Timothy Cooke (TC) successfully appealed against penalties of about £10,000 for late payment of tax. TC made a capital gains on the sale of shares of £380,000 in the year to 5th April 2012 on which tax of £100,000 was payable on or before 31 January 2013. However, he did not pay the tax until October 2013.
TC was living with his wife at the time in a property with negative equity. Having got into financial difficulties he used about £100,000 to repay debts. He then bought a second property with the balance, and fully intended to raise a mortgage to meet the tax liability. However, in March 2012 TC’s wife started divorce proceedings.
Initially, she refused permission for the property to be mortgaged or sold, but in August 2012 the property was put on the market. It was finally sold in October 2013 and TC immediately paid the capital gains tax. HMRC had meanwhile raised two late-payment penalties.
TC told the tribunal that he had telephoned HMRC several times, and was always told not to worry, that HMRC would allow time to pay and that he would not be charged penalties. HMRC said that TC did not have a reasonable excuse and there was no “time to pay” arrangement. They also said that he could have paid the tax from the proceeds of the sale of shares. They said that there was no evidence that TC had been told that he would not be charged penalties.
The tribunal ruled that when he bought the second property TC could not have known that his marriage was about to fail. They said that had this not happened then TC would have had no difficulty in raising the finance. Therefore, the marriage breakdown was “an unforeseen event which was entirely beyond his control” and was something that “he could not have reasonably expected …….. to prevent him from discharging his tax liability on time”. They said TC was entitled to manage his affairs as he thought fit.
This ruling suggests that provided you make arrangements to meet your tax liability then if those arrangements fail to materialise for reasons totally beyond your control and this results in you not being able to meet that liability then you may have a reasonable excuse when appealing any penalties.
What a pity the tribunal did not comment on the selective amnesia displayed by HMRC!