[2013] UKFTT 619 (TC)
TC03006
Appeal number: TC/2013/02254
Income
Tax – late payment penalties – Paragraphs 3(2) and 3(3) of Schedule 56 Finance
Act 2009 – reasonable excuse – no - proportionality – no - appeal dismissed
FIRST-TIER TRIBUNAL
TAX CHAMBER
CHARLOTTE
GAYNOR Appellant
-
and -
THE
COMMISSIONERS FOR HER MAJESTY’S
REVENUE
& CUSTOMS Respondents
TRIBUNAL:
G. NOEL BARRETT LLB (Presiding Member)
The Tribunal determined the
appeal on 13th September 2013 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 which is dated
29th March 2013, HMRC’s Statement of Case submitted on 23rd
July 2013 and the previous directions issued in respect of the appeal.
© CROWN COPYRIGHT
2013
DECISION
Introduction
1. This
is an appeal against two late payment penalties for late payment of self-assessment
tax due on the Appellant’s self-assessment tax return for the tax year 2010-11,
which return was received electronically by HMRC on 8th August 2012.
The first penalty in the sum of £436 was calculated at the rate of 5% of the
tax remaining outstanding (£8,720), after the expiry of 30 days from the due
date (31st January 2012); and the second penalty in the sum of £436
was calculated at the rate of 5% of the tax then remaining outstanding after
the end of the period of 5 months from the penalty date (2nd March
2012). The Appellant’s payment was not actually received by HMRC until 25th
September 2012.
2. The
Appellant appeals on the basis firstly that she has a reasonable excuse for the
late payment and secondly on the grounds of unfairness or proportionality as to
the amount of the penalty.
The Law
3. The
Taxes Management Act 1970 (“TMA”) section 8 states that a person issued with a Self-Assessment
return must return it to HMRC on or before 31 October after the end of the tax
year in question (if it is filed on paper) or on or before 31 January after the
end of the tax year in question (if it is filed electronically), “the specified
date”.
4. The
provisions of paragraphs (1)1 and (1)4 of Schedule 56 Finance Act (FA) 2009 operate
such that a penalty is payable where the tax payer fails to pay an amount of
tax 30 days after the specified date, the “penalty date”.
5. The
provisions of paragraph 3(2) Schedule 56 FA 2009 set the rate of the penalty
payable under paragraph 1(1) at 5%.
6. Paragraphs
3(3) and 3(4) Schedule 56 FA 2009 impose a further penalty at the rate of 5% of
any amount of tax unpaid after the end of the period of 5 months after the
penalty date.
7. Under
paragraph 9 of schedule 56, FA 2009, if HMRC find that there are special
circumstances they may reduce the penalty, but special circumstances does not
include ability to pay.
8. Paragraph
9 of schedule 56, FA 2009 states:-
“Failure
to make a payment will not give rise to a penalty if the tax payer satisfies
the tribunal that there is a reasonable excuse for the failure. But an
insufficiency of funds is not a reasonable excuse unless attributable to events
outside the tax payers control. Nor is it an excuse where the tax payer relies
on another person to do anything unless the tax payer took reasonable care to
avoid the failure; and where the tax payer had a reasonable excuse for the
failure but the excuse has ceased, the tax payer is to be treated as having
continued to have the excuse if the failure is remedied without unreasonable
delay after the excuse has ceased.
The Evidence and my Findings
of Facts
9.
I was provided with the correspondence between the parties, the Appellant’s
Notice of Appeal dated 29th March 2013 and HMRC’s Statement
of Case submitted on 23rd July 2013. The Appellant did not file a
reply to HMRC’s Statement of Case. I was also provided with a copy of the
Directions issued on the 18th June 2013 together with specimen
generic copies of information available to Tax Payers from HMRC’s web site on Self-Assessment.
10. In view of the
apology and admission of late filing and late payment contained within the
Appellant’s Accountant’s letter of 8th August 2012, I find that
there is no dispute by the Appellant as to the facts of the late filing or late
payment.
11. Therefore the
matters to be considered and determined are firstly as to whether any special
circumstances arise; secondly as to whether the Appellant has a reasonable
excuse for late filing and late payment; and thirdly as to whether the
penalties, as in the Appellants submission, are disproportionate or unfair.
Special Circumstances
12. Whilst the
legislation does not define special circumstances, it is accepted that for
circumstances to be special they must be as per Viscount Dilhorne at 983 in
Crabtree v Hinchcliffe (Inspector of Taxes) [1971] 3 AER 967 “exceptional
abnormal or unusual”. Or as Lord Justice Lane said in Clarkes of Hove Ltd v
Bakers Union [1979] AER 152 “something out of the ordinary run of events”
13. I do not accept
that there are any such special circumstances in this matter which HMRC ought
to have taken into account. The facts are indeed very straightforward, as
submitted by the Appellant’s accountants:-
“ it was her (sic the
Appellant’s) understanding, albeit wrong, that her tax was deducted at source
and hence she did not realise that a tax return would be required of her”
14. There was
nothing in my finding, “exceptional abnormal or unusual”, or “something out of
the ordinary run of events”, about the Appellants mistaken belief or
understanding in these circumstances.
Reasonable Excuse
15. The burden of
proving reasonable excuse rests upon the Appellant.
16. The standard of
proof is upon the balance of probabilities.
17. There is no
statutory definition of what amounts to a reasonable excuse, however I accept
as has been generally established that a reasonable excuse is normally an unexpected
or unusual event which is either unforeseeable or beyond the tax payer’s
control and which prevents the tax payer from complying with their obligation. I
further accept that in certain cases a combination of unexpected and
foreseeable events may, when viewed together, amount to a reasonable excuse.
