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HMRC Delays are a "Reasonable Excuse"

By Gabelle LLP

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It was refreshing to see the First-tier Tribunal (FTT) allowed the appeal in the case of John Crangle v HMRC [2015] UKFTT 0157 (TC) and took a ‘common-sense’ approach to the appeal against a late filing surcharge and interest totalling £86.38.

The taxpayer, John Crangle, submitted his tax return for the year ended 5 April 2013 electronically on 20 December 2013, requesting that the tax due of £1,442.02 (being £1,440 capital gains tax and £2.02 income tax) was collected by an adjustment to his PAYE coding.

As Mr Crangle was expecting the tax due to be adjusted in his PAYE coding for 2014/15, no payment was made on the due date of 31 January.  After 30 days HMRC considered that a late payment penalty of 5% of all remaining tax unpaid was due in accordance with para 3(2) sch 56 FA 2009.  There was some confusion as to when this penalty notice was issued but the amount was £71.

Mr Crangle requested clarification regarding the issue of the penalty and the interest that had accrued since 1 February.  After being confused by HMRC’s response Mr Crangle engaged an agent on 3 June to assist.  The agent was told by HMRC that there was not enough PAYE income to collect the tax through an adjustment to the PAYE coding notice.  Mr Crangle paid the outstanding tax on 10 June.

The FTT noted that Mr Crangle’s ‘actions were those of a reasonably diligent man wishing to comply with his tax obligations.  He therefore has established a reasonable excuse for the late payment of the tax due’.

It is reassuring to read that the FTT asserted that HMRC should have notified Mr Crangle before the due date of 31 January 2014 that they would not be collecting the tax by adjusting his PAYE tax code.  The UK tax system is very complex and it is clear that Mr Crangle, as an unrepresented taxpayer, was disadvantaged by his lack of understanding.  While ignorance is not an excuse, it is refreshing to see that the FTT recognised Mr Crangle had acted reasonably.

The case demonstrates that tribunals will take a common sense approach to the interpretation of reasonable excuse based on the facts and not be confined to HMRC definitions.

Finally, HMRC had the opportunity to consider whether there were any special circumstances in this case which would allow them to reduce the penalty – but seemingly failed to do so.  This would have seemed a more practical, appropriate and commercial solution, as highlighted by the FTT decision.

Published May 2015