I THOUGHT THAT I UNDERSTOOD REASONABLENESS
BLOG
179
I THOUGHT THAT I UNDERSTOOD REASONABLENESS
Some years ago, I was on the
Consultative Committee for the reform of the tax tribunal system. I was the lone representative of the
accountancy profession. I remember
sitting around a table with about 14 lawyers and a couple of other non-lawyers
and bemoaning the impending demise of the General Commissioners. For younger readers I should explain that
these were volunteers who gave up their time to settle tax appeals
locally. When asked by Stephen Olive
(later Sir Stephen) who chaired the Committee what was good about the
Commissioners, I said that they applied commonsense. He retorted, was I suggesting that lawyers
could not apply commonsense!
The recent decision of Judge Christoper
McNall, a barrister, whose website tells me that he aims “to bring a robust and
practical approach to all my clients’ cases”, in the First-tier Tribunal case
of Coomber v HMRC, seems to me to prove my point.
Mr Coomber owed income tax for
2015/16. He sent a cheque to HMRC on 2
February 2016, which was received by them on 4 February 2016. They banked the cheque and it bounced. No one knows why it bounced. Mr Coomber had sufficient funds in the
account to meet it.
Mr Coomber’s accountant spoke to HMRC on
1 March 2016 and were told that his tax payments were up to date; he owed
nothing. In early March Mr Coomber
received his bank statements and noticed that the cheque had not gone
through. It is not clear what happened
next. I assume the accountants spoke to
HMRC again and this time were told that they had not received payment. Apparently when they spoke to HMRC on 1
March, HMRC had not got around to updating their records. Mr Coomber eventually sent HMRC a replacement
cheque on which HMRC banked on 17 March.
Where tax due on 31 January is not paid
before the end of February a 5% surcharge applies unless the taxpayer has a
reasonable excuse for the late payment.
The issue for Judge McNall to determine was whether Mr Coomber had a
reasonable excuse for not having paid his tax by the end of February in
circumstances where he had sent HMRC a cheque at the beginning of February,
knew that he had sufficient funds in the account to meet it, had not been told
by HMRC that the cheque had not been honoured, indeed, had in fact been told by
HMRC that he had duly paid what he owed, and had no knowledge that what HMRC
had told him (through his accountants) was incorrect until it was too late to
avoid a surcharge by sending a fresh cheque.
Do you think that in that combination of
circumstances Mr Coomber had a reasonable excuse for paying his tax late? I certainly do. But reasonableness is a subjective concept and
what matters is what Judge McNall thinks and he thinks that Mr Coomber acted
unreasonably.
So what would a reasonable person have
done in Mr Coomber’s circumstances?
Should he have called his bank every day to check that it had
cleared? Personally I think that would be
an odd thing to do. If everyone did it,
I would expect the banking system to collapse.
But that is precisely what Mr McNall believes that a reasonable person
would have done. “Santander offers
telephone banking, and his bank statement gives a Freephone (0800) number at
which the bank could be contacted. No
reason is put forward why Mr Coomber, having made this payment by cheque, could
not have checked with his bank to see if it had been cleared. I do not see any reason why he should not
have done so”.
Personally I think it would have been a
very odd thing to do. If I send someone
a cheque and it bounces, I would expect the recipient to contact me very
quickly to demand an explanation. Isn’t
that what normally happens? Well,
apparently not in Mr McNall’s commonsense world. “Mr Coomber advanced the proposition that it
is “normal practice” if a cheque is dishonoured for some reason for the
creditor (here HMRC) to contact the payer to inform them of the same. But there is no evidence or other material
before me as to this alleged practice and, if it exists, whether it is indeed
“normal” as alleged and, if, even if it is normal in other contexts, whether it
applies to HMRC”.
I find that incredible. It needs evidence to indicate that if a
cheque bounces it is normal for a creditor to contact the debtor and demand his
money? What sort of a world does Mr
McNall live in? I must admit though,
that I like the suggestion that even if that were to be normal, it is not
reasonable to assume that HMRC will act like any normal person; one can rely on
what normally happens only if you can show that HMRC is staffed by normal
people!
But probably Mr McNall had to except
HMRC from normality because it had told him that when a bank bounces a
taxpayer’s cheque, it simply throws it away!
Nowadays I do not have any day to day dealings on behalf of clients with
HMRC, but back in the days when I did my recollection is that if a client’s
cheque bounced, HMRC were on the phone demanding an explanation straight
away. Has the ability to impose
penalties for late payment resulted in HMRC no longer bothering to seek to
collect unpaid tax, except tardily? I
talk to a lot of accountants and while many believe that HMRC use penalties to
increase the headline amount of what they collect, none has ever told me that
they don’t try to collect at all.
Mr McNall clearly thought Mr Coomber
should not have paid by cheque. “Whilst
he was entitled to do so, he was nonetheless, in doing so, taking a risk that,
if anything went wrong with the cheque, or (for example) if it went astray in
the post, payment would not be made in time”.
He said that Mr Coomber should have used “some other means (for instance
BACS, Faster Payment or Direct Debit) which would have given him the immediate
knowledge and assurance that the payment had been safely received”. Would it?
I pay my tax electronically. I get
immediate knowledge that it has left my account, but I have no knowledge that
it has reached HMRC’s account or even that it has left my bank. I still take the risk that the bank might
make an error.
Mr McNall was also clearly upset that
no-one could tell him the full facts. In
particular he was annoyed that he did not have a copy of the cheque
itself. Not annoyed with HMRC for
destroying it, of course. Annoyed that
Mr Coomber had not said whether or not he had asked his bank whether, as part
of its ordinary cheque-clearing processes, it scanned and kept a copy of the
cheque which it was dishonouring.
This appeal was dealt with as a default
paper case, i.e. Mr McNall decided the case without a hearing but by simply
reading the taxpayer’s notice of appeal, HMRC’s statement of case and the
taxpayer’s comments on it. That meant Mr
Coomber and his accountants had to guess what Mr McNall would expect to be
evidenced and what he would be likely to himself know from his own knowledge of
life. It also meant that Mr McNall had
to make guesses to fill in gaps in what he had been told in order to write his
decision.
The idea of default paper cases was not
simply to save Tribunal time. It was
felt that some taxpayers would forgo their appeal rights rather than have to
appear before a Tribunal but would pursue an appeal if all they needed to do
was write a letter setting out their case.
This case perhaps demonstrates the downside of the default paper
procedure!
ROBERT
MAAS