[2010] UKFTT 443 (TC)

TC00708
Appeal number: TC/2009/12847

Income tax – late payment surcharge - section 59C(2) Taxes Management Act 1970 – meaning of “paid” and “unpaid” in relation to electronic payment – Held: date tax is “paid” is date of receipt by HMRC and not date of initiation of electronic payment

FIRST-TIER TRIBUNAL

TAX 

	MR MARTIN WEST	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		TRIBUNAL: 	RACHEL PEREZ (TRIBUNAL JUDGE)										

The tribunal determined the appeal without a hearing pursuant to rule 26 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009

© CROWN COPYRIGHT 2010

DECISION

Having read the documents listed at the annex hereto

The tribunal found that the tax was received by HMRC on 2nd March 2009, that the tax therefore remained unpaid on the day following the expiry of 28 days from 31st January 2009, and that it does not appear that, throughout the period of default, the appellant had a reasonable excuse for not paying the tax.  The imposition of the surcharge is confirmed.

The appeal is dismissed.

Full findings and reasons

Introduction

Similar appeals in cases of Mr Martin West and Mrs Lyn West

1.	The tribunal issued on 8th February 2010 a summary decision in the appeal of Mrs Lyn West (TC/2009/12842).  It appears that, as the cases are similar, Mr Martin West, the appellant in the present case, believed that the summary decision in Mrs Lyn West’s appeal was a decision in his own appeal too.  But it was not.  Mr Martin West applied for permission to appeal against that decision.  As there was, at that point, no decision in Mr Martin West’s appeal, there was nothing for him to appeal against. This decision now decides Mr Martin West’s appeal.  It contains full findings and reasons.  
2.	If Mr Martin West wishes to appeal against this decision, he will need to make a fresh application for permission to appeal.
3.	Full findings and reasons are also being issued in Mrs Lyn West’s appeal.  The facts and issues in that case are identical to those in Mr Martin West’s appeal. 
4.	If both Mr Martin West (the appellant in this case) and Mrs Lyn West apply for permission to appeal, the applications, and any subsequent appeals, should be considered together.  It would help if Mr Martin West and Mrs Lyn West would draw this point to the attention of the Tribunals Service at the same time as they apply for permission to appeal.
Appeal
5.	This was an appeal against a surcharge of £302.16 imposed under section 59C(2) of the Taxes Management Act 1970 (“the TMA”).  It was imposed, by a surcharge notice dated 3rd April 2009, for late payment of tax for the year ended 5th April 2008.  The surcharge was calculated at 5% of the unpaid tax of £6,043.25.   The amount of tax due, and the percentage by which the surcharge was calculated, appear undisputed.  It appears also to be common ground that the appellant initiated payment of the tax by an online banking instruction given on Friday 27th February 2009, but that the payment did not reach HMRC until Monday 2nd March 2009.  I find that the payment was received by HMRC on Monday 2nd March 2009.
6.	The parties differ however as to what date should be treated as the date on which the tax was “paid”.  HMRC say the date of payment is 2nd March 2009, being the date of HMRC’s receipt of the funds.  The appellant says the date of payment is 27th February 2009, being the date on which the payment instruction was given to his bank and on which (says the appellant) the funds left his account.  
7.	The appellant does not rely on reasonable excuse;  it is said on his behalf that there is no need, because the payment was not late (representative’s letter 20.11.09).

Grounds of appeal
8.	I had before me four documents setting out the appellant’s position: (i) a letter from the appellant’s representative, Charles Lamb chartered accountants, dated 14th April 2009, (ii) the appellant’s letter date-stamped as received on 16th or 18th June 2009 (the date stamp is unclear), (iii) the notice of appeal dated 3rd August 2009, and (iv) a letter from Charles Lamb chartered accountants dated 20th November 2009, responding to HMRC’s statement of case.
9.	Those four documents set out essentially two grounds of appeal:
(1)	the first ground of appeal is that HMRC’s decision under appeal does not state that the surcharge is imposed because the tax was more than 28 days late, that “the reason given was that the payment should have been made by 31 January 2009 and…was late”, and that the statement of case “suggests that the surcharge was imposed because [the tax] remained outstanding on 31 January 2009” (letter 20.11.09 and notice of appeal);

(2)	the second ground of appeal is the point mentioned at paragraph 6 above: that the tax was not paid late because the date on which the instruction was given to the bank and on which the funds left the appellant’s account is the date on which the tax was “paid”, that that date fell before 28 days had expired from 31st January 2009, and that the tax was therefore not paid late.

