A taxpayer who was asked to pay a tax bill, which had been postponed for eight years, had a reasonable excuse for not being able to produce the full amount due within 28 days.
The reasons behind accelerated payment notices (APNs) were explored by Jacquelyn Kimber and Kirsty Horobin. The case of Peter Alleyne (TC06568) has shone some light on the difficulties which can arise when APNs are applied to tax disputes which have already been lingering over many years.
For HMRC to issue a valid APN, either:
- the tax in dispute must relate to a DOTAS scheme; or
- there must have been a “relevant” judgement (by either the Supreme Court or a lesser court where onward appeal is no longer available) whose principles, if applied to the taxpayer’s case, would invalidate his claim that the tax is not due. In such cases, HMRC must issue a follower notice (FN) before issuing the APN.
Effect of APN
The issue of an APN automatically un-postpones any of the relevant tax which was already postponed, and prevents any subsequent postponement of that tax. Even though the appeal against the tax due continues, the tax becomes immediately payable (similar to the long-established VAT position).
Where the appeal relates to the year 2009/10 or earlier, failing to pay the tax charged on the APN within 28 days of the due date triggers a 5% surcharge under TMA 1970 s 59C, along with a further surcharge after six months.
Facts of the case
Alleyne joined a tax scheme operated by Montpelier Tax Consultants in the Isle of Man: he established an Isle of Man trust which was a member of an Isle of Man partnership which in turn hired out Alleyne’s services. The scheme, if successful, would have made his income exempt under the terms of the double taxation agreement.
Back in 2003, HMRC opened an enquiry into Alleyne’s 2001/02 tax return based on his membership of the scheme. Subsequent enquiries were opened for the tax years 2002/03, 2004/05, 2005/06 and 2006/07. Closure notices charging additional income tax for all five years were issued in 2009, which were appealed and all the tax was postponed.
Nothing happened until September 2015 when the FTT ruled in respect of another customer of the Montpelier scheme – Robert Huitson (TC04621) – that retrospective legislation (ITTOIA 2005, s 858) had made the tax planning ineffective and the partnership profits were taxable in the UK.
In November 2016, HMRC was now equipped with powers to issue APNs, together with a relevant judgement enabling them to issue Alleyne with a follower notice. Five APNs were sent to Alleyne. He made representations to HMRC, who confirmed the notices.
It also issued five additional APNs requiring payment of Class 4 NIC, which HMRC subsequently declined to enforce, although it argued that those APNs were validly issued. The judge confessed to bafflement at HMRC’s thought processes: “[I]n particular I did not understand how HMRC could unilaterally withdraw an assessment to surcharges on class 4 NICs.” HMRC may have realised that it was out of time to attempt to assess (for the first time) class 4 NICs relating as far back as 2002.
As Alleyne did not pay any of the tax on a timely basis, surcharges were issued in July 2017 totalling just under £4,000. Alleyne appealed the surcharges, and the appeal came before the FTT.
The judge had no difficulty in concluding that the tax APNs and surcharges were validly issued.
However, he was happy to accept that Alleyne had a reasonable excuse for any delay in paying the tax. After all, the tax was charged by amendments made in 2009, which were appealed within time. The judge commented:
“There was then a seven and a half year gap before HMRC used powers which did not exist in 2009 to make the tax shown on the amendments, and postponed almost immediately, payable. That was the main cause of the appellant’s inability to find the ready money to pay the tax.
“In my view a reasonable person would be entitled to assume that a nearly eight year silence from HMRC meant that there was unlikely to be much of a chance of having to pay the tax on the amendments, and certainly not within a few months of a demand for tax coming out of the blue” (emphasis mine).”
Taken in this context, Alleyne’s difficulties in raising money at short notice (he became redundant and had little chance of re-employment at his age) could indeed constitute a reasonable excuse. The surcharges were overturned.
On the surcharge notices, the reasonable excuse was properly accepted. Following Steptoe  STC 757, while the inability to pay is not of itself a reasonable excuse, the reasons behind the inability to pay can definitely constitute one. This contrasts with the only previous case on APN surcharges – Irena Morgan (TC06055), where the APN followed within two years of the postponement and the taxpayer was held not to have a reasonable excuse for late payment.
With regard to the NIC issue, this illustrates once again the problems with the system for collecting Class 4 contributions as an adjunct to income tax (while maintaining the fiction that it is not really a supplementary profits tax). Every time the tax laws on collection, enforcement and anti-avoidance grow more complex, the ramshackle bolting-on of Class 4 becomes yet more creaky.