Prove It!

Surcharges and penalties are cancelled for lack of evidence from HMRC

HMRC suffered a setback when a First- tier Tribunal ruling found in favour of a taxpayer who successfully appealed surcharges and penalties for the late payment of income tax.

The FTT weighed up whether HMRC satisfied the burden of establishing that they notified the Appellant – a Mr Sobitan – of the relevant surcharges and penalties in the appropriate form and that, in the case of some of the surcharges and penalties, there was no extant time to pay arrangement in place in respect of the relevant underlying tax liability.

Alleged failure to pay HMRC issued no fewer than 29 surcharges and penalties (under s. 59C TMA 1970 and Sch. 56 FA 2009) for Mr Sobitan’s alleged failure to pay income tax on time from 1998/99 to 2015/16. Due to the age of some of the charges, the first question for the FTT to consider was whether or not they should allow Mr Sobitan to appeal against the surcharges and penalties out of time. The second question to consider was whether HMRC had discharged their burden to show that, on the balance of probabilities, the penalties were properly imposed and notified to the Appellant.

Mr Sobitan admitted that he had a poor history of tax payments, but submitted that he had time to pay arrangements with HMRC (approved at times over the telephone) which meant he could pay instalments towards his tax liabilities and that any surcharges or penalties would be suspended. HMRC accepted that time to pay arrangements existed from 2010 onwards.

The Appellant contended that he was not aware of any requirement to pay surcharges or penalties in respect of any of the tax years in question and that he had only been given a breakdown of amounts allegedly due during bankruptcy proceedings in November 2016. He had been told that in order to stop bankruptcy he would have to appeal against all surcharges and penalties.

The FTT noted that there were substantial gaps in the correspondence between the parties. In addition, the FTT marked various anomalies and gaps in the evidence presented by HMRC:

  • HMRC were unable to exhibit copies of the penalty assessments issued or any samples of the same.
  • There were no supporting statements adduced to evidence any penalties being issued in respect of the 2014/15 and 2015/16 tax years.
  • The only evidence adduced by HMRC in respect of surcharges for the 1998/99, 2004/05, 2006/07 and 2008/09 were computer print outs setting out the due dates for each surcharge.
  • There was no computer print-out produced in respect of 2005/06, 2007/08 or 2009/10.
  • HMRC was unable to present evidence as to the dates on which notice of any of the surcharges (apart from 2008/09) had been sent to the Appellant or the form of such notices.
  • Although HMRC stated that the time to pay arrangement agreed in 2010 with the Appellant had come to an end (due to a failure to comply with its requirements), HMRC were unable to adduce a copy letter or notice advising the Appellant which penalty he would be liable to pay in default (in accordance with para. 10(3) of Sch. 56). There was no evidence to support a finding that any time to pay arrangement had come to an end.
  • HMRC’s Skeleton Argument focused exclusively on whether or not the Appellant had a reasonable excuse for his defaults and failed to respond to the Appellant’s case that he was not in default because he had not received notification of surcharges/penalties and in any event there was a time to pay arrangement in place in relation to some of the surcharges/ penalties.

The FTT concluded that the Appellant should be allowed to proceed with his late appeals because he had been unaware of all the surcharges and penalties until he received a breakdown of liabilities in support of a bankruptcy petition by HMRC. The Appellant had made appeals against all surcharges and penalties soon thereafter.

The FTT held that HMRC had failed to discharge the burden of proof. First, they had failed to prove on the balance of probabilities that for some of the surcharges and penalties the Appellant had been notified and in the appropriate form. Secondly, HMRC had failed to prove that there was no valid time to pay arrangement in place in relation to some of the relevant tax years.  In the circumstances, the appeals were allowed.


Although this decision is very fact specific, it is a reminder of the quality of information and evidence that the FTT expect from HMRC before it is ready to find that a taxpayer is liable to a penalty. It seems that simply stating that there are outstanding surcharges or penalties in the absence of notices
(actual or sample), contemporaneous correspondence or copies of computer records will not get HMRC over their evidential hurdle.

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