Wragg v Commissioners for His Majesty's Revenue and Customs (CAPITAL GAINS TAX - late payment penalties - reasonable excuse - failure to seek time to pay)

Factual and Procedural Background

This appeal concerns a penalty imposed for late payment of capital gains tax. The Appellant filed an electronic tax return on 31 January 2023 for the year ending 5 April 2022, showing a tax liability of £54,528.27, largely arising from the sale of shares in Company A. The Appellant's tax agent contacted the Respondents shortly after the filing, explaining that payment was delayed pending the completion of a related property sale by the company, which was necessary to generate the funds for tax payment.

Despite informing the Respondents of the delay and multiple communications between the Appellant, the Appellant’s agent, and the Respondents, no Time to Pay arrangement was sought or agreed. The Respondents issued a penalty notice on or about 14 March 2023 for 5% of the outstanding tax due to be paid by the penalty date of 3 March 2023.

The Tribunal determined the appeal on the papers without a hearing, having considered the Notice of Appeal, the Respondents’ Statement of Reasons, and accompanying bundles.

Legal Issues Presented

1. Whether the late payment penalty charged to the Appellant was correctly issued.
2. Whether the Appellant has a reasonable excuse for the late payment of tax.
3. If a reasonable excuse exists, whether the payment was received without any unreasonable delay once the excuse ceased.
4. Whether the Respondents' decision regarding special reduction of the penalty was flawed.

Arguments of the Parties

Appellant's Arguments

• The majority of the tax liability arose from the sale of shares in Company A, with proceeds payable only after the company sold a commercial property.
• The property sale was delayed beyond the due date, preventing timely payment of tax.
• The Appellant paid the tax immediately upon receipt of the sale proceeds.
• The Respondents were kept informed of the situation through multiple telephone calls by both the Appellant and the Appellant’s agent.
• The Appellant contends that the penalty is unjust because the delay was due to circumstances beyond his control.

Respondents' Arguments

• The penalty was correctly issued as the tax was unpaid by the penalty date.
• An insufficiency of funds is not a reasonable excuse unless attributable to events outside the Appellant’s control; here, the terms of sale were within the Appellant’s control.
• The Appellant did not seek alternative funding or make arrangements with the Respondents to pay the tax on time.
• Simple notification of inability to pay does not constitute a reasonable excuse; a Time to Pay arrangement should have been sought.
• The Appellant’s agent was advised to contact the Debt Management department to agree a payment plan but failed to do so.
• Reliance on the Appellant’s agent does not excuse the failure unless the Appellant took reasonable care to avoid the failure, which was not evidenced.
• No basis existed for a special reduction of the penalty.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal found that the penalty was correctly issued as the tax remained unpaid on the penalty date. The key legal question was whether the Appellant had a reasonable excuse for late payment.

The Tribunal referred to the precedent in Perrin, emphasizing that a reasonable excuse must be objectively reasonable given the taxpayer's situation. The Tribunal noted that insufficiency of funds is not a reasonable excuse unless caused by events outside the taxpayer’s control. Here, the Appellant had control over the sale terms that delayed receipt of funds.

The Tribunal highlighted that a "dry tax charge" situation, where tax is due before funds are received, is a known risk that a prudent taxpayer should manage, either through funding or arrangements with the tax authority.

No evidence was presented that the Appellant sought alternative funding or made a Time to Pay arrangement, despite clear advice from the Respondents to do so. The Appellant’s agent had the opportunity but failed to request such an arrangement, undermining the claim of reasonable excuse.

Reliance on the agent’s failure did not constitute a reasonable excuse because the Appellant did not demonstrate reasonable care to avoid the failure.

Regarding special reduction, the Tribunal found no reason to interfere with the Respondents’ decision not to reduce the penalty.

Holding and Implications

The Tribunal DISMISSED the appeal and upheld the penalty.

The direct effect of this decision is that the Appellant remains liable to pay the imposed penalty for late payment of capital gains tax. No new precedent was established, and the decision reinforces the principle that taxpayers must either pay tax by the due date or proactively seek arrangements with HMRC to avoid penalties.