A taxpayer has won his appeal against HMRC relating to £10,000 in late tax payment penalties, following a tribunal ruling that his marriage breakdown was a reasonable excuse for the delay.
Timothy Cooke, a businessman from Telford, Shropshire, was issued two late penalties equalling £10,000 for his late self-assessment tax return for the year ending 5 April 2012.
Following the sale of £380,000 worth of shares in a company which he worked for, Cooke owed £100,000 in Capital Gains Tax, due by 31 January 2013, but was not paid until 24 October 2013.
Cooke informed the tribunal that he had experienced financial difficulties and used £70,000 from the share sale to settle his Individual Voluntary Arrangement. A further £30,000 was used to pay off a loan.
At the time, Cooke was living with his wife and children in a property which was in negative equity.
Cooke and his wife then bought a second property, using most of the money remaining from the share sale, with the intention of raising £100,000 through the property’s mortgage in order to pay the CGT bill.
However, in March 2012 Mrs Cooke filed for divorce and at first refused to comply with Cooke’s requests to sell or mortgage the property so that he could pay the CGT liability.
Later, in August 2012, the house eventually went on the market but it took over a year to sell.
Cooke informed the tribunal that he had telephoned HMRC on a number of occasions to tell them he would not be able to pay the CGT bill by 31 January 2013.
And he also claimed that during these calls he was told not to worry, that HMRC would allow him time to pay without any penalties being applied.
The property was sold on 24 October 2013, and Cooke paid the CGT liability that very day.
But by this time, HMRC had already issues two late-payment penalties; their argument was that Cooke did not have
By this time, HMRC had issued two late-payment penalties. The Revenue’s counter-argument was that Cooke did not have a reasonable excuse for failing to pay on time and there was no time to pay agreement.
HMRC said there was no clear evidence that officials had told Cooke he would not be charged penalties for late payment.
They stated that Cooke could have continued to live at his original property and paid the tax from his share sale income.
HMRC said that while it sympathised with changes in Cooke’s personal circumstances during the 2011-12 tax year, he was still able to settle his tax liabilities as everything was in his own hands.
However, the tribunal ruled in favour of Cooke, believing that at the time he bought a second property, he could not have possibly known that his marriage was about to fail.
The tribunal added that Cooke was entitled to manage his own financial affairs as he saw fit, and his original intentions to use a mortgage on his second property to pay CGT would not have presented any difficulty under normal circumstances, i.e. had his marriage not broken down.
The tribunal ruled that Cooke’s marriage breakdown was “clearly an unforeseen event which was entirely beyond his control” and something he “could not have reasonably expected events to conspire to prevent him from discharging his tax liability on time.” Subsequently, the taxpayer’s penalties were discharged.
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