A taxpayer who contested a penalty issued by HMRC for late payment of an accelerated payment notice (APN) has won his case after a tribunal found his accountant was at fault for failing to notice the correct date by which action was required, despite reminders from his client
Richard Lee challenged the HMRC penalty, which amounted to £7,071, at a First Tier Tribunal (FTT) on the grounds that he was able to show he had a reasonable excuse for the late payment [Richard Lee and the Commissioners for Her Majesty’s Revenue and Customs,  UKFTT 400].
Lee participated in a number of tax mitigation arrangements which involved investing in Enterprise Zones, including Cobalt Data Development Centre, Cobalt Building 30 and Cobalt 7 & 8. The appeal concerned the Cobalt 7 & 8 scheme.
In October 2009, HMRC opened an enquiry into Lee’s 2007-8 tax return, which was extended in January 2010 to include his participation in the Cobalt 7 & 8 scheme.
In September 2016, HMRC issued Lee with an APN to Lee in connection with the Cobalt 7 & 8 scheme for £137,506, which Lee challenged as incorrect. In April 2017, HMRC issues a revised APN for an increased amount of £141,432.
The tribunal heard that, given Lee’s representation, the ‘payment period’ was 30 days from the date HMRC gave notice of its decision. This expired on 18 May 2017, and any of the APN not paid after that point was liable for a 5% penalty.
Lee also had payment periods relating to his other avoidance schemes, which were set to expire on 2 June 2017. He informed his accountant, Dominic Arnold, of the relevant dates by email and Arnold said he would include this information as part of a dialogue he was already having with HMRC’s debt management team.
However, as Arnold admitted to the tribunal, despite the earlier exchanges with Lee, he thought the due date for all the Cobalt schemes was 2 June 2017 and he overlooked the fact that the Cobalt 7 & 8 APN was due to be paid on 18 May. It was his error that led to the time to pay (TTP) request being submitted late.
TTP arrangements were subsequently put in place for all three of the Cobalt schemes. No penalties were therefore payable in respect of the two APNs with payment dates of 2 June 2017. Lee informed the tribunal that all the APN’s have been paid in accordance with the agreements, with a loan of £336,353 arranged to ensure that he could meet his obligations.
Lee did not contest that the penalty in respect of the Cobalt 7 & 8 scheme was in principle due and payable, but he argued that he has a reasonable excuse for the late payment.
The judge stated: ‘A taxpayer who simply hands everything over to his accountant and says “get on with it” does not generally have a reasonable excuse if the accountant fails to do so. That is not the case here.
‘Mr Lee informed Mr Arnold when he received the APN notice and highlighted the deadline. There were subsequent emails and telephone conversations during which the due dates were discussed and Mr Arnold assured Mr Lee that the TTP requests for all the schemes would be dealt with in good time before the deadlines.
Mr Arnold made a mistake. He believed that all the APNs had the same payment date of 2 June 2017. He acted in good time on that basis.
‘In fact, the APN in question had a payment date of 18 May 2017 and when TTP was formally requested on 25 May 2017, that APN was already due and payable and so even though a TTP agreement was ultimately entered into, the penalty had already been incurred.’
The judge added that Lee had done all he could to avoid the late payment, by following up the notice on a number of occasions, and had also kept to the terms of the agreement, even to the extent of taking out a loan to make sure he could make the payments, which suggested he was someone who takes his tax obligations seriously.
As a result, Lee was judged to have a reasonable excuse for failure to pay on time and the penalty was cancelled.
Meg Wilson CTA, tax writer at Croner-i, said: ‘While reliance on a third party cannot usually amount to a reasonable excuse, this is overridden if the taxpayer has taken reasonable care to avoid the failure. In this case the FTT found that the taxpayer had taken reasonable care because he had: asked his accountant to include the amount due in a time to pay request; highlighted the payment deadline, followed it up several times; and been assured that it would be dealt with in time.’
Report by Pat Sweet