[2010] UKFTT 57 (TC)

TC00370

Appeal number TC/2009/12991

Self assessment- how loss relief is calculated-Taxes Management Act 1970 – Income Tax Act 2007- appeal against assessment

FIRST-TIER TRIBUNAL

TAX 

	Mr George Duckett	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (income tax)	Respondents

				TRIBUNAL: 	JUDGE MRS.S.M.G.RADFORD

Sitting in public in Reading on 18 November 2009

The Appellant appeared in person

Michael Riordan appeared for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The Appeal

1.	This is an appeal by the Appellant against HMRC’s demand for payment of a tax liability in the amount of £1832.32 as shown in a self assessment statement dated 19 April 2009.
2.	The Appellant appealed against the assessment believing that he had been overcharged as he had losses from his picture framing business which he thought could be carried forward and offset against his general income from his pensions.
3.	The point at issue was the amount of tax due and the amount of any surcharge because the tax liability was not paid by the due date.
4.	HMRC submitted that tax of £1,299.24 was payable for 2007/08 and that the balance remaining unpaid at 31/01/09 now stands at £725.55.
5.	HMRC further submitted that the Appellant did not have a reasonable excuse for not paying his tax by the due date and so a surcharge of £36.27 was payable.
Background and facts
6.	For the tax year 2007/8 the Appellant returned income of £15,527 made up of :
Army Pension                 £6,621
London Life Annuity      £1,672
State Pension		    £7234
Total			   £15,527
7.	The tax deducted at source from the army pension and London Life annuity was £72.40.
8.	During 2007/08 the Appellant ran a picture framing business which made a loss of £855 and the Appellant made a claim to have that loss set against his other income for that year.
9.	Taking this loss into account his income was calculated as £14,672 for the year and after deducting the age allowance of £2325 and the personal allowance of £5,225 his taxable income was £7,122.
10.	Tax on this amounted to £1,299.24 less £72.40 deducted at source, see paragraph 7 above, leaving a balance payable of £1,226.84.
11.	The Appellant’s self assessment account was also credited with an overpayment of £75.30 from 2006/07 which attracted a repayment supplement of £2.02 overall reducing the balance outstanding to £1,149.52.
12.	This balance was not paid by 19/04/09 and so interest was added of £7.77.
13.	A payment on account for the 2008/09, liability was also due, calculated as half the 2007/8 liability i.e. half of £1226.84 which is £613.42.
14.	This was not paid either by 19/04/09 and so interest of £4.14 was added and finally because the £1,149.52 was not paid by 31/01/09 a surcharge of £57.47 was added.
15.	This made up to the total amount outstanding as £1,832.32.
16.	The Appellant has been self employed as a picture framer for some years. The business has not been profitable and he has returned a loss every year.
17.	In reviewing the Appellant’s income tax affairs HMRC discovered that he had been in receipt of a state pension which had not been entered on his tax returns for the tax years 2004/05 to 2006/07. Assessments to collect the additional tax due on that pension were issued and losses from the picture framing business for those years utilised in arriving at the resulting liability.
18.	The review also revealed that tax of £423.97 was overpaid in the 2003/04 tax year and that amount was added to the Appellant’s self assessment record thus reducing the tax outstanding for 2007/08 to £725.55 and the surcharge to £36.27 (£725.55 x 5%).
The Law
19.	Section 50(6) TMA 1970 places a statutory onus of proof on the Appellant to show that he has been overcharged by the assessment.
20.	Section 59B TMA 1970 sets out the due dates for the payment of income tax. 
21.	Section 59B(4) TMA 1970 confirms that the balance of any tax due for the year is payable on or before the 31 January following the year of assessment.
22.	Section 59C TMA 1970 imposes surcharges on unpaid income tax.
Subsection (2) states that where any of the tax remains unpaid more than 28 days from the due date a surcharge equal to 5% of the unpaid tax is payable;
Subsection (7) sets out the right of appeal against the imposition of a surcharge;
Subsection (9) provides that on an appeal the Tribunal may set aside the surcharge if throughout the period of default the taxpayer had a reasonable excuse for not paying the tax; or confirm the imposition of the surcharge if there was no reasonable excuse.
23.	There are 2 ways that relief can be given for the losses incurred by the Appellant in his picture framing business.
24.	 The first is to carry them forward to set against future profits of the same trade by virtue of Section 83 Income tax Act 2007.
25.	The second is to set them against general income for the year in which the loss arose or the preceding year. Section 64 Income Tax Act 2007 provides for such deduction of losses from general income. For the losses to be set against general income an election has to be made within 12 months of the 31 January following the end of the year in which the loss arose.
26.	There is no provision to carry forward unrelieved losses to set against general income in future years.
Findings
27.	The Appellant gave honest and truthful evidence of his belief that he had been overcharged tax because of losses that could be carried forward to reduce the amount of tax payable.
28.	He believed in fact that he had overpaid and a repayment was due to him.
29.	In the past he had relied on his local tax office to help him with his return but that office was no longer available to him.
30.	He had not understood that the losses arising from his picture framing business were only available to be carried forward against profits of that business and not his other income.
31.	He was not aware of the fact that in respect of his other income the losses could only be set against income of the current year or carried back to set against income of the preceding year nor of the fact that he had to claim to utilise the losses in this way on his tax return.
32.	By concession HMRC  had allowed a late claim for such losses against the income of the current year and the Appellant’s recent statement of account from them reflected this.
33.	Whilst the Tribunal had sympathy for the Appellant it found that he had no reasonable excuse for the non payment of his tax liability. Ignorance of the law was not a reasonable excuse.
34.	HMRC had correctly imposed the surcharge and correctly calculated the liability and interest.  The Appellant, contrary to his assertion, had not been overcharged.
Decision
35. The appeal was dismissed and the imposition of the surcharge was confirmed.

The Appellant has a right to apply for permission to appeal against this decision pursuant 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.

TRIBUNAL JUDGE MRS S.M.G.RADFORD

RELEASE DATE: 5 February 2010