Judgment summary
Mr Pankaj Kothari appealed against a late payment penalty of £12,047 charged under Schedule 56 of the Finance Act 2009 in respect of late payment of Capital Gains Tax for the tax year ended 5 April 2022 [5]. The hearing was held remotely by Microsoft Teams over two sittings, on 21 November 2025 and 30 June 2026 [1] [7] [8].
The Tribunal first considered whether HMRC had correctly charged the penalty, then whether Mr Kothari had a reasonable excuse, and then whether the penalty should be reduced for special circumstances [6].
The Tribunal found the penalty was correctly charged [13]. It then found Mr Kothari did not have a reasonable excuse for the late payment [39]. It also found HMRC's decision not to make a special reduction was not flawed [49]. The appeal was dismissed [50].
Background
On 14 February 2024 HMRC issued a Closure Notice ending its enquiry into Mr Kothari's self-assessment tax return for 21/22, amending the return so that CGT of £240,964.20 was payable [10]. That CGT was due to be paid by 16 March 2024 but was paid late [10].
The penalty was imposed under Schedule 56 when the CGT had not been paid within 30 days of the due date, that is by 15 April 2024 [10]. The CGT was paid by instalments. An initial payment of £5,000 was made on 29 May 2024, 73 days late, and the rest was paid in five further instalments between 10 and 12 July 2024, between 116 and 118 days late [11].
The CGT liability arose because Mr Kothari received a distribution in specie of real properties from Pharmchem International Limited [18]. He received property to the value of £1,727,120 by way of a distribution made by Pharmchem on 06 April 2021 [22]. Pharmchem went into members' voluntary liquidation on 06 April 2021, and legal title to the Properties passed to Mr Kothari on or about 11 January 2023 [19] [23].
Mr Kothari sought to raise funds to pay the CGT by borrowing against the Properties, which first required a restructuring of their ownership involving transfer of the freehold to his son [20]. Mortgage brokers were contacted in June 2023 and lawyers were instructed on or about 02 August 2023, with the restructuring completed around 05 June 2024 [20].
Core dispute
There was no dispute that the CGT was paid late [7]. HMRC had to satisfy the Tribunal that the penalty was correctly charged, and then Mr Kothari had to satisfy the Tribunal that he had a reasonable excuse or that special circumstances applied [6].
Mr Kothari asserted he had a reasonable excuse because he could not have raised the funds to pay the CGT any earlier than he did [7]. The crucial issue was whether he could show the insufficiency of funds was attributable to events outside his control, as required by paragraph 16(2) of Schedule 56 [7].
Court findings
The Tribunal found the penalty had been correctly charged, as there had been no agreement to defer payment of the tax under paragraph 10 of Schedule 56 [13]. It noted that any contact between HMRC and Mr Kothari or his agent occurred after 15 April 2024, that is after the penalty had been charged, and that no time to pay agreement was put in place [12].
Applying the guidance in Perrin v HMRC [2018] UKUT 0156 (TCC), the Tribunal accepted that Mr Kothari received property valued at £1,727,120 by distribution in specie on 06 April 2021, that legal title passed to him on or about 11 January 2023, and that he made a mistake in thinking he did not need to declare the gain until his 22/23 return [22] [23] [24].
The Tribunal found Mr Kothari had not proven he needed to borrow the required funds using the Properties as security to pay the CGT, as he had shown no evidence he did not already have funds available or quicker means to raise them, and had not considered borrowing against his home [26] [39]. It found that borrowing against the Properties was the course of action he pursued [26].
The Tribunal found the documentary evidence was scant. It had difficulty accepting his account of the roughly five and a half months between 13 January 2023 and 26 June 2023, and was shown little evidence of the ten month restructuring period between 02 August 2023 and 05 June 2024 [27] to [31]. It found he had not proven the restructuring required structurally complex conveyancing or that the process could not have been completed more quickly [32] [34] [35].
The Tribunal accepted that the emails of 10 July 2024 showed when the borrowed funds became available, and that Mr Kothari quickly paid the balance once they did [33] [34]. However, it found his evidence over the period of one and a half years fell far short of showing the process could not have been completed in time to avoid the penalty [34].
The Tribunal found the assertion about an HMRC officer's visits on 26 April and 9 May 2024 was not relevant, as the penalty was charged by the operation of Schedule 56 when the CGT was not paid by 15 April 2024 [37].
The Tribunal found the foundation of the reasonable excuse was missing and that Mr Kothari did not have a reasonable excuse [39]. It added that even if he had needed to raise funds in that manner, he had not proven the insufficiency was attributable to events outside his control, and noted the CGT liability was known from 06 April 2021 [40] [41].
On special circumstances, the Tribunal found HMRC's decision not to make a special reduction was not flawed [49]. It rejected the argument that Mr Kothari had been penalised twice, noting the separate penalty under Schedule 24 to the Finance Act 2007 for careless inaccuracy was distinct from the late payment penalty under appeal [48].
Outcome
The appeal was dismissed [50]. The Tribunal upheld the late payment penalty of £12,047 charged under Schedule 56 of the Finance Act 2009 [5] [13] [50].
Major issues / areas of contention
- Whether the late payment penalty of £12,047 under Schedule 56 of the Finance Act 2009 was correctly charged.
- Whether Mr Kothari had a reasonable excuse for the late payment of the CGT under paragraph 16 of Schedule 56.
- Whether any insufficiency of funds was attributable to events outside Mr Kothari's control under paragraph 16(2)(a) of Schedule 56.
- Whether the penalty should be reduced because of special circumstances under paragraphs 9 and 15(3) of Schedule 56.
- Whether HMRC's decision that there were no special circumstances was flawed.