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Emotional distress ruled a reasonable excuse

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27th Jan 2012
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A woman raising two children whose salary fell by half after separating from her alcoholic husband won an appeal against a late tax payment surcharge.

The first-tier tribunal (Sarah Cornes v HMRC [TC01701], heard in November 2011) ruled that the hardship and emotional distress of Ms Cornes and that she had made all reasonable attempts to arrange a time to pay agreement (TTP) with HMRC before the deadline for a surcharge, constituted a reasonable excuse for late payment of tax.

The tribunal heard that Cornes, a partner in a small legal firm, had taken a 50% pay cut for the previous two years as a result of the recession. Her husband was an alcoholic who had lost his livelihood three times in the previous three years.

The couple had debts of £85,000 which were being repaid under a debt management plan. The couple separated in April 2011, but throughout this period Ms Cornes made all efforts possible to manage the separation and look after her two children while working full time and controlling the debt.

Cornes was unable to pay the tax owed, which was due by 31 January 2011, and HMRC imposed a 5% surcharge.

HMRC argued that there was no reasonable excuse for the failure to pay on time and its representative told the tribunal that hardship or distress was not a consideration that HMRC could take into account.

HMRC argued that she should have had an agreed TTP arrangement in place before 28 February 2011, the trigger date for the surcharge.

Cornes had made a request for TTP on 23 February 2011 and was told that HMRC would contact her for further discussion. HMRC did not contact her until 29 March 2011 when she was not available. HMRC sent Cornes a letter asking her to call back in seven days. On 23 May 2011 Ms Cornes contacted HMRC and agreed a monthly payment plan which began on 2 June 2011.

Ruling in favour of Ms Cornes, Judge Blewitt said: “The tribunal finds as a fact that the appellant made all reasonable attempts to arrange a time to pay agreement prior to the trigger date and cannot be held accountable for the delay in HMRC attempting to contact her when she had been told that HMRC would contact her to discuss the matter.”

The separation of Crones and her husband, taken together with her husband’s alcoholism, constituted a reasonable excuse for late payment of tax, the judge also said. 

Richard Mannion, national tax director at mid-tier accountant Smith and Williamson, said common sense had prevailed in the tribunal but questioned why HMRC had allowed the case to go so far.

What constitutes a reasonable excuse is not defined by legislation, making it hard to know for taxpayers appealing against a tax penalty to judge how strong their case is. As monitored in AccountingWEB's Reasonable Excuse scorecard, over the past year a growing list of tribunals has taken a more lenient view.

HMRC guidance gives examples of acceptable reasonable excuses. While not a definitive legal statement, the reasons include:

  • life-threatening illness, for example a heart attack that prevents you dealing with your tax affairs
  • the death of a partner shortly before a payment or tax return deadline
  • unexpected or unforeseeable postal delays
  • important documents lost, through theft, fire or flood, that can't be replaced in time
  • late receipt of your online Activation Code, User ID or password even though you asked for them before the tax return deadline

Our thanks to tax blogger Ken Frost for informing AccountingWEB of the case.

Replies (5)

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By The Black Knight
30th Jan 2012 10:24

Only fair

to the lady and HMRC should have some discretion in the matter...cases like this just show there are some real bullies in HMRC.

However everyone is under emotional stress especially if you are running a small business and having to pay for everyone else...most of which are in debt up to their eyeballs and this naturally causes family problems and alcohol dependency etc............................................so on this basis no one should pay these surcharges.

Are we Now expected to appeal against every surcharge and penalty on this basis ?

There will be thousands that can't pay their tax because of a drop in income caused by the recession and are now suffering emotional distress.

Thanks (1)
Nichola Ross Martin
By Nichola Ross Martin
30th Jan 2012 11:05

Distress was the effect not the cause!

The headline is a bit misleading.

The taxpayer was beaten down by a number of factors and they caused her enormous distress. Distress was not in itself the reasonable excuse - it was the other mitigating factors what did it!

All these cases turn on their own individual facts and circumstances.

Virtual tax suppport for accountants: www.rossmartin.co.uk

 

 

 

 

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By The Black Knight
30th Jan 2012 11:41

The tribunal

States that the paperwork had got on top of her...for varying reasons.....

is having a baby a reasonable excuse ? for example....

I am just thinking of some of the excuses that have been given to me for getting the information in late....

Some clients will expect you to get them off whatever the excuse and will come up with one that ought to qualify.

Think I might have a do yourself appeal letter for the clients that will not pay me to do it or if it would be embarrassing for me to be associated with appeal.

Basically It seems everyone should appeal as you might just get lucky.

I can picture Chuck out of the goonies film explaining his reasonable excuse.

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By SimonP
30th Jan 2012 16:09

She got lucky, in my opinion.

The full transcript will probably have more information but I do feel that contacting HMRC 4 working days before the surcharge comes into play does not sound like "the appellant made all reasonable attempts to arrange a time to pay agreement prior to the trigger date".

And then to compound it, the tribunal criticised HMRC (I'm certainly not defending them here but playing Devil's Advocate) saying that she "cannot be held accountable for the delay in HMRC attempting to contact her when she had been told that HMRC would contact her to discuss the matter.” According to the article, HMRC took 4-5 weeks to reply but the taxpayer then took nearly 2 months to get back to HMRC. So delays all round methinks.

But the delays appear to have taken place AFTER the deadline date so surely 'twas all academic?

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By Trevor Scott
31st Jan 2012 12:32

Did she just get lucky? A liberal judge?

Or behind the judgment, was there an overbearing HMRC official who performed actions the judge considered disproportionate and therefore didn’t like? We never really know in such decisions.

I am somewhat surprised by recent decisions on what is “reasonable”. It will be interesting to see whether/how this recent event affects other interpretations of what has been a “subjective reasonableness”, which has long benefited HMRC’s agenda. This may be a pivotal moment.

Having dumbed down its employee knowledge base and responsibilities, it will be interesting to see whether/how HMRC will translate/integrate the theory of “legally recognisable compassion” into its service to “customers”.

 

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