10.	I will set out the relevant legislation before turning to consider each ground of appeal in turn.

Legislation
11.	I do not set out the legislation governing the requirement to pay the tax because it is common ground that the tax was due.  I turn therefore straight to the legislation governing surcharges.
12.	Section 59C of the TMA provides, so far as relevant –
“59C.—(1) This section applies in relation to any income tax…which has become payable by a person (the taxpayer) in accordance with section 55 or 59B of this Act.
(2) Where any of the tax remains unpaid on the day following the expiry of 28 days from the due date, the taxpayer shall be liable to a surcharge equal to 5 per cent of the unpaid tax.
					[…]
(5) An officer of the Board may impose a surcharge under subsection (2)…above; and notice of the imposition of such a surcharge—
(a) shall be served on the taxpayer, and
(b) shall state the day on which it is issued and the time within which an appeal against the imposition of the surcharge may be brought.
					[…]
(7) An appeal may be brought against the imposition of a surcharge under subsection (2)..above within the period of 30 days beginning with the date on which the surcharge is imposed.
(8) Subject to subsection (9) below, the provisions of this Act relating to appeals shall have effect in relation to an appeal under subsection (7) above as they have effect in relation to an appeal against an assessment to tax.
(9) On an appeal under subsection (7) above that is notified to the tribunal, section 50(6) to (8) of this Act shall not apply but the tribunal may—
(a) if it appears that, throughout the period of default, the taxpayer had a reasonable excuse for not paying the tax, set aside the imposition of the surcharge; or
(b) if it does not so appear, confirm the imposition of the surcharge.
					[…]
(12) In this section—
“the due date”, in relation to any tax, means the date on which the tax becomes due and payable;
“the period of default”, in relation to any tax which remained unpaid after the due date, means the period beginning with that date and ending with the day before that on which the tax was paid.”.

Consideration of grounds of appeal

(1) First ground of appeal: “surcharge imposed because tax outstanding on 31st January”

13.	The appellant’s representative submits (a) that HMRC’s decision under appeal does not state that the surcharge is imposed because the tax was more than 28 days late, (b) that “the reason given was that the payment should have been made by 31 January 2009 and…was late”, and (c) that the statement of case “suggests that the surcharge was imposed because [the tax] remained outstanding on 31 January 2009” (letter 20.11.09 and notice of appeal).
14.	I agree that HMRC’s statement of case appears to suggest this.  I find also that HMRC’s letter dated 7th July 2009 does not make clear that the surcharge liability arose only on the 29th day after the due date.  Although HMRC’s mistakes are not to be condoned, I find that neither point is material.   I so find for three reasons –
(1)	First, the appellant was not in my judgment misled as to why the surcharge was imposed; I find that the surcharge notice dated 3rd April 2009 and the letter dated 3rd June 2009 made clear that the surcharge liability arose not on 31st January or 1st February, but on the 29th day after 31st January;

(2)	Second, section 114 of the Taxes Management Act 1970 “rescues” any defect in my judgment.  Section 114 provides –

114.—(1) An assessment or determination, warrant or other proceeding which purports to be made in pursuance of any provision of  the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding.

(2) An assessment or determination shall not be impeached or affected—
(a)	by reason of a mistake therein as to—
(i)	the name or surname of a person liable, or
(ii)	the description of any profits or property, or
(iii)	the amount of the tax charged, or
(b)	by reason of any variance between the notice and the assessment or determination.”.

The passages I have underlined are what rescue (if rescue is needed) what is said in the letter of 7th July and in the statement of case.  I say that for two reasons:  First, the notice of 3rd April and the letter of 3rd June stated the correct position.  Second, HMRC did not, in imposing the surcharge, in fact ignore the 28 days’ grace given by section 59C(2);

(3)	Third, in view of my findings below, the tax did in fact remain unpaid on the day following the expiry of 28 days from 31st January.  So HMRC did not I find misapply the law.

