In Darren Wragg v HMRC [2024] TC09350, the First Tier Tribunal (FTT) found that a lack of funds owing to the terms of an asset sale agreement did not amount to a reasonable excuse for the late payment of Capital Gains Tax (CGT).
Mr Wragg’s 2021-22 tax return declared a liability of £54,528, largely relating to Capital Gains Tax (CGT) on the sale of shares in a company.
- The share sale agreement provided that Mr Wragg would only be paid his sale proceeds once the company had sold a commercial property.
- While this was anticipated to be before 31 January 2023 (the due date for Mr Wragg to pay his CGT) the property sale did not actually complete until mid-March 2023.
- Mr Wragg’s tax agent contacted HMRC on 3 February 2023 to explain that once the company’s property sale went through, Mr Wragg would have the necessary cash to pay the tax due straight away.
- HMRC put a note on file and explained this would not stop interest or penalties from being added. HMRC suggested agreeing a Time To Pay (TTP) arrangement.
- Mr Wragg spoke to HMRC on 17 and 20 February 2023 to again explain the position. HMRC provided a link to the Gov.uk website page giving information for taxpayers with payment problems.
- On 24 February 2023, Mr Wragg’s tax agent explained the position to HMRC’s Debt Management department but did not seek a TTP arrangement.
- On or around 14 March 2023, HMRC issued a Penalty assessment of £2,656, based on the tax unpaid on 3 March 2023.
- Mr Wragg Appealed to the First Tier Tribunal (FTT).
The FTT found that Mr Wragg did not have a Reasonable excuse for failing to make payment on time:
- Insufficiency of funds is not a reasonable excuse, unless attributable to events outside of the taxpayer’s control.
- The terms of the share sale were entirely within Mr Wragg’s control. He could have declined to sell his shares on terms that left him without the funds to pay the corresponding tax.
- Well-advised taxpayers usually either structure transactions to avoid a dry tax charge, secure appropriate funding to pay the relevant tax or make suitable arrangements with HMRC.
- There was no evidence that Mr Wragg sought alternative funding to enable him to pay the tax.
- The simple notification of a lack of funds to HMRC was not sufficient grounds for a reasonable excuse. No steps were taken to agree a payment timetable with HMRC.
- If Mr Wragg or his agent had put forward a payment plan which had been rejected by HMRC, this might have formed the basis of a reasonable excuse.
- Mr Wragg could not argue that he Relied on his agent to seek a TTP arrangement.
- Where a taxpayer relies on another person to do anything, that is not a reasonable excuse unless the taxpayer took reasonable care to avoid that failure.
- There was no evidence that steps were taken by Mr Wragg to avoid any failure on the part of the tax agent.
Editor's note
Having a Time to Pay agreement in place would have solved the issue. Such agreements need to be put in place before the tax liability crystalises. If consideration is deferred and contingent upon a future event, it will be taxable if it is ascertainable, there are also special payment rules which allow CGT to be payable in instalments. It's advisable to check CGT payment rules when agreeing 'head of terms'. See CGT: Payment of tax
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