Mrs Lynn West v HMRC

Bookmark and Share
19 November 2010
1Summary
1.1On 20 August 2010, the First-Tier Tribunal gave judgment on the meaning of "paid" and "unpaid" in relation to electronic payments to HMRC.  The Court held that the date tax is paid is the date of receipt by HMRC, and not the date of initiation of the electronic payment.
2Background
2.1The Court's judgment was in response to an appeal made by Mrs West following the First-Tier tribunal's summary decision on 8th February 2010.
2.2Mrs West's appeal was against a surcharge of £302.17 (5% charge) imposed under s.59C(2) Taxes Management Act 1970.  Surcharges are penalties imposed by HMRC for late payment of tax.
2.3Mrs West initiated a payment of tax by an online banking instruction given on Friday 27 February 2009, but the payment did not reach HMRC until Monday 2 March 2009.  The payment of tax should have been paid by the expiry of 28 days from 31 January 2009.
2.4The parties differed as to what date should be treated as the date on which the tax was "paid".  HMRC argued that the date of payment was 2 March 2009, being the date of HMRC's receipt of funds.  Mrs West argued that the date of payment was 27 February 2009 being the date on which the payment instruction was given to her bank and on which the funds left her bank account.
2.5Mrs West made her appeal on two grounds:
(a)firstly, that HMRC's decision under appeal did not state that the surcharge was imposed because the tax was more than 28 days late.  The statement of case suggested "that the surcharge was imposed because the tax remained outstanding on 31 January 2009"; and
(b)secondly, that the tax was not paid late because the date on which the instruction was given to the bank and on which the funds left Mrs West's account, was the date on which the tax was "paid".
2.6The Court therefore had to give judgment on when the tax was deemed to be paid.
3Held
3.1The Court judged that the first ground of appeal did not succeed, based on the reasoning that Mrs West was not misled as to why the surcharge was imposed, and that HMRC's letter to her made it clear that the surcharge liability arose on the day following the expiry of 28 days from 31 January 2009.
3.2

In response to the second ground, the Court found in favour of HMRC and ruled that the tax was not deemed to be paid until HMRC had received the payment.

The Court came to this decision based on the following arguments:

(a)HMRC provides online guidance that it will normally take 3 working days for payments paid by internet to reach them.  The Court judged that from this guidance it was clear that HMRC do not accept that the date of payment should be treated for surcharge purposes as the date on which payment instruction was given online;
(b)Mrs West's argument that a cheque would have taken longer to pay and clear,  but would have been counted as being on time when received, was dismissed by the Court.  The Court drew a contrast between bank transfers and cheque payments: a cheque is payable on demand so receipt of it gives rise to a cause of action against the person who issued the cheque.  Secondly, Mrs West chose not to send a cheque but to pay electronically; and
(c)Mrs West's submission that the tax was "paid" at the time of initiation of the electronic payment was rejected.  The Court's reasoning was that if the electronic payment was effected by a mere initiation of the electronic transmission, that initiation would for example extinguish a potential cause of action against the appellant for non-payment, even if the payment did not reach its intended destination.
3.3The Court found that the payment remained unpaid at the start of the 29th day after 31 January 2009, and therefore the surcharge was correctly imposed by HMRC.
4Analysis
4.1This case is an important reminder for paying a tax bill well within HMRC's time limits.
4.2It is clear that in the case of paying tax via electronic payment, clients should allow at least 3 working days for payment to be received by the Revenue, otherwise surcharges may be incurred.

If you require further guidance, please contact John Barnett or Nigel Popplewell.

Search news archive