Tribunal – Reasonable excuse to avoid surcharges?
The Tribunal recently heard an interesting appeal from a taxpayer who had received a payment from a former employer following the cessation of his employment. The taxpayer assumed that the payment, from an erstwhile employer, had been properly made in accordance with the PAYE rules. It subsequently transpired that the employer had only deducted basic rate tax from the payment and not higher rate tax as was appropriate. The payment was made within the same tax year that the taxpayer had worked for his previous employer.
In April 2010, some two years after the payment had been received HMRC wrote to the taxpayer asking that a tax return be completed for the tax year ended 5 April 2008. HMRC noting that additional tax was due wrote to the taxpayer to inform him that it was his responsibility to ensure that the correct amount of tax due should have been paid by 31 January 2009 and surcharges were due.
The Tribunal had to decide whether the taxpayer had a reasonable excuse for his failure to pay the tax due by 31 January 2009. Whilst HMRC argued that a ‘reasonable excuse’ had to involve some exceptional event, the Tribunal disagreed and commented that ‘a "reasonable excuse" is just that and does not, as a matter of statutory interpretation, require that there should have been some exceptional event whether within or without the appellant’s control’.
The Tribunal accepted that ignorance of the law may not be a reasonable excuse but felt that the taxpayer did not rely on this excuse. The taxpayer’s expectation that his ex-employer should have made the necessary deductions under PAYE was under the circumstances a reasonable excuse. The fact that it was not an exceptional circumstance did not prevent it amounting to a reasonable excuse. The surcharge amount was discharged, however the full amount of tax remained properly due. An interesting angle on what constitutes a reasonable excuse.