Thursday, 23 November 2017

£91K LATE PAYMENT TAX PENALTY QUASHED

A tax penalty of just over £91,000 has just been quashed by the tax tribunal in Pearson v HMRC [2017] UKFTT 0780 (TC). It was capital gains tax for a cool £1,833,000 that CEO Mark Pearson had been due to pay on the sale of company shares. That tax bill should have been settled on 31 January 2016 but Mr Pearson was around six months late. He claimed that he paid as soon as his financial circumstances permitted. But did that afford him a get-out?

The law for late payment of most taxes (this does not include VAT) is contained in the Finance Act 2009 at schedule 56 sub-paragraph 16(2). Better than War & Peace but not a scratch on Noddy Goes to Toyland. The tribunal judge ruled  that the test to be applied to whether or not Mr Pearson could escape his penalty - and it was a different test to the one the parties' representatives were suggesting - was this. Was the payment late due to an insufficiency of funds and, if so, did that insufficiency arise by reason of events which were outside his control? If the answer was 'yes' to each then Mr Pearson would have a reasonable excuse - and so will you if in a similar situation. The judge was satisfied that he could give that 'yes' answer to both questions and so the penalty disappears. 

The judge did say that Mr Pearson might have avoided the penalty being imposed in the first place if he had kept the Revenue better informed about his difficulties in the run up to the deadline for payment. The Revenue, he thought. might have reacted a little more sympathetically if that had happened. Mr Pearson appeared to accept that he was at fault in this respect.