[2011] UKFTT 332 (TC)

TC01192	
Appeal number:  TC/2010/06945

Late payment of capital gains tax – surcharge – reliance on professionals – whether reasonable excuse – no	

FIRST-TIER TRIBUNAL
TAX

	TRUSTEES OF THE D R SHANKS DISCRETIONARY TRUST	Appellant	

-and-

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

TRIBUNAL:	KEVIN POOLE  (TRIBUNAL JUDGE)	

The Tribunal determined the appeal on 24 January 2011 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 dated 1 September 2010 and  HMRC’s Statement of Case submitted on 28 October 2010.  Following a request for full findings of fact and reasons for the decision, the Tribunal has issued this decision.

© CROWN COPYRIGHT 2011

DECISION

Introduction
1.	This appeal relates to a surcharge of £24,539.36 imposed in respect of the late payment of the tax liability of the Appellants due on 31 January 2010.  There is no dispute as to the amount of the tax liability, the due date for payment or the fact that it was paid after the surcharge liability trigger date.  The sole question for determination by the Tribunal is whether the Appellants had a reasonable excuse for not paying the tax throughout the period of default.
The facts
2.	During the tax year 2008-09 the D R Shanks Discretionary Trust made a disposal for capital gains tax purposes which gave rise to a large capital gains tax liability.  There were also other trust tax liabilities for the year in question, but of a much smaller amount.
3.	The trust tax return was filed online on 18 January 2010, before the filing deadline.  The due date for payment of the tax was 31 January 2010, but no payment was made by that time.  On 5 February 2010, a payment of £46,398.54 was received, the effect of which was to reduce the outstanding 2008-09 tax liability to £490,787.31.  This amount remained outstanding until after 28 February 2010 (the exact date of payment is not known, but it was some time on or after 20 April 2010).
4.	On 13 April 2010, HMRC processed the Appellants’ return.  They did not issue a calculation of the Appellants’ tax liability because they agreed with the Appellants’ self-calculation.  On 15 April 2010 an amendment to the return was sent to HMRC by fax, to include some trust management expenses not reflected in the original return.  The amendment was processed by HMRC on 15 April 2010.
5.	On 13 May 2010, HMRC issued a surcharge notice imposing a surcharge of £24,539.36 (at the statutory rate of 5%) for late payment of the tax due.  On 21 May 2010 Carters Chartered Accountants, the trust’s professional advisers wrote to HMRC asking for the surcharge to be set aside and explaining that the late payment was due to an oversight on the part of the main trustee Mrs Muirhead, who had only recently taken over that role upon the death of her mother Mrs Shanks.  Mrs Muirhead had assumed that the solicitors holding the funds to pay the tax would have received a payslip from HMRC requesting the payment.  Carters said that they had realised the tax due was outstanding on 20 April 2010, at which time they had arranged for payment to be made to HMRC “immediately”.
6.	HMRC wrote to Carters on 27 May 2010, rejecting the appeal.  They empathised with Mrs Muirhead finding the “main trustee” role a burden, but did not accept that this excused the late payment.  They also observed that the burden lay on the Appellants to pay their tax liability on time, regardless of whether any correspondence was received from HMRC.  Finally, they observed that the original return had contained a self-calculation of the tax liability, so the Appellants should have known exactly how much they had to pay and by when.
7.	In a further letter dated 21 June 2010 from Carters to HMRC, they said that “In the past, our client has awaited the arrival of the HM Revenue & Customs payslip to make payment of any previous liabilities, which have all been paid on time.  However Mrs Muirhead did not receive an HM Revenue & Customs payslip prior to the 31 January 2010 payment deadline and this was a contributing factor...”  This further basis of appeal was rejected by HMRC in a letter dated 28 June 2010, in which they said “Regardless of what was sent to Mrs Muirhead, it was her responsibility to ensure payment before the due date, especially since the tax return was self-calculated and the amount to pay was known.”
8.	There is some evidence before me that a statement of account or payslip was sent by HMRC at some point to the Trustees at the former home of Mrs Shanks (i.e. the property which had been disposed of to give rise to the chargeable gain).  It is said that the non-receipt of this correspondence had contributed to the default.  It is not clear whether this is a separate allegation from that referred to in the previous paragraph, or refers to the same event.  Because of the basis of my decision (see below) however, this uncertainty is not significant to my decision.
9.	There is no clear evidence before me as to the date of actual payment of the outstanding tax.  This is unsatisfactory, and in an appropriate case this lack of evidence could have been fatal to HMRC’s case.  In the present case, there are indications that the payment could have been made at any time from 20 April 2010 (though it may not have been made until May or even June).  In the circumstances, I find that the “period of default” which I must consider for the purposes of the reasonable excuse argument is the shortest of the range of possibilities (and therefore the most favourable to the Appellants), i.e. from 31 January to 20 April 2010.
