This case concerned whether a Time-to-Pay (TTP) arrangement had been agreed between the parties in relation to a default on payment of income tax, and whether a surcharge could be imposed

Background

The taxpayer appealed against a surcharge of £25,166.39 imposed on him by HMRC in respect of late payment of self-assessed income tax for the fiscal year ended 5 April 2010. The taxpayer stated that he did not have the funds to pay the tax but HMRC did not accept that he had a “reasonable excuse” for the default. However, the taxpayer argued that as a TTP arrangement had been reached by the parties, no penalty or surcharge was due.

The accountants acting for the taxpayer proposed a TTP arrangement which HMRC refused but incited that a revised proposal might be considered. A revised proposal to repay the tax due in £25,000 monthly installments was submitted. HMRC subsequently issued a surcharge notice despite the fact that negotiations were on-going. The appellant appealed against the notice on that very issue.

HMRC wrote to the taxpayer and in that letter stated that at £25,000 a month the debt would take too long to repay in full. A revised proposal of three further installments of £25,000 each with the balance to be paid in full by 30 September 2011 was submitted to HMRC.

Further discussions took place between the parties and HMRC sought confirmation that the liability could actually be paid in full by the end of September 2011. A debt manager representative for HMRC wrote to the accountants acting for the taxpayer and their understanding from this letter was that further action would not be taken if the debt was paid in full by 30 September. They also took this to mean that the TTP had been confirmed.

Decision

The judge accepted that the conclusions reached by the accountants acting for the taxpayer were “perfectly proper and sensible” conclusions to so draw. The judge felt that there had been some confusion in submissions made by HMRC regarding what a TTP is and is not, and felt he should clarify that a TTP could be satisfied by the payment of a lump-sum.

The judge decided that the letter issued by HMRC was the culmination of the negotiations and was “in no doubt that upon the true and proper construction” of that correspondence that a TTP arrangement had been made.

As the judge was unaware as a matter of fact as to whether or not the liability had in fact been paid by ?30 September, a conditional judgement was given. If the liability had been paid by the agreed time then the appeal was to be allowed and the surcharge set aside. If, however, the TTP was not adhered to, then the appeal was to be dismissed and the surcharge upheld.

The full text of the case is available at http://www.bailii.org/uk/cases/UKFTT/TC/2012/TC01969.pdf