[2009] UKFTT 367 (TC)

	Appeal number: TC/2009/13231
TC00305
INCOME TAX - surcharges on unpaid income tax - income tax paid by due date but subsequently refunded by HMRC - whether income tax unpaid on relevant surcharge dates - section 59C(2) and (3) Taxes Management Act 1970 - appeal allowed

FIRST-TIER TRIBUNAL

TAX 

	SW McMULLAN	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (Income Tax)	Respondents

				TRIBUNAL: 	Nicholas Aleksander (Tribunal Judge)

The Tribunal determined the appeal without a hearing under the provisions of Rule 26 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.

Brian Lockhart of Brian Lockhart Accountancy Services for the Appellant

Eugene O'Donnell, officer of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	The Appellant paid the tax due for the tax year 2006/7 on 30 January 2008.  However the tax return for that year was not filed until 8 December 2008.  HMRC refunded this tax back to the taxpayer on 15 August 2008.
2.	The Appellant's case is that he is not liable to a surcharge in respect of the late payment of tax for the tax year 2006/7 as on the relevant dates the tax had been paid and not been refunded.  HMRC argue that the Appellant does not have a reasonable excuse for the fact that tax was outstanding, as the refund was made at the Appellant's request, and the Appellant was aware that the amount of tax due for 2006/7 could not be determined until the tax return for that period was filed on 8 December 2008.
3.	HMRC's argument is misconceived.  The question of whether or not the Appellant has a reasonable excuse for his default is only brought into play once it is established that the Appellant is in default.  If the Appellant is not in default, then no surcharge can be levied in the first place.  Section 59C(2), Taxes Management Act 1970 applies a surcharge "where any of the tax remains unpaid on the day following the expiry of 28 days from the due date …"  Section 59C(3) applies a further surcharge if the tax remains unpaid on the day following the expiry of 6 months from the due date. In this case it is common ground that the due date was 31 January 2009, and the question is therefore whether the tax had been paid as at 29 February 2008 and 1 August 2008.
4.	In the case of Thompson v Minzly (2001) 74 TC 340, the question arose in connection with a due date of 31 January 2000.  The tax was paid in full on 29 February 2000.  The High Court (on appeal from the General Commissioners) held that a surcharge was payable, as the tax was unpaid at the beginning of the relevant day (29 February 2000).  It is clear from the decision of the High Court that the default (failure to pay tax) has to be tested at a particular moment in time - namely the start of the day following the due date.  If the tax is not been paid by the start of the following day, then there is a default, and a surcharge is payable - even if the tax is paid later on that day.  The corollary must be that if the tax is paid by the start of the day following the relevant date, then there is no default, and no surcharge is payable - even if the tax is later refunded by HMRC.  There is only a requirement to determine if the Appellant has a reasonable excuse for its default, if there is a default in the first place.  If there is no default, then the question of a reasonable excuse does not arise.
5.	In this case, the tax was paid in full on 30 January 2008, and was refunded on 15 August 2008.  The relevant dates for the purposes of sections 59C(2) and (3) were 29 February 2008 and 1 August 2008.  On those dates, the tax had been paid and had not been refunded.  Therefore there was no default by the taxpayer, and HMRC should not have levied a surcharge.
6.	I therefore allow the appeal.
7.	The Respondents have a right to apply for permission to appeal against this decision.  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.

Nicholas Aleksander

TRIBUNAL JUDGE
RELEASE DATE: 15 December 2009