[2010] UKFTT 414 (TC)

TC00684                         

 Appeal number TC/2010/03074

Penalties – reasonable excuse.

FIRST-TIER TRIBUNAL

TAX 

	MARTIN STONE	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS 	Respondents

TRIBUNAL: 	Mr. Geraint Jones Q.C. (Judge)
                        Mr. Harvey Adams (Member)

Sitting in public in London on 23rd July 2010.

The Appellant in person.

Mrs G. Orimoloye instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	The appellant, Mr. Stone, operates a business as a sole trader, known as Roofs. As the name suggests, the business undertakes roofing work. However, the appellant does not undertake any physical roofing work personally because of his medical condition, to which we refer below. The appellant's role, as we find, is that he carries out some of the surveys and provides estimates. If a contract is secured, he sub-contracts the actual roofing work to others.
2.	Up until 2007 the appellant was familiar with the construction industry scheme whereby a contractor, in certain circumstances, had to deduct a percentage of any gross sums due to a sub-contractor. This appeal relates to events after that scheme was substantially altered in April 2007. One of the main changes was that the CIS certificates had to be filed with the Revenue monthly rather than annually. 
3.	We have been provided with a bundle of documents by the respondent which, at Page F3, contains the guidance notes issued by HMRC. They specifically state that as a contractor operating in the construction industry "you will receive a return from us by the 5th of each month". The guidance goes on to say that the return must be sent to HMRC by the 19th of the same month and, importantly, goes on to say that photocopies or continuation sheets will not be accepted. The guidance notes make clear that it is the form sent out by the 5th of each month which must be returned to HMRC. It follows that for a form to be returned, it must first be received. I cannot return that which I have not received. 
4.	We now turn to the evidence. It is an agreed fact that for the period May 2007 - October 2009 the appellant did not return any CIS forms to HMRC. Accordingly, HMRC argues that automatic penalties amounting to £31,800 are due to be paid by the appellant. The appellant acknowledges that the returns were not filed but argues there is a reasonable excuse for his failure so to do. Correctly, it is his case that there are two reasons or excuses for that failure or those failures which should be considered separately and cumulatively.
5.	The appellant gave evidence with his written “Summary for Tribunal” standing as his evidence in chief. He was not cross examined. We say at once that we found the appellant to be a candid, reliable and truthful witness.
6.	The medical history attached to his summary is equally part of his evidence. We accept the accuracy of that medical history. It makes unhappy reading. The appellant first suffered with kidney failure in 1977 when he was 21 years of age. He was given a kidney transplant but it was unsuccessful. That meant that he had to undergo dialysis treatment between 1977 - 1980. In 1978 his spleen and his thyroid were removed. 
7.	In 1980 the appellant had a further kidney transplant which proved successful. However, he had to take steroids regularly so as to reduce the risk of the transplanted kidney being rejected. After he had been taking steroids for about 20 years he began to suffer significant and increasing back pain as a result of degenerative changes attributed to the lengthy period during which steroids had been taken. As the appellant puts it, his bones were beginning to crumble. 
8.	In 2004 the kidney that had been transplanted in 1980, failed. That meant that the appellant had to return to dialysis treatment which he has been undergoing to the present day. In 2004 he had an operation, which proved to be unsuccessful, with a view to relieving his chronic back pain. That back pain is now treated with steroid injections into the lower back and daily strong analgesics. 
9.	The appellant’s dialysis regime requires him to attend hospital on three days in each week, for six hours on each visit. The appellant makes the point that it is not simply a case of turning up for dialysis treatment. He describes how the dialysis treatment initially leaves him feeling extremely tired and drained. However, after about eight hours he feels a great deal better and that improved feeling continues for about 16 hours until the toxins in his blood again begin to build up. That leaves him without energy and feeling unwell for about 24 hours before the cycle of dialysis begins again. 
10.	The appellant’s statement also sets out other serious medical problems that have befallen him, including being given a false positive result in respect of prostate cancer. He describes how the cycle of medical problems and treatment has often made him feel that it is all too much for him, giving rise to an extremely high level of stress and worry. The appellant, perfectly fairly, makes the point that many people with his substantial medical problems would not even attempt to run their own business with the level of responsibility and administrative work that that involves, particularly at a time when the burden of increasing regulation and form-filling at the behest of various government departments has been ever increasing. The appellant quite fairly makes the point that he has not chosen to claim disability allowance and/or a raft of other available state benefits which his medical condition would have justified. Instead, as he puts it, he has done his best to run his own business and to provide for himself. However, he inferentially makes the point that if the present penalties have to be paid then as he is unable to pay them, he may well end up in bankruptcy with the result that in those circumstances he may have little option but to turn to the State for his housing, support and maintenance. 
11.	The appellant's account of his medical situation is briefly supported by Dr. Andrew Frankel in his letter of 22nd July 2010.
