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Apocalypse now... but not a late appeal

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17th Aug 2016
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A recent tribunal case [Patrick Newton [2016] UKFTT 486 (TC) TC05236] shows a taxpayer struggling with personal difficulties little short of the four horsemen of the apocalypse. But in a sobering read, none of this was enough to get him off the hook.

Appeal out of time

Patrick Newton sought permission to make an appeal outside the normal time limits. And he was substantially outside the limits. The appeal was five years out of time.

The appeal was against an HMRC decision under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003. The usual period in which to appeal is within 30 days of the notice.

Having missed the usual deadline, the rules for late appeals in s49 TMA 1970 kick in. HMRC can allow a late appeal as long as conditions A to C are met.

Condition A is a written request from the taxpayer; condition B is that HMRC accepts ‘reasonable excuse’ for the delay; condition C the request for late appeal was made ‘without unreasonable delay’, once the period covered by reasonable excuse ended.

Relevant considerations

Under s49 TMA 1970, HMRC must consider whether there is a reasonable excuse for a late appeal. But if it’s rejected, the rules say simply that, where HMRC does not agree, the tribunal may give permission (s49 (2) (b)).

The tribunal confirmed that ‘Section 49(2) (b) of the TMA does not contain a ‘reasonable excuse’ test.’ Rather, the tribunal decision ‘involves a weighing of all relevant considerations.’

The burden of proof is on the taxpayer, not HMRC. HMRC refused permission and the case went to tribunal.

Case stated

What were the circumstances that had led to the appeal?

The FTT decision provided few technical details of the assessments in Newton’s case. But regulation 80 is about PAYE debts. It’s possible that he was an employee with a tax underpayment which spiralled out of control.

Newton’s “father died suddenly in 2006 by drowning, and he spent most of his time going back and forth to Ireland to look after his family as his father’s death went through the courts. This was a difficult time for the appellant and he was diagnosed with depression. Subsequently, his brother died of cancer in 2009.”

At this point, Newton’s affairs were being dealt with by an accountant, whom Newton assumed had settled matters with HMRC.

And the traumatic life events kept on coming. There was another family death from cancer, and the family home suffered severe flooding.

Finally, Newton himself required chemotherapy, leaving him – unsurprisingly – in a state where he “was not mentally equipped to deal with matters,” and “buried his head in the sand.”

Bankruptcy

HMRC, meanwhile, had its head well clear of sand, and had commenced bankruptcy proceedings. This was the point at which Newton made his late appeal.

Interests of finality

The case got fairly short shrift at tribunal. It was held that judicial purposes were best served by making closure on the case, and HMRC’s refusal to grant permission for a late appeal was upheld.

The appellant’s case was not helped by the fact that he didn’t appear before the tribunal, but there are a few major caveats in this instance.

Email

The first caveat is that notice of the hearing was given by email. And it wasn’t clear – even to the tribunal – whether the appellant had also received notice in writing of the hearing. Is that sufficient?

Email can be unreliable as a method of communication. Emails can get lost. Move house, change email account, and electronic communication can break down.

In a case where bankruptcy proceedings had been reached, is email really a sufficiently formal method of communication for HMRC to adopt? And if the positions were reversed, and the taxpayer wanted to communicate some very important piece of information, would notification by email be acceptable?

Systems safeguards

The ‘but’ relates to how the system treats taxpayers whose lives – like Newton’s - are disintegrating.

What systems safeguards would be sufficient to ensure that vulnerable taxpayers are not disadvantaged by the system? Is it appropriate to squeeze these members of the public through the narrow gate of reasonable excuse and Tribunal appearance at all?

Precincts of reasonable excuse

We usually think of reasonable excuse in the context of late filing penalties, but similar logic applies to late appeals. The precincts of reasonable excuse are very closely defined.

“Something unexpected or outside your control that stopped you meeting a tax obligation” is how HMRC begins its guidance on reasonable excuse.

So if your partner or a close relative dies just before a tax return or payment deadline, or you have to stay in hospital unexpectedly, experience a fire, flood or theft stopping you completing a tax return, you may be okay.

You’re even allowed the occasional serious or life-threatening illness, a quick computer failure or postal delay you couldn’t have predicted.

Clock ticking

But watch the clock. The reasonable excuse must continue throughout the period from the missed deadline until shortly before the relevant return, or in this case appeal, is filed. A reasonable excuse for some, but not all, of the period, won’t count.

And, as a general guide, HMRC suggests action within 14 days of the end of the special circumstances behind the reasonable excuse.

Misunderstanding

From extensive experience in the tax charity sector, we suggest that the relentlessly ticking clock is nowhere near user-friendly for taxpayers enduring extreme life events like these. And that currently, the behavioural expectations of those experiencing mental health challenges are unrealistic.

“While the tribunal is sympathetic, it must take into account that no evidence of any of these difficulties has been provided and only very general details. An applicant for a late appeal involving a delay of five years must be expected to present a much more detailed and evidenced case than the appellant in this case has done.”

The Newton case is a snapshot of very basic misunderstandings of what life is actually like for people living on the edge.

Due for overhaul

This is a cautionary tale. It serves as a reminder that proving reasonable excuse is a hard enough job for taxpayers not encumbered by trauma.

But for taxpayers in particularly extreme personal circumstances, the system could seem completely unworkable – perhaps more than due for an overhaul.

Replies (1)

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By itp3asso
22nd Aug 2016 13:25

hello

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