The taxman has won an appeal case.* You may think I have lost my marbles in telling you about it. My marbles are intact. I am telling you about it because it highlights how the defence of 'reasonable excuse' can get you off having to pay tax penalties not only for failing to get your return in on time but for failing to pay on time the tax you have been assessed to pay. And by the way, yesterday 31 January 2019 was the deadline for settling your self-employed tax assessment. What do you mean, you forgot?!
Leading barrister Timothy Raggatt QC was stung for late payment penalties relating to two tax years which totalled nearly £13,500. He appealed to the first tier tribunal of the tax chamber (as one does) and lost. So he appealed again to the upper tribunal (as one does) and has just lost. He was represented by Timothy Raggatt QC (as one would be as it tends to keep legal fees down).
Mr Raggatt's argument was that he had a 'reasonable excuse' for late payment. This, he said, was that events out of his control had prevented him from paying on time. He principally relied on the substantial reduction in his income from the cuts in the legal aid budget and his bank's refusal to increase his overdraft facility.
Now, to succeed with a defence of 'reasonable excuse' you have to show that you exercised reasonable foresight and due diligence and a proper regard to the fact that the tax liabilities concerned would become due on particular dates. The Finance Act 2009 (go to paragraph 16 of the 56th schedule if you must and you can bear it) states that an insufficiency of funds is not a 'reasonable excuse' unless it is attributable to events outside the taxpayer's (or tax non-payer's!) control and that if you rely on any other person to do something, you must have taken reasonable care to avoid their failure to do so.
Both tribunals had considerable sympathy for Mr Raggatt's predicament (a fat lot of use that was!) but, as it was put on this latest appeal, he could have done more to have avoided that position.
What was made clear by the upper tribunal - and this may be of help to you- is that the principles relating to 'reasonable excuse' are the same in late return penalty and late payment penalty cases. There was no legal requirement on the part of a self-employed professional person to reserve for their tax liabilities but a person with such an episodic life as Mr Raggatt would be well advised to take reasonable steps to make some provision for tax liabilities or to ensure that they had appropriate bank facilities to meet their expected tax liabilities if they subsequently wished to plead a 'reasonable excuse'. Taking such reasonable steps might not end up enabling a taxpayer to deal with unforeseen events but if it appeared they had done all that could be reasonably expected of someone in their position then the defence of 'reasonable excuse' might be a winner.
*Raggatt v Commissioners for HMR&C [2018] UKUT 412 (TCC)
*Raggatt v Commissioners for HMR&C [2018] UKUT 412 (TCC)
