Marriage breakdown ruled a reasonable excuse

A taxpayer has won an appeal against HMRC concerning £10,000 late tax payment penalties, after a tribunal ruled his marriage breakdown was a reasonable excuse for tardiness.

In the case Timothy Cooke v HMRC [TC03633], Cooke, a businessman from Telford, West Midlands, was issued two late penalties totalling around £10,000 for his self-assessment tax return for the year ended 5 April 2012.

Cooke owed capital gains tax (CGT) of about £100,000, due by 31 January, after he made £380,000 by selling shares in a company he used to work for. But he didn't pay the tax until 24 October 2013.

Cooke told the tribunal that he had been in financial difficulties and used £70,000 from the share sale to pay off his Individual Voluntary Arrangement. He also used £30,000 from the share sale to pay a loan. 

At the time, the taxpayer was living with his wife and children in a property that was in negative equity.

Cooke and his wife bought a second property, using money from his share sale and planned to raise £100,000 through the property’s mortgage to pay his CGT bill.

But in March 2012 Mrs Cooke began divorce proceedings and initially refused Cooke’s requests to sell or mortgage the new property so he could pay the CGT.

The house went on the market in August 2012 but took over a year to sell. Cooke told the tribunal that he had phoned HMRC a number of times in January 2013 to tell it he would not be able to pay the CGT in time 

He said that during these calls HMRC told him not to worry, that it would he HMRC would allow time for payment and that it wouldn’t charge penalties.

When the property was sold on 24 October 2013, Cooke paid the CGT owed on the same day from the proceeds.

By this time, HMRC had issued two late-payment penalties. The Revenue's counter-argument was that Cooke did not have a reasonable excuse for failing to pay his tax on time and there was no time to pay agreement.

It said there was no evidence that officers had told Cooke he would not be charged penalties for late payment.

It also said Cooke could have carried on living at his original property and paid his tax from money he had made on the sale of his shares.

HMRC said that while it sympathised with changes in Cooke’s personal circumstances during the 2011-12 tax year, there were no events that were outside his control which prevented him from settling his tax liability. 

The tribunal ruled in favour of Cooke, saying that at the time he bought a second property, he could not have known that his marriage was about to fail.

The tribunal said he was entitled to manage his financial affairs as he saw fit, and the proposal to raise a mortgage on the second property to pay CGT would not normally have presented any difficulty and would have happened had the marriage not broken down.

It added that Cooke’s marriage breakdown was “clearly an unforeseen event which was entirely beyond his control" and something he “could not have reasonably expected events to conspire to prevent him from discharging his tax liability on time.” The taxpayer's penalties were discharged.

Comments
johnjenkins's picture

This is

johnjenkins | | Permalink

a really interesting case. The main part I like is that the tribunal stated that Cooke could manage his financial affairs as he saw fit (and not for the benefit of HMRC).

Following on from that. f you buy a property or shares with a view to sell at a profit to pay a tax bill and the market crashes it is a reasonable excuse?

It would appear (or I might be reading too much into it) that if you set up your financial affairs specifically to deal with tax liabilities and it goes tits up, you have a reasonable excuse.

mrme89's picture

“Following on from that. If

mrme89 | | Permalink

“Following on from that. If you buy a property or shares with a view to sell at a profit to pay a tax bill and the market crashes it is a reasonable excuse?

 

It would appear (or I might be reading too much into it) that if you set up your financial affairs specifically to deal with tax liabilities and it goes tits up, you have a reasonable excuse.”

 

In this case, he had a reasonable excuse because he did have a means to pay, but the means to pay was being blocked by his wife.

 

I haven’t read the full case, but I gather that HMRC’s main argument was that there were no events outside his control that prevented him from settling his tax liability. But this wasn’t the case.

Risk element?

Kirkers | | Permalink

johnjenkins wrote:

a really interesting case. The main part I like is that the tribunal stated that Cooke could manage his financial affairs as he saw fit (and not for the benefit of HMRC).

Following on from that. f you buy a property or shares with a view to sell at a profit to pay a tax bill and the market crashes it is a reasonable excuse?

It would appear (or I might be reading too much into it) that if you set up your financial affairs specifically to deal with tax liabilities and it goes tits up, you have a reasonable excuse.

I suppose the difference would be that with the market crashing it's something you should always be 'aware' of. It's always a risk you take.

At the time of this particular case I imagine he didn't think there was any risk of his marriage breaking down.

Its sounds fair

AndrewV12 | | Permalink

I think marriage breakdown is a reasonable excuse, sometimes you can get away with a reasonable excuse and sometimes you cannot, for smaller appeals it can depend on who's desk your appeal letter drops on and the personality and mood of the letter opener.

HMRC Habitual Liars?

markfd | | Permalink

What I find concerning about many of these cases where the taxpayer claims to have contacted HMRC and been told something, this is frequently denied by HMRC.  I tend to believe the taxpayer in many of these cases.  Just one more reason to never have any meeting or call with HMRC that isn't recorded given that, like magistrates and the police in the past, the tribunals will always side with HMRC, irrespective of lack of plausibility.

WallyGandy's picture

Yes, I agree it's fair

WallyGandy | | Permalink

 

Marriage breakdowns can sometimes be amicable, but the "other side" can turn really nasty. (Speaking from experience here).  However that topic is outwith this comment. It was a long time ago....

The moral is that telephone calls to HMRC are useless unless followed up in writing "further to our telephone conversation with (name) on (date & time) we agreed ........"  It's the luck of the draw if you get a full name of the telephone respondent.

So why bother with the phone at all?  Try telling THAT to clients!

 

Stop the cynicism campaign

David Gordon FCCA | | Permalink

 

Dear markfd

Please, the rude comments are not needed.

 It is correct that in the olden days there frequently arose some question about the neutrality 

 of local commissioners, especially when one saw them at breaks during the hearing enjoying coffee and a bun with the inspectors.

 Nevertheless, the current tribunals are a quite different animal. They are staffed by lawyers, and experienced ones at that.

 The point is if you are required to appear before a tribunal you must do your homework. This is essence means understanding that, from a professional, the tribunal expects competent professional standards. If you have not previously appeared in a court, be fair to your client. Spend a few hours at a court listening and taking note as to how evidence is presented.

 If English is your second language, practice speaking via use of a recording machine. Listen to your self. Above all do your homework, and prepare your evidence in such a way that the tribunal may easily see you have done your homework. It is really unfair to your client to appear before a tribunal but not being carefully and properly prepared, in procedure, in evidence, and in presentation.

Also, it really annoys your fellow expert professionals hearing your case.

The point is, do not denigrate the Tribunal if you do not do your job properly.