Reasonable excuse – Steptoe defence

One recent FTT case involved a practising Barrister, Robin St John Sellers. He had struggled with cash flow over a number of years, resulting in 21 default surcharges for late VAT Return payments totalling round £13,000, plus penalties for late payment of Tax Returns totalling around £24,000. He appealed against these.

Mr Sellers mainly worked for Government Departments, such as the Legal Services Commission (LSC) which became the Legal Aid Agency (LAA) and the Crown Prosecution Service (CPS) in relation to criminal case work.

A common approach to such appeals is called a Steptoe defence. Although the legislation explicitly excludes the insufficiency of funds from constituting a reasonable excuse, the Court of Appeal ([1992] STC 757) has held that the reason behind that insufficiency of funds can constitute a reasonable excuse.  In another example, where money was stolen from the taxpayer preventing payment to HMRC, that provided a reasonable excuse in Salevon Ltd ([1989] STC 907}

Accountants should be aware of this approach and, if necessary, help the taxpayer client to provide sufficient evidence for the defence. Evidence will include bank statements for the period in question plus debtor and creditor reports, bank correspondence, etc.

With regard to VAT, when the taxpayer uses Cash Accounting it is difficult to bring a Steptoe defence, since output tax only finds its way to a VAT Return when the invoice has been paid. So the taxpayer has had the money! This point was made by the Upper Tier in Timothy Raggatt ([2018] UKUT 412), which was also a case involving a Barrister.

The First Tier found against Mr Sellers. The decision probably correct in law, and it is certainly thorough!

But the wider situation is intolerable, that a taxpayer working entirely or almost entirely for one Government Department is unable to meet his obligations to another Department.

www.bailii.org/uk/cases/UKFTT/TC/2021/TC08014.html