15.	I find therefore that the first ground of appeal does not succeed.

(2) Second ground of appeal: “the tax was paid on 27th February 2009”
16.	HMRC do not dispute that the appellant “paid the outstanding liability over the internet on the 27/02/2009” (page 2, statement of case).  The appellant’s representative says in his letter of 20th November 2009 that –
“This seems to indicate that HMRC accept that our client did actually make the payment before the expiry of 28 days from the due date and the surcharge has only been imposed because HMRC did not receive (emphasis added) the funds until 02/03/2009.”.
17.	However, HMRC go on to say in the very next sentence in the statement of case–
“The online guidance clearly state[s] that it will normally take three bank working days for payments paid by internet to reach HMRC.”.   
18.	From this, it is clear in my judgment that HMRC do not accept that the date of payment should be treated for surcharge purposes as the date on which the payment instruction was given online.  Instead, HMRC, by their statement of case, are merely in my judgment accepting that that instruction was given on 27th February; in other words, HMRC accept that the payment was initiated on that date.
19.	The point therefore remains in issue and falls to the tribunal to decide.
20.	The appellant’s case in relation to this ground of appeal is essentially that –
(a)	the payment instruction was made by online banking on 27th February 2009 (HMRC accept this);
(b)	the funds left the appellant’s account electronically on 27th February 2009;
(c)	the date on which the funds left the account is the date of payment; and 
(d)	27th February 2009 should therefore be accepted as the date on which the tax was “paid”.

Contrast with cheque payments

21.	In support of the appellant’s above argument, contrast is drawn with payment by cheque. The appellant draws the contrast slightly differently from how his representative draws it.
22.	The appellant says in his letter date-stamped as received on 16th or 18th June 2009– 
“we have subsequently discovered that the lengthy time required within your ‘rules’ for clearing of our electronic payment made it late.  A cheque would have taken longer to pay in and clear, but is counted as on time from the minute it arrives in your ‘In Tray’.
 
23.	His representative says in the letter dated 20th November 2009 that –
 “There is caselaw surrounding payment by cheque and, particularly, the sending of cheques in the post, where we understand it is accepted that payment is made as soon as the cheque is posted, provided it is correctly completed and addressed correctly.  We believe this is why HMRC treat payments made by cheque as “paid” on the day preceding the date of receipt of the cheque”.

24.	From these passages, it appears that, although the appellant acknowledges that receipt of the cheque is what counts, his representative does not.  His representative says that sending of the cheque is what counts.  The representative says that this is according to caselaw and to HMRC’s actual practice.  However, he does not cite the caselaw which he mentions, and my attention was drawn to no evidence apart from this assertion as to HMRC’s practice relating to cheques.
25.	But in any event, the contrast with cheque payments does not in my judgment assist the appellant’s case. I so find for two reasons.  First, there is a difference between bank transfers and cheque payments: a cheque is payable on demand so receipt of it gives rise to a cause of action against the person who issued the cheque before the cheque is banked (sections 10, 38, 55 and 57 of the Bills of Exchange Act 1882).  Second, in any event, the appellant chose not to send a cheque but to pay electronically.

“Paid”
26.	The contrast with cheque payments was not the appellant’s sole argument in support of his case that the tax was “paid” on 27th February.  His case was also put as follows (letter 20.11.09) – 
 “The case hinges on the definition of “paid” and “unpaid”..it is our belief that there is no definition of what constitutes “paid” and “unpaid” in the legislation and instead, they should be determined by their normal meaning.  It is also our view that the terms “paid” and “unpaid” are mutually so that if something is “paid” it cannot be “unpaid” at the same time. 
It is our view that something can be said to be “paid” when the funds leave your control and cannot be returned…For internet banking, the bank assesses whether you can afford the payment at the time that the instruction is sent and the payment cannot be recalled once this is accepted.  The funds leave your account at the time of confirmation of instructions and in any normal situation this must be considered the date of payment.”.