18. It is
unfortunate that the Appellant choose not to file a reply to HMRC’s Statement
of case and also unfortunate that the Appellant did not produce any evidence,
from her Bank or otherwise, in support of her misunderstanding about her
interest being taxed at source.
19. The Appellant
received interest amounting to £49,937, on what must have been sizeable capital
investments. I accept HMRC’s submission that the Appellant ought to have been
able to calculate, or at the very least notice, whether tax had or had not been
deducted at source from this sum – the difference, being the amount assessed,
in the sum of £9,361.29. Furthermore the Appellant’s bank statements should
have confirmed to the Appellant whether or not interest had or had not been
deducted at source.
20. The Appellant
further submitted that she had been going through;
“ long and arduous
divorce proceedings”
since March 2011 which had;
“impacted on her state of mind
and ability to run her financial affairs as efficiently as she might ordinarily
have done”
21. Unfortunately
again, no evidence has been provided by the Appellant as to when those divorce
proceedings actually commenced or when they were concluded, nor as to what, if
any professional advice the Appellant received during those on-going divorce
proceedings, nor as to what effect, if any, the divorce proceedings had on the
Appellant’s cognitive ability.
22. I accept that
matters such as divorce can impact, on some individuals very seriously and
affect an individual’s ability to reason and run their affairs as effectively
as otherwise. The Appellant however has provided no evidence of the effect on
her, other than that briefly contained in her application for this Appeal; and
the details contained in her accountant’s letter of the 8th August
2012.
23. The Appellant
has not in this appeal for the reasons that I have provided established, on the
balance of probabilities, that she has a reasonable excuse for late submission
and/or late payment.
Proportionality
24. I accept that
the amount of the penalty imposed may seem to the Appellant harsh. However I do
not believe that the penalty is either “plainly unfair” in the terms of the
earlier case of Enersys HoldingsUK Limited v HMRC [2010] UKFTT 20, nor
in my opinion is the penalty devoid of reasonable foundation. The penalty has
been imposed by HMRC strictly in accordance with the legislation as enacted by
Parliament, and the penalty itself increases proportionally with the length of
the defaults. I am not satisfied therefore that the penalty imposed is in any
way disproportionate.
25. The purpose is
to penalise tax payers for not paying by the due date.
26. As the tribunal in
Dina Foods Ltd v HMRC [2011] UKFTT 709 (TC) observed at [41] and [42] and
which we follow;
“41. The issue of
proportionality in this context is one of human rights, and whether, in
accordance with the European Convention on Human Rights, Dina Foods Ltd could
demonstrate that the imposition of the penalty is an unjustified interference
with a possession. According to the settled law, in matters of taxation the
State enjoys a wide margin of appreciation, and the European Court of Human
Rights will respect the legislature’s assessment in such matters unless it is
devoid of reasonable foundation. Nevertheless, it has been recognised that not
merely must the impairment of the individual’s rights be no more than is
necessary for the attainment of the public policy objective sought, but it must
also not impose an excessive burden on the individual concerned. The test is
whether the scheme is not merely harsh but plainly unfair so that, however
effectively that unfairness may assist in achieving the social objective, it
simply cannot be permitted.
42. Applying this test,
whilst any penalty may be perceived as harsh, we do not consider that the
levying of the penalty in this case was plainly unfair. It is in our view clear
that the scheme of the legislation as a whole, which seeks to provide both an
incentive for taxpayers to comply with their payment obligations, and the
consequence of penalties should they fail to do so, cannot be described as
wholly devoid of reasonable foundation. We have described earlier the graduated
level of penalties depending on the number of defaults in a tax year, the fact
that the first late payment is not counted as a default, the availability of a
reasonable excuse defence and the ability to reduce a penalty in special
circumstances. The taxpayer also has the right of an appeal to the Tribunal.
Although the size of penalty that has rapidly accrued in the current case may
seem harsh, the scheme of the legislation is in our view within the margin of
appreciation afforded to the State in this respect.”
27. Furthermore as
recently decided by the Upper Tribunal in Hok v HMRC [2012 UKUT 363 (TCC)]
at paragraph 41, which I again follow, this tribunal has in any event no
judicial review function, nor can this tribunal apply principles of common law
in determining the penalty. As such this tribunal cannot therefore interfere
with the penalties laid down by Parliament simply on the grounds of unfairness.
The Upper Tribunal confirmed at paragraph 56 of their decision in Hok that;
“Once it is
accepted, as for the reasons we have given it must be, that the First-tier
Tribunal has only that jurisdiction which has been conferred on it by statute,
and can go no further, it does not matter whether the Tribunal purports to
exercise a judicial review function or instead claims to be applying common law
principles; neither course is within its jurisdiction”
28. As a result it
is clear to me that I do not have the power to allow this appeal on the grounds
of proportionality. In any event, even if this was not the case, as the
Appellant has not provided any evidence as to the effect of the penalties on
her, she has therefore failed to discharge the burden of proof in this regard.
It is not therefore necessary for me to consider the issue of proportionality
any further, (even if I was minded to do so), which I am not.
Decision
29. For the reasons
I have given, I do not accept that there were Special Circumstances in this
appeal nor that the Appellant has a reasonable excuse for not making her return
and not paying tax by the due date, nor that the Appellant has established that
the penalties were disproportionate or unfair.
30. In the
circumstances I therefore dismiss the appeal and confirm the two penalties,
each in the sum of £436.
31. 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.
G NOEL BARRETT LLB
TRIBUNAL PRESIDING
MEMBER
RELEASE DATE: 25 October 2013
