In N Crossley v HMRC [2016] UKFTT 810 (TC), the taxpayer persuaded the tribunal that he had a reasonable excuse for not paying his tax on time because he did not have the money.
Mr Crossley had some properties which were funded by bank borrowings. He sold one property at a profit but the bank insisted on receiving all the sale proceeds before they would release their charge. So Mr Crossley ended up with no money, but he still had a capital gains tax bill.
That was impressive when you consider that FA 2009 Sch 56 para 16 specifically states: ‘An insufficiency of funds is not a reasonable excuse, unless attributable to events outside the person’s control.
In contrast, we have the case of W Coomber v HMRC [2016] UKFTT 809 (TC). Mr Coomber was also late paying his tax and claimed to have a reasonable excuse from the resultant surcharge.
The tribunal said that it was Mr Coomber’s responsibility to pay his tax on time. He had chosen to pay the tax by cheque rather than by electronic means and he was therefore taking a risk if anything went wrong.
In Graham [2018] TC 06809, the FTT allowed a taxpayer’s appeal against penalties for the failure to pay an amount in an Accelerated Penalty Notice (APN).
The FTT found that the taxpayer’s inability to pay was caused by his company entering into a CVA and crashing, which was outside his control and therefore amounted to a reasonable excuse.
In Vasudeva [2018] TC 06584, the FTT refused a taxpayer’s appeal against penalties for his failure to pay an amount in an APN.
While the FTT accepted that being made unemployed may well have been beyond the taxpayer’s control, the taxpayer’s case was that he had become long-term unemployed and incurred large debts.
As the FTT knew no more about this it could not be satisfied that the amount of debt incurred were either the reason for the insufficiency nor that they were ‘events outside his control. The FTT could not therefore be satisfied that the shortage of funds was and remained a reasonable excuse.
In Design Rationale Ltd v HMRC [2017] UKFTT 878 (TC), the First-tier Tribunal (FTT) has held that a lack of funds caused by HMRC owing significant amounts to the taxpayer was a reasonable excuse for the taxpayer failing to account for VAT on time.
You can have similar issues, but the facts of each case can find for the appeal or against the appeal. This is why reasonable excuse is not a cut and dry topic!
To successfully challenge a penalty on the grounds of reasonable excuse, the taxpayer must demonstrate they had a reasonable excuse and they put their failure right without unreasonable delay following the end of the reasonable excuse!
