In a long running case surcharges amounting to some £1.4m issued to a taxpayer for non-payment of tax have been found to be valid.  The Court of Appeal (CoA) dismissed the taxpayer’s appeal finding that the taxpayer didn’t have a ‘reasonable excuse’ for non-payment.

The taxpayer had used a tax avoidance scheme and had disclosed this fact in his tax returns.  HMRC subsequently opened an enquiry into his returns and issued closure notices but failed to note the amount of tax due, though did state the reason why the tax returns were amended.  The amount of tax outstanding was £22m.  The taxpayer sought a judicial review of the closure notices and while these proceedings were live didn’t pay the tax.  The judge at the judicial review then dismissed his application, holding that the closure notices were valid.  The taxpayer appealed and the CoA also held that the closure notices were valid and dismissed the appeal.  The taxpayer then sought permission from the Supreme Court to appeal this permission was declined.  Soon after the permission to appeal was declined the taxpayer arranged for the payment of the £22m.

HMRC issued surcharges for the non-payment of tax holding that the taxpayer had no reasonable excuse.  The taxpayer appealed the surcharge notices at both the First-tier Tribunal (FTT) and Upper Tribunal with both tribunals finding in favour of HMRC.   The taxpayer appealed to the CoA.

The CoA held that while the judicial review proceedings were live then the taxpayer had a reasonable excuse for non-payment of the tax, any payment could have made the judicial review proceeding nugatory but that when the judicial review proceedings failed that any reasonable taxpayer would then pay the tax.  The taxpayer may have been successful at Court of Appeal but if this were the case then HMRC would have been required to repay the funds to the taxpayer.  This held the taxpayer in a similar position as if he had appealed the closure notices to the FTT as the tax would have been due at the point of failure at the FTT irrespective of any challenge to a higher tribunal or court.

The decision can be found at: William Archer v The Commissioners For His Majesty’s Revenue And Customs – Find case law (nationalarchives.gov.uk)

This case highlights that substantial fines can be levied by the HMRC where taxpayers do not make payment of tax on time, but it helps clarify when reasonable excuses for non-payment extinguish when litigating tax matters.

Please do contact us if you have received a closure notice or penalty from HMRC or your tax affairs are under enquiry.  We can help you negotiate with HMRC and advise on when to make appropriate payments.