC in their current wording. We find that the Appellant tried his best to understand and comply with the documentation he received. As he explained it did not make sense to receive a tax return form 2008 at the end of January 2009 which stated that tax was due by 31 January 2009, when in fact the tax was not due until months later. HMRC delayed in sending him the tax return 2008, and failed to enclose the relevant forms to the Appellant. HMRC delayed in capturing the return onto their system by which time the surcharge had already been attracted, although the Appellant had not been made aware of this beforehand. It was not explained to him at the interview in Hull. The Appellant in this case has been given misleading information by HMRC.

27. We distinguish the facts of this appeal from the facts in the case of Bancroft and another v Crutchfield (Inspector of Taxes) [2002] STC (SCD) 347 which was a case involving a firm of solicitors who were used to completing self employed tax returns, and deliberately delayed payment of tax to gain time, where it was held that the tax paid one day late had not amounted to a reasonable excuse. In the appeal of Mr. Waddington he was not self employed, and used to completing tax returns, he was not deliberately attempting to buy time by paying late, and the circumstances of the correspondence from HMRC were entirely different. We find that unlike the solicitors in Bancroft v Crutchfield, the Appellant Mr. Waddington does have a reasonable excuse for failing to pay the tax due by its due date. We find that a reasonable tax payer in the position of the Appellant in this appeal, receiving the documentation and advice from HMRC would have a reasonable excuse to delay the payment of tax for the entire period in which the Appellant himself delayed payment until 20 June 2009. We find in the circumstances that the surcharge be discharged and repaid to the Appellant by HMRC.

28. We had contemplated awarding costs to the Appellant. However the case has proceeded under the basic category, and under The Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009 paragraph 10 we have no discretion to make an order for costs in a basic category case where we find on the facts, as we do here, that there are no wasted costs and that the Respondents have not acted unreasonably in defending or conducting the proceedings. Accordingly we make no order as to costs

TC/2009/13880

IAN VELLINS

JUDGE
Release Date: 10 March 2010

The Respondents have a right to apply for permission to appeal against this decision to rule 39 of the Rules. 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.

First-tier Tribunal (Tax)

MR. ADRIAN WADDINGTON Appellant

THE COMMISSIONERS FOR

HER MAJESTY’S REVENUE AND CUSTOMS Respondents

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Waddington v Revenue & Customs [2010] UKFTT 114 (TC) (10 March 2010) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2010/TC00425.html Cite as: [2010] UKFTT 114 (TC)