27.	Given that it is common ground that the payment instruction was made on 27th February, I find that that instruction was made on that date and that the payment was therefore, in that sense, initiated on that date.  I am unable to find that the funds left the appellant’s account on that date however; my attention was drawn to no evidence that this had happened (for instance a bank-produced record of the transaction).  But even if the funds had left the appellant’s account on 27th February, that does not mean that they in fact reached HMRC on that date; indeed it is not asserted for the appellant that HMRC did in fact receive the funds on that date.
28.	I reject the appellant’s submission that the tax was “paid” at the time of initiation of the electronic payment.  If payment were effected by mere initiation of an electronic transmission, that initiation would for example extinguish a potential cause of action against the appellant for non-payment, even if the payment did not reach its intended destination.  That cannot be right.  Given my finding that HMRC did not receive the payment until 2nd March 2009, I find that the tax remained unpaid on the day following the expiry of 28 days from the 31st January 2009.  My conclusion on this would be the same even if the payment had been received on 1st March rather than on 2nd March.  What counts is that the tax remained unpaid at the start of the 29th day.  (This is illustrated for instance by Bancroft and another v Crutchfield (Inspector of Taxes) [2002] STC (SCD) 347.  In that case, the Special Commissioner proceeded on the basis of the parties’ acceptance that a cheque posted on 28th February 2000 and received on 29th February 2000 meant that the tax was unpaid on (part of) the day following the expiry of 28 days from the due date.)

Reasonable excuse
29.	Given my finding that the tax remained unpaid at the start of the 29th day after 31st January 2009, that means that section 59C(2) of the TMA is prima facie satisfied.  In addition, the amount of tax due, the requirement to pay it and the percentage by which the surcharge was calculated, are undisputed.  I must therefore confirm the imposition of the surcharge unless the reasonable excuse provision in section 59C(9) of the TMA assists the appellant.  Section 59C(9) provides that the tribunal may set aside the imposition of the surcharge if it appears that, throughout the period of default, the appellant had a reasonable excuse for not paying the tax (the period of default is 31st January 2009 to 1st March 2009 – section 59C(12) TMA).
30.	I cannot find that it appears that the appellant had a reasonable excuse for not paying on time.  I say that mainly because no excuse has been advanced at all on his behalf.  His representative says in the letter dated 20th November 2009–
“The parts of the case relating to “reasonable excuse” are not relevant as our client is not claiming that he had a reasonable excuse for the period of default but is claiming that there was no period of default because the payment was made within the 28 [day] period allowed.”.

31.	In addition, even if the appellant believed that the payment would be received by HMRC on the same day as he initiated it, that does not in my judgment give him a reasonable excuse.  That belief would not in my judgment have been reasonable.  I say this for two reasons.  First, I was pointed to no evidence to suggest that the appellant had checked, in advance of choosing pay electronically, when the payment would be received.  Second, HMRC’s online guidance (folio 7 with statement of case) states under the heading “Paying Self Assessment by Internet or telephone banking” –
“It normally takes three bank working days for payment to reach HMRC…Some banks and building societies can take longer.  You should check with your bank or building society to see how long they take to transfer payment and what their cut-off time is for initiating payment..”.
32.	I find therefore that it does not appear that, throughout the period of default, the appellant had a reasonable excuse for not paying the tax.  I therefore confirm the imposition of the surcharge under section 59C(9)(b) of the TMA.
33.	The appeal is therefore dismissed.
34.	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.

RACHEL PEREZ
TRIBUNAL JUDGE

RELEASE DATE: 20 August 2010

Annex to decision in TC/2009/12847 – Mr Martin West

Papers read by tribunal

[Page numbers are those given by judge to judge’s own bundle]

-	Surcharge notice dated 3.4.09 – p.40

-	Appellant’s representative’s letter dated 14.4.09 – p.21

-	HMRC letter dated 3.6.09 – p.22

-	Appellant’s letter date stamped by HMRC 16th or 18th June 2009 (stamp unclear) – p.23

-	HMRC letter dated 7.7.09 – p.25 and 41

-	Representative’s letter dated 3.8.09 – p.34

-	Notice of appeal dated 3.8.09 – p.35

-	Tribunals Service letter to representative dated 13.8.09 – p.33

-	HMRC statement of case served under cover of letter dated 23rd September 2009 – p.17

-	Extract from Yellow Handbook showing section 59C TMA – p.29

-	HMRC website printout “How to pay Self Assessment” – pp.30-31

-	Tribunals Service letter to representative dated 22.10.09 – p.14

-	Tribunals Service letter to HMRC dated 22.10.09 – p.15

-	Appellant’s representative’s letter dated 20.11.09 – p.11

-	Tribunals Service letter to representative 25.11.09 – p.10

-	Tribunals Service letter to HMRC dated 25.11.09 – p.9

-	Application for permission to appeal dated 29.3.10 – p.4

-	Appellant’s letter to Tribunals Service 30.4.10 – p.2

-	Tribunals service letter to appellant 14.5.10 – p.1