Upper Tribunal rejects QC tax penalty appeal
The Upper Tribunal has dismissed an appeal against HMRC by a QC over penalty notices, with implications for self-employed workers facing cash flow difficulties and outstanding tax liabilities
7 Jan 2019
In Timothy Raggatt v The Commissioners for HM Revenue and Customs:  UKUT 0412 (TCC), Timothy Raggatt QC appealed against a decision by the First Tier Tribunal (FTT) when it dismissed his dispute of penalties of £9,795 and £3,640 issued by HMRC for late payments of income tax.
Raggatt, a barrister for 40 years, had claimed exceptional financial circumstances in 2012 to 2014 for a variety of reasons, in particular ‘because of the government’s cuts to criminal legal aid which had severely affected his professional practice’, resulting in cash flow difficulties.
The FTT had concluded that Raggatt had failed to exercise ‘reasonable foresight’ and a ‘proper regard’ for the fact that the tax liabilities would become due on particular dates. Raggatt appealed to the Upper Tribunal on the grounds that he ‘had a reasonable expectation of having money to pay his tax liabilities through ongoing income’.
However, a divorce settlement with a large lump sum and annual maintenance reduced his income, and he claimed that he ‘could not have foreseen the change in the environment regarding the cuts to legal aid’ and changes to his bank’s lending policy which reduced his overdraft facility.
The Upper Tribunal referred to sch 56 of Finance Act 2009 (FA 2009), which provides that ‘an insufficiency of funds is not a reasonable excuse unless attributable to events outside [the debtor’s] control’ and that where the debtor had a reasonable excuse for the failure ‘but the excuse has ceased, [the debtor] is to be treated as having continued to have the excuse if the failure is remedied without unreasonable delay after the excuse ceased’
It also considered the case of Perrin v HMRC  UKUT 0156 (TCC), which provides Upper Tribunal guidance on a ‘reasonable excuse’. In the judgment on that case, it is suggested that ‘It might assist the FTT, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”’
The Upper Tribunal concluded that ‘It is clear to us from the decision that the FTT placed strong weight on Raggatt’s long-established practice of paying irregular lump sum instalments to HMRC as and when he could afford to do so out of his income as he received it’.
It admitted that ‘although there is no legal requirement on the part of a self-employed professional person to reserve for his or her tax liabilities’, the view of the Upper Tribunal was that a person with an episodic income should take reasonable steps to make provisions for tax liabilities.
The tribunal also took into account a decision by Raggatt to purchase a house in 2011, ‘at a time when his income appears to have dropped considerably but he would have been aware at that time of significant tax liabilities to come’.
Despite noting its ‘considerable sympathy for the predicament that Mr Raggatt found himself in’, the Upper Tribunal upheld the decision of the FTT and rejected the submission that the decision it had reached had been ‘unreasonably harsh’.
Report by James Bunney