Mark McLaughlin warns that taxpayers may receive little sympathy from the tax tribunal in late payment penalty appeals if ‘time to pay’ could have been arranged with HMRC.
Individual taxpayers often encounter cashflow problems, which makes paying tax by statutory deadlines difficult, if not impossible.
Business taxpayers suffer more than most, as their profits can fluctuate widely, and balancing tax payments generally become payable some months after the income was generated; funds to pay the tax are often spent instead of being set aside. Late tax payments result in interest becoming due, in addition to possible penalties.
TTP arrangements
However, there is a potential escape from late payment penalties. If a ‘time to pay’ (TTP) arrangement is made with HM Revenue and Customs (HMRC), this allows taxpayers who cannot pay their tax on the due date to make affordable payments over a period they can afford, typically between 3-12 months, or longer in more extreme cases. Detailed guidance on TTP arrangements is included in HMRC’s Debt Management and Banking Manual (at DMBM800000-DMBM804210).
The relevant law applies broadly where tax is paid late, the taxpayer requests to HMRC that payment of the tax is deferred, and HMRC agrees that the tax may be deferred for a period. If the taxpayer would otherwise become liable to a late payment penalty (i.e., between the taxpayer’s request and the end of the deferral period), the taxpayer is not liable to the penalty (FA 2009, Sch 56, para 10).
Missed opportunity
However, in Wragg v Revenue and Customs [2024] UKFTT 1012 (TC), the taxpayer’s tax liability for 2021/22 was £54,528, much of which was capital gains tax arising from his sale of shares in a company (TP). On 3 February 2023, the taxpayer’s tax agents (A) contacted HMRC, explaining that the taxpayer had sold his shares in TP, but he would not receive the proceeds until TP completed the sale of a property. Once the sale went through, A stated that the taxpayer would pay the tax straight away. HMRC acknowledged this, but stated it would not stop penalties (or interest) accruing. HMRC suggested the taxpayer contact HMRC Debt Management to agree a TTP arrangement.
Subsequently, in discussions with HMRC, the taxpayer was sent an email with a link to the Gov.uk website page which provided information for customers with payment problems. Following HMRC advice, on 24 February 2023, A called HMRC Debt Management stating that the warehouse sale was likely to go through on 3 March 2023, but did not seek a TTP arrangement. HMRC subsequently issued a late payment penalty. The taxpayer appealed.
The taxpayer’s primary argument was that the penalty should be set aside on the basis that he had a reasonable excuse. However, the First-tier Tribunal (FTT) observed that the taxpayer (or A) apparently did not take any steps to agree a payment timetable with HMRC. A had been warned by HMRC that, without a TTP arrangement, penalties would accrue. Despite contacting HMRC Debt Management, for unknown reasons A did not seek to agree a TTP arrangement. In the absence of any attempt to agree a TTP arrangement (despite clear suggestions from HMRC to do so), the FTT could not see any basis for a reasonable excuse. The taxpayer’s appeal was dismissed.
Practical tip
A TTP request needs to be made before the tax would otherwise become payable; the onus is on the taxpayer (or their agent) to do so.
