In Fernhill Primary School v HMRC [2016] UKFTT 220 (31 March 2016), the FTT found that the school’s lack of funds was a reasonable excuse for the late payment of PAYE (FA 2009 Sch 56).
The school appealed against a PAYE late penalty. It referred to the ongoing cash flow difficulties that had been prevailing for some years prior to 2012/13. The economic downturn had created bad debts when families, who had fallen into financial difficulty, could not meet the school fees. The FTT observed however that the economic downturn could not be, without more, a reasonable excuse.
The issue was therefore whether the bad debts faced by the school were a reasonable excuse for the shortage of funds. The FTT pointed out that the general rule was that bad debts were a normal hazard of business and that there was no reason to depart from this rule in the case of a private school, as this risk was reasonably foreseeable.
However, in the year 2012/13, there were two specific underlying causes for the school’s lack of funds. The first cause was the loss of 15 pupils (three times the normal attrition rate) and increased staff costs caused by the prolonged sick leave of three members. The second was the incapacity of the school to raise any short-term finance in the open market to ease its cash flow difficulty, and the fact that the pledge from its main benefactor was contingent upon her own business having the surplus to lend the required working capital to the school. A reasonable excuse therefore existed in relation to the lack of funds from 6 August 2012 to the end of 2012/13.
Why it matters: The FTT distinguished between a general lack of funds stemming from the economic downturn, which did not constitute a reasonable excuse, and a lack of funds caused by specific unforeseeable events, which was capable of constituting a reasonable excuse.
In Fernhill Primary School v HMRC [2016] UKFTT 220 (31 March 2016), the FTT found that the school’s lack of funds was a reasonable excuse for the late payment of PAYE (FA 2009 Sch 56).
The school appealed against a PAYE late penalty. It referred to the ongoing cash flow difficulties that had been prevailing for some years prior to 2012/13. The economic downturn had created bad debts when families, who had fallen into financial difficulty, could not meet the school fees. The FTT observed however that the economic downturn could not be, without more, a reasonable excuse.
The issue was therefore whether the bad debts faced by the school were a reasonable excuse for the shortage of funds. The FTT pointed out that the general rule was that bad debts were a normal hazard of business and that there was no reason to depart from this rule in the case of a private school, as this risk was reasonably foreseeable.
However, in the year 2012/13, there were two specific underlying causes for the school’s lack of funds. The first cause was the loss of 15 pupils (three times the normal attrition rate) and increased staff costs caused by the prolonged sick leave of three members. The second was the incapacity of the school to raise any short-term finance in the open market to ease its cash flow difficulty, and the fact that the pledge from its main benefactor was contingent upon her own business having the surplus to lend the required working capital to the school. A reasonable excuse therefore existed in relation to the lack of funds from 6 August 2012 to the end of 2012/13.
Why it matters: The FTT distinguished between a general lack of funds stemming from the economic downturn, which did not constitute a reasonable excuse, and a lack of funds caused by specific unforeseeable events, which was capable of constituting a reasonable excuse.
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