Reasonable excuse for late payment of income tax

The FTT has allowed an appeal against a late payment penalty finding in Brown v Revenue & Customs [2014] UKFTT 208 (TC). The appellant, Mr Brown was a partner in a solicitors’ partnership who paid his 2010–11 self-assessment balancing payment late in May 2012.

HMRC issued penalties under Finance Act 2009, Sch 56, para 3, which Brown appealed against on the grounds that he believed a time to pay arrangement had been agreed with HMRC, and also that his inability to pay was unforeseeable and beyond his control, and as soon as funds were available the outstanding tax was paid.

Brown had telephoned HMRC in February 2012. HMRC’s record of the call indicated that he had promised to make payment by 26 March 2012; however, the taxpayer disputed this and said he had not promised to pay on a specific date but had been told that the position would be reviewed in four weeks’ time. HMRC could not produce a transcript or any further evidence in relation to the call.

There was no further communication from HMRC until the notification of the late payment penalty on 9 May 2012. HMRC contended that the agreed deferral constituted a ‘promise to pay’ whereas Brown argued it was a time-to-pay arrangement and could not be a ‘promise to pay’ because it did not meet the criteria of a ‘promise to pay’ as set out in HMRC’s debt management and banking manual.

The FTT considered the actions of Brown from the perspective of a prudent taxpayer exercising reasonable foresight, due diligence and having proper regard for their responsibilities provided by the legislation. Brown had realised that he would not be able to pay his tax on time and contacted HMRC. As there had been no further contact between HMRC and Brown after agreeing a four-week extension for payment, it was not unreasonable for the taxpayer to think that he was being given time to pay without penalty and, therefore, he had a reasonable excuse for the late payment of his tax.

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