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A taxpayer was late in making a substantial balancing payment of tax, on the back of a particularly good year followed by a severe downturn in trade which eventually resulted in the business ceasing. A surcharge was correctly imposed by the Revenue under section 59C, Taxes Management Act 1970 for non-payment of the tax by 28 February.
A taxpayer was late in making a substantial balancing payment of tax, on the back of a particularly good year followed by a severe downturn in trade which eventually resulted in the business ceasing. A surcharge was correctly imposed by the Revenue under section 59C, Taxes Management Act 1970 for non-payment of the tax by 28 February.
In May the taxpayer sought to raise funds to settle the outstanding bill by remortgaging his house. Unfortunately the original paperwork was lost by the bank. Another application was completed, but due to further delays on the bank's part, the loan funds were not released until 2 September. The taxpayer settled all the tax arrears on the day that he had cleared funds in his account. The result was another 5 per cent surcharge under section 59C.
However, does the taxpayer have a reasonable excuse? Predictably, the Inspector says no, referring to section 59C(10): 'Inability to pay the tax shall not be regarded as a reasonable excuse'.
Customs and Excise, though, were presumably just as confident thanks to the almost identical wording in section 71(1)(a), Value Added Tax Act 1994. This, however, did not stop the VAT tribunal, in the case of V P Rollers Ltd LON/93/2623 (12065), from allowing an appeal where there was a delay in obtaining a loan to pay the VAT bill thanks to problems with the bank processing the application.
What are readers' views on the chances of success in using the VAT tribunal case to support an appeal against the section 59C, Taxes Management Act 1970 surcharge?
(Query T15,942) - Justifiable Defence.
Section 71(1)(a), VAT Act 1994 states that an insufficiency of funds to pay any VAT is not a reasonable excuse (in the context of default and mitigation possibilities). However, there has been a whole string of cases recognising an insufficiency of funds as a reasonable excuse by reason of allied factors which prevented the funds being available on the table, despite underlying solvency. The meanings of 'insufficiency of funds' and 'inability to pay' are indistinguishable.
For example, in R G Richardson LON/89/525Y (VTD3898) the tribunal observed that the appellant had sufficient funds to pay but his bank had frozen his account in connection with a stopped cheque. While tribunal decisions may cut little ice with the Special Commissioners, the Court of Appeal decision in Commissioners of Customs and Excise v J B Steptoe [1992] STC 757 should be persuasive. The Court's reasoning shows that it is necessary to distinguish between the reason for non-payment and the excuse for non-payment.
Earlier, in Commissioners of Customs and Excise v Salevon Ltd [1989] STC 907 'excuse' was defined as 'that which is offered as a reason for excusing'. Due to an official's dishonesty, there was an insufficiency of funds, for which the misconduct of the official was an acceptable excuse. Such judicial reasoning holds good, whatever the statutes under consideration.
Evidently, the circumstances described by 'Justifiable Defence' provide an excellent excuse for the related inability to pay on the nail. - Bear.
The querist does not suggest that the client had any other reason for not meeting the tax other than 'inability to pay' which is ruled out specifically as 'reasonable excuse' in uncompromising language. The client's misfortune with an incompetent bank is prima facie a matter between him and the bank. Each tax operates by its own statutes; it would be rare indeed to mount a successful income tax appeal by quoting a precedent from another tax. Even if that were useful, there is no reason to suppose the circumstances of that person were on all fours with the client as the matter is very much individual.
It would be irresponsible to raise false hopes by giving encouragement to an appeal, nor would that cut any ice with the Revenue. It is not possible to speculate on whether the Commissioners would take the same view as the VAT tribunal against Revenue opposition. There is nothing to prevent the client's gambling the costs by having a go, but one is bound to say the chances of success are slim. - D.M.W.
Extract from reply by 'Bimal':
The client's problem has been compounded by the fact that his tax bill remained unpaid after 31 July 2001. The querist could plead hardship on his client's behalf citing the circumstances in which his inability to pay continued. The Inspector of Taxes might sympathetically consider the circumstances and agree to cancel the second surcharge.
Editorial note. These published replies reflect the varying points of view in all the replies received. Since, in the VAT tribunal case of Geary (No 2314) the tribunal reached its decision on 'reasonable excuse' by reference to a similar provision in the Trustee Act 1925, I do not see why the Special Commissioners should not be guided by VAT cases on the topic.