12.	 The appellant's evidence, which we accept, is that from April 2007 he did not receive any CIS forms to fill in and return to HMRC. He has said that a time did come when he realised that such forms needed to be or would need to be submitted but, understandably, not being in possession of such forms he allowed the matter to drift. In saying that, we make no criticism of him for failing to take the initiative by causing appropriate forms to be sent to him. Once he had registered it was HMRC’s responsibility to send them; not his duty to chase them.
13.	The appellant's evidence is that in 2007 he had taken on a new book keeper or accounts assistant who had no experience within the construction industry. Eventually, that person ceased acting for the appellant and he engaged a new accounts person in September 2009. His evidence is that that person, being familiar with the construction industry, asked about the submission of CIS forms and, none being available for submission, took the initiative to contact HMRC to obtain the appropriate forms going back over 27 months. The forms were duly filled in and submitted. There was no loss of tax to the Revenue. 
14.	The appellant makes the point that he was not happy about the non filing of CIS returns and refers to being constantly overworked, given his limited capacity for work, at a time when he was suffering with chronic and severe back pain. 
15.	Section 98A of the Taxes Management Act 1970 provides for automatic penalties where there is a failure to file CIS returns on time but caps the penalties to 12 months. Where a person has a reasonable excuse for not doing a particular act, it is deemed that he has not failed to do it unless that reasonable excuse ceased and he thereafter failed to carry out that act without unreasonable delay. 
16.	This appeal turns on the issue of whether the appellant did or did not have a reasonable excuse for his delay. HMRC sets out guidance as to what it considers to be a reasonable excuse and various factors that it will not consider to amount to a reasonable excuse. However, its view is not determinative of the matter. In its document CISR81020 HMRC states that it takes the view that illness may be sufficient to make out a reasonable excuse, including where a sole trader has been affected by a prolonged and serious illness throughout any default period [see D2]. 
17.	On the basis of the appellant's evidence, supported by the medical evidence to which we have referred, we find that the appellant has been stoical in running or attempting to run his business, so as to avoid becoming a burden on the state, at a time when he has suffered very substantial medical difficulties related both to undergoing dialysis treatment with its initial debilitating effects and thereafter diminishing beneficial effects, whilst also suffering with chronic and severe back pain. It is to the appellant's credit that he has been able to run a business in any way whatsoever given those circumstances. 
18.	The fact that the appellant's book-keeper, during the default period, may not have known about either the need to submit, or the mechanics for submitting, CIS returns is immaterial. 
19.	However, what is of relevance is that even a book-keeper and a sole trader unaccustomed to the new CIS system, introduced from April 2007, would have  been prompted to submit the appropriate returns if the return forms had been sent to the appellant, as they should have been. We accept the appellant's evidence that they were not sent to him and that his new book keeper had to seek a supply of appropriate returns before they could be sent to HMRC, as a batch, in 2009. 
20.	On behalf of HMRC Mrs. Orimoloye submitted that the appellant could not make out any reasonable excuse for the late filing over this significant period of time because, during that same period of time, he had continued to run his business; had retained the background paperwork which allowed the returns subsequently to be filed; and had dealt with other matters such as VAT returns. She accepted that ill-health is capable of giving rise to a reasonable excuse if, upon the facts, it properly amounts to such. 
21.	We would have had considerable sympathy for the submission made by Mrs. Orimoloye if HMRC had complied with its obligation to send CIS return forms to the appellant by the 5th of each month throughout the relevant period. We find as a fact that it did not do so. When we add that default to the serious and debilitating medical difficulties that the appellant had to overcome to run both his business and his day-to-day activities, we conclude that it is simply not open to HMRC to argue that there was some ill defined onus upon the appellant to make returns which should have been, but were not, sent to him for completion. We consider it to be borderline whether the appellant's medical problems, which we hope we do not underestimate, would, standing alone, amount to a reasonable excuse for failing to file the CIS forms within the appropriate time. It might be that, standing alone, those medical difficulties may not have been sufficient to amount to a reasonable excuse given that the appellant was able to file his VAT returns and deal with certain other business matters. 
22.	However, in circumstances where, as we find, the CIS return forms were not sent to the appellant we consider that that is a reasonable excuse.  When that is added to the fact of the appellant's medical situation and the fact that he could work far less vigorously and for a much reduced time period than a person in good health, the case for a reasonable excuse in respect of each default in respect of which a penalty has been charged, is further made out. HMRC has not adduced any evidence to persuade us that CIS forms were sent to the appellant; yet it was implicit in the submissions made to us that notwithstanding those defaults by HMRC, the appellant ought nonetheless to have returned to HMRC forms which had not been sent to him. That was a physical impossibility.  
23. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.
Decision 
The appeal is allowed and the penalties, amounting to £31,800, are set aside. 

TRIBUNAL JUDGE
RELEASE DATE: 30 July 2010