Special Circumstances apply for late payment of tax

Aside from examining the concepts of reasonable excuse and special circumstances, the case highlights the importance of the form in which certain items should be submitted to HMRC, particularly in relation to the tax return. The case considers the difference between filing a return and making an amendment to that return, and while the taxpayer must use the prescribed form for the former, the legislation does not require the same for amendments, which may be validly made in any form. The obligations under Section 9(3) TMA 1970 are in relation to making a return only, hence why the capital gains schedules prepared by Mr Seaborn’s accountants were not considered sufficient to oblige HMRC to prepare revised computations of tax.

The case of George Seaborn v Commissioners for HMRC [2014] UKFTT 086 (TC), decided on 16 January 2014, is interesting for a number of reasons, touching on what constitutes an amendment to a return and the concepts of reasonable excuse and special circumstances.

The taxpayer realised a gain on the sale of shares in 2011/12 and his accountants prepared schedules advising as to the tax due and the relevant boxes on the return in which the appropriate entries should be made.  However, due to the time taken to prepare these schedules, Mr Seaborn submitted his return on 17 September 2012 without including these figures.  He indicated on the return that capital gains had been made and that computations were to follow, but did not include the relevant supplementary capital gains pages.

The schedules were subsequently submitted to HMRC in October 2012 and shortly after, on 4 December 2012, HMRC wrote to Mr Seaborn to request that he complete the capital gains supplementary pages to enable them to “amend [his] 2011/12 return”.  He completed and submitted these schedules on 13 December 2012.

Mr Seaborn received a statement from HMRC on 6 December showing tax due of 50p, calculated on the basis of the original return submitted.  A revised calculation including the capital gain and showing tax due of £40,654 was apparently issued by HMRC on 16 January 2013 although Mr Seaborn claimed never to have received this, and the Tribunal believed his evidence in this respect.  According to Mr Seaborn, he had no knowledge of the revised calculation until a revised statement was issued in March 2013, at which point he paid the tax in full.  A penalty for late payment of tax was subsequently raised.

The Tribunal had to decide whether the taxpayer had a reasonable excuse and/or whether the special circumstances provisions set out in Paragraph 9 Schedule 56 should be considered relevant in this case.

Reasonable Excuse

Mr Seaborn contended that he had a reasonable excuse for failing to pay his tax on time as HMRC had failed in their obligation to recalculate his tax and issue a revised statement before the payment deadline.  The Tribunal found that while there was an obligation under Section 9(3) TMA 1970 for HMRC to calculate the tax due and advise the taxpayer where a return had been filed before 31 October, there were no such obligations in relation to amendments to the return.  The Tribunal also found that the schedules provided to HMRC in October 2012 were not in the prescribed form, in other words the supplementary pages to the return.  They were therefore not deemed to form part of the return and HMRC were not required to send a tax calculation based on them.

Ultimately, the Tribunal found that Mr Seaborn was aware of the tax liability in relation to the capital gains, having been advised of this by his own accountants.  His failure to pay on time on the basis that he was awaiting a revised statement from HMRC could not therefore be considered a reasonable excuse as this was deemed to be an ignorance of the law.

Special Circumstances

The provisions at Paragraph 9 Schedule 56 of Finance Act 2009 allow HMRC to use their discretion in reducing a penalty on the grounds of special circumstances.  As HMRC had failed to use their discretion in this regard, the Tribunal were at liberty to do so.  It was decided that HMRC should not have accepted the original return submitted by Mr Seaborn, as it was not complete and did not include the capital gains supplementary pages.  If this had been sent back to the taxpayer as an incomplete return, it is likely that Mr Seaborn would have completed the supplementary pages and submitted a full return before 31 October, rather than sending in the additional schedules prepared by his accountant.  HMRC conceded that the return should have been sent back and that they had failed in this regard.  The circumstances in this case were deemed to be out of the ordinary and it was considered by the Tribunal to be unfair not to make allowance for them.  The penalty was thus reduced by 20%.

Two Concepts

A claim for reasonable excuse is not the only recourse when arguing the imposition of a penalty with HMRC.  The Tribunal in this case quoted from Warren [2012] UKFTT 57 (TC):

Plainly it [special circumstances] must mean something different from, and wider than, reasonable excuse, for (i) if its meaning were confined within that of reasonable excuse, Paragraph 9 would be otiose, and (ii) because Paragraph 9 envisages a reduction in a penalty rather than absolution, it must be capable of encompassing circumstances in which there is some culpability for the default: where it is right that some part of the penalty should be borne by the taxpayer.

Should you have a query regarding this case, or have an ongoing issue regarding penalties raised by HMRC, please contact the TaxDesk on 0845 4900 509 and ask for Isobel Clift.