The law
10.	The Tribunal may “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” (s 59C Taxes Management Act 1970).  If it does not so appear, the surcharge is to be confirmed.
11.	No authorities on the application of the reasonable excuse test to situations such as the present case were put before me.  HMRC simply quoted extracts from their own manual on the point.
The grounds of appeal
12.	The Appellants have advanced various arguments at various points and it is safest to assume that they seek to rely on all of them, even where they appear to be contradictory.  I take each argument in turn.
No intention to withhold or delay payment
13.	It is said that the sum due was in the hands of the Appellants’ lawyers awaiting transfer to HMRC, all other tax liabilities have been paid promptly and interest is a sufficient compensation for the delay.  I find that whilst this may well be true, it has no relevance to the question of whether the surcharge has been properly imposed.
Reliance by lay trustees on expert professional advice
14.	It is said that the Appellants relied on well-paid professional advisers to ensure compliance with all relevant obligations, including payment.  It is argued that the alleged negligence of those advisors should give rise to a reasonable excuse for the Appellants’ default.
15.	As a matter of policy, the Tribunal will be slow to exonerate a tardy taxpayer from the consequences of late payment on this ground.  A taxpayer must demonstrate more than simple reliance on external professionals, otherwise the entire penalty and surcharge regime could be circumvented by that simple device.  The default complained of here is that an amount of tax which had been correctly self-assessed as due was simply not paid on the agreed due date.  Whilst it might be (and indeed in at least one reported case has been) found to be reasonable for a taxpayer to rely on professional advice in relation to some highly complex, technical or specialised matter and then escape liability for surcharges on the basis of his or her reliance on that advice, it is a different matter altogether for a taxpayer to argue that he or she can escape responsibility for as simple a matter as a straightforward late payment, simply because he or she has supposedly delegated responsibility for making that payment to a professional adviser.  I do not consider that it would be appropriate to extend the defence of “reasonable excuse” to cover such a matter, and I do not propose to do so in this case.
Failure of HMRC to issue reminders or statements
16.	It is said that if HMRC had issued reminders or statements between the filing of the return and the surcharge liability date, the Appellants would have been alerted to the oversight and would have ensured it was corrected in time.
17.	Again, this may be true, but I find it is not relevant.  The tax system is a self-assessment system, under which the taxpayer is required to assess his or her own liability and pay it without any reminder being needed.  That is what should have happened in this case and since the money to pay the tax was apparently retained by the Appellants’ advisers for the purpose of paying the tax on its due date, that is presumably what would have happened if the relevant advisers had not inadvertently overlooked the payment or had not been given appropriate instructions.  This however does not alter what actually happened and cannot provide a reasonable excuse for the failure to pay on time.
18.	Similar observations apply in relation to the argument that one (unspecified) statement of account or payslip was sent in error to the former address of Mrs Shanks.  I cannot agree that this could be regarded as constituting or contributing to a reasonable excuse for the overall default.
Unfamiliarity of new “main trustee” with rules and procedures
19.	It has also been suggested that the default may have been due to an oversight by Mrs Muirhead, the new main trustee (following the death of her mother Mrs Shanks); this oversight may (it is said) be justified by the fact that she had only recently taken over as the main trustee, was unfamiliar with the rules and assumed that she or the trust’s advisers would receive a payslip from HMRC which would trigger a payment obligation.  This suggestion appears to be inconsistent with the “reliance by lay trustees” argument set out above, but even disregarding this conflict it would not in my view amount to a reasonable excuse for late payment.  The tax liability had been self-calculated and the due payment date was quite clear, without the need for any further reminder of the amount or date being required.
Conclusion
20.	It follows that I cannot accept that the Appellants have made out a reasonable excuse for the delay in payment of the relevant tax from 31 January to 20 April 2010 and accordingly the appeal must be dismissed.
21.	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.

KEVIN POOLE
TRIBUNAL JUDGE
RELEASE DATE: 19 MAY 2011