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HMRC may review ‘reasonable excuse’ terms

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27th Sep 2011
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HMRC could be on the verge of changing its stance on reasonable excuses for late filing and penalty cases, according to tax tribunal judge Geraint Jones QC.

In an interview with TAXtv, Jones revealed that two separate HMRC representatives had told him about plans to rewrite Revenue guidance and paperwork regarding reasonable excuse, and what amounts to a reasonable excuse. However he was uncertain as to what “gloss would now be put on the simple phrase”.

Jones has become a scourge of HMRC in reasonable excuse penalty cases, criticising the deparment in a string of recent rulings for operating the penalty regime as though it were a profit-generating exercise and for not treating taxpayers fairly.

“It smacks more of the conduct of a disreputable debt collector than of responsible conduct by an organ of the state. It might have been better if HMRC had concentrated its efforts on dealing with the outstanding review, rather than taking almost six months to deal with it,” the judge noted in his July decision in favour of HMD International.

Responding to Jones’s suggestion, HMRC said it does not intend to change its definition of reasonable excuse.

“The ‘reasonable excuse’ provision ensures that no one will pay a penalty if they have a strong reason for being unable to meet the deadline,” said an HMRC spokesman.

“Only a small proportion of the millions of decisions HMRC make each year are challenged by taxpayers, with most disputes resolved by agreement between HMRC and the taxpayer. Some divergence of opinion is inevitable but the independent tribunal has upheld HMRC’s view in more than 70% of cases.”

The 70% figure is frequently cited by HMRC, but does not match the current pattern of decisions tracked in AccountingWEB’s Reasonable Excuse Scorecard, which shows that 60% of such cases have gone in the taxpayer’s favour this year.

In spite of being described by TAXtv as HMRC’s “bête noir”, Jones is not the only tribunal judge to take a firmer stance on reasonable excuse. Michael Tildsley also upheld a recent appeal in Consult Solutions (TC01282), as did Nicholas Aleksander in Stephen Rich v HMRC (TC 01380).

First tier tax tribunal rulings do not set legal precedents, but HMRC has not challenged any of the penalty decisions that have gone against it this year.

Geraint Jones, meanwhile, was not just critical of HMRC. He also had some stern words about the quality of some tax agents he comes across at tax tribunals.

Asked whether he was impressed by the work of appellants’ representatives in tribunals, he simply answered, “No.” Representatives are often ill prepared and “haven’t thought through how they’re going to present their case”, he added.

Many advisers were very professional and “highly competent”, but sometimes he said, “You sit there thinking why is this appellant paying this person to come along, frankly they could have done a better job themselves?”

The full interview will appear in the October episode of TAXtv

Replies (32)

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By Owain_Glyndwr
27th Sep 2011 19:23

Boot on other foot

What "reasonable excuse" do HMRC have for their delays, errors, and general incompetence ?

 

 

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By ShirleyM
28th Sep 2011 09:11

What reason ....

... does any large business or organisation have for delays, errors, and general incompetence. HMRC are not alone in this respect.

Generally, the bigger they are, the worse they get, and they don't come much bigger than HMRC.

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By User deleted
28th Sep 2011 10:22

All large businesses

As noted above this is a common issue in all large businesses. I've had issues with Thorntons, Amazon (usually very good), BT, Sky, local council and so on - they have specific customer service departments whose job is to keep customers happy (you'd think), no other duties like HMRC has in actually processing returns, agreeing liabilities, carrying out enquiries etc. And yet they've taken their own sweet time in sorting things out. Admittedly not as much time as HMRC but then HMRC is bigger and not run as a profit-making business (and that does, in my opinion, make a difference).

Some HMRC staff do fall short of acceptable standards but that's human nature. I've seen employees in small organisations that didn't merit a pay cheque. Equally I've dealt with enough HMRC staff that have been very helpful, prompt and accurate. Everyone is different. But if you tar them all with the same brush then what reason have the good ones to carry on being good? I treat everyone initially as I'd want to be treated. If they then fall short then so be it. But if you deal with them as if they're going to be incompetent then I'm guessing many will pick up on that and give you what you are expecting because you deserve nothing more from them.

But that's just my view and everyone has different outlooks...

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By johnjenkins
28th Sep 2011 11:01

That is exactly what is wrong with HMRC

We have to be perfect and get penalised for non compliance. They can do what they like and normally get away with it. Most tax payers don't bother with tribunals - cost, time etc. so HMRC are normally on a winner.

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By taxhound
28th Sep 2011 12:14

HMRC may review ‘reasonable excuse’ terms

That won't have anything to do with the fact that they HAVE to because they have lost several court cases recently will it?

Cynical?  Me??

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Replying to Hope_Valley:
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By User deleted
28th Sep 2011 17:38

Cynicism?

taxhound wrote:

That won't have anything to do with the fact that they HAVE to because they have lost several court cases recently will it?

Cynical?  Me??

Not cynical, quite understandable. Any organisation that finds itself on the losing end on more than one occasion - be it in the courts, financially or elsewhere - should be reviewing its procedures etc. People thought that it was cynical when HMRC changed the legislation as soon as they lost Arctic - really, what did they expect HMRC to do? As for the comments of HMRC incompetence, errors and delays - I fail to see the direct link to the serious question about the meaning of 'reasonable excuse'.

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By Owain_Glyndwr
28th Sep 2011 18:04

One rule for them .........................

BKD

As for the comments of HMRC incompetence, errors and delays - I fail to see the direct link to the serious question about the meaning of 'reasonable excuse'

[Mod - Content removed.]

Taxpayers are constantly subjected to errors and delays by HMRC as are we. Have you ever calculated how much time you spend correcting HMRC mistakes?  It is totally unacceptable that we have to tolerate "not so reasonable  exuses" by HMRC such as "we dint order enough paper", or,  "the system is down", and of course the old chestnut "its in security".  If taxpayers said their computer was down, or their payment was being checked, or they "forgot to get enough paper" it would not be accepted, so why are we expected to accept it from them ?

 

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Replying to mikewhit:
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By User deleted
28th Sep 2011 22:03

Keep it on topic

Owain_Glyndwr wrote:

BKD

As for the comments of HMRC incompetence, errors and delays - I fail to see the direct link to the serious question about the meaning of 'reasonable excuse'

Taxpayers are constantly subjected to errors and delays by HMRC as are we. Have you ever calculated how much time you spend correcting HMRC mistakes?  It is totally unacceptable that we have to tolerate "not so reasonable  exuses" by HMRC such as "we dint order enough paper", or,  "the system is down", and of course the old chestnut "its in security".  If taxpayers said their computer was down, or their payment was being checked, or they "forgot to get enough paper" it would not be accepted, so why are we expected to accept it from them ?

We're all well aware of HMRC's shortcomings, thanks in no small part to your examples. And I'm not belittling the seriousness of HMRC's failures. My point is simple - this particular article is specifically about the interpretation of 'reasonable excuse' in the context of alleged underpayment of tax, not about the general shambolic state of HMRC's affairs. [Mod - content removed. Discussion of moderation.]

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By User deleted
28th Sep 2011 18:22

Reasonable excuses

Personally I'd say that 'the system is down' is a reasonable excuse given the size and hence unwieldiness of it. I've rarely (once?) had that given and with the follow on of 'as soon as its up I'll check and get back to you'. I find that acceptable. It's not like they can just turn on another pc like we can.....

I've never heard we didn't order enough paper - but if they have used it then yes I'd agree it's lame.

Yes sometimes their security checks seem to be onerous and an excuse for a delay but then I've not experienced them. My clients seem to get repayments through very promptly. I'd rather they took their time making sure there wasn't fraud at work with repayment claims though....

As for the definition of reasonable excuse - it needs some work. But I don't doubt that they've been on the receiving end of so many ridiculous 'excuses' and that if they're too lenient there will be plenty who claim a reasonable excuse when in reality it was sheer laziness on the part of the client or accountant. The deadlines aren't that difficult to meet so why not focus on meeting them and then excuses won't be needed, reasonable or otherwise....

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By Owain_Glyndwr
28th Sep 2011 18:53

-

[Mod - content removed. Off topic argument.]

 

My comment WAS and IS relevent as the question of a level playing field is one which excecised the minds of the courts & tribunals, and in particular the mind of Geraint Jones QC when making these judgements.  Indeed since the introduction of the HRA it is a question which has repeatedly excercised the courts as the principals of justice laid down in the HRA increasingly impinge on other laws.

 

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By petersaxton
28th Sep 2011 19:24

We should have all the information within a month

"As for the definition of reasonable excuse - it needs some work. But I don't doubt that they've been on the receiving end of so many ridiculous 'excuses' and that if they're too lenient there will be plenty who claim a reasonable excuse when in reality it was sheer laziness on the part of the client or accountant. The deadlines aren't that difficult to meet so why not focus on meeting them and then excuses won't be needed, reasonable or otherwise...."

I, too, have been unhappy with how HMRC does a lot of things badly/wrong and doesn't suffer any penalty. Having said that, it doesn't seem right that a client can simply say they had relied on their accountant. HMRC should send warnings by email at monthly intervals. Accountants should send warnings to clients at monthly intervals and explain that they are not their only client! Clients usually deserve to pay penalties.

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By Owain_Glyndwr
28th Sep 2011 22:25

No paper
 Flash Gordon

I've never heard we didn't order enough paper - but if they have used it then yes I'd agree it's lame.

 

 

It was very well reported last month.

http://www.dailymail.co.uk/news/article-2028144/Sorry-tax-forms-late-didnt-buy-paper.html?ITO=1490 

 

 

 

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By User deleted
29th Sep 2011 07:16

Paper

Fine, it's lame, they're guilty of bad planning. Fire the stationery monitor. (We ran out of paper once in a place I worked in a dim and distant past - we thought the remaining boxes contained one sort and it was actually something different, we learnt from that, and nobody died)

But that doesn't change my opinion...

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By ShirleyM
29th Sep 2011 07:25

Why look on the black side?

This thread has drifted over to the 'look how crap HMRC are'. Let's look again at the original post.

Shouldn't we be saying 'At last ... HMRC have realised they are doing something wrong and are looking to put it right'?

 

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By User deleted
29th Sep 2011 08:11

Exactly, Shirley

A pessimist sees the difficulty in every opportunity, whereas an optimist sees the opportunity in every difficulty.

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By Owain_Glyndwr
29th Sep 2011 08:32

-

............... and a realist knows that whatever HMRC say or promise they will remain incompetent and arrogant.

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By petersaxton
29th Sep 2011 08:59

Sometimes optimists don't have a clue

I always used to be known as the person who would say why something wouldn't work and would be criticised for it. I'd always have a better way of doing things but people didn't like doing anything that took a bit of effort. When things went wrong in exactly the way I said it would I'd say "whoever would have thought that would happen?".

I am always in favour of thinking things through and coming up with the best solution. Simply suggesting anything and proclaiming yourself as an optimist isn't good enough.

 

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By User deleted
29th Sep 2011 09:11

But sometimes optimists look for the answer...

I agree with Peter that you should think things through & come up with the best solution. But I see optimists as the people who see a problem as a solution waiting to be found and then look for that solution rather than saying 'it won't work' and then not contributing anything positive.

Hopefully HMRC as a whole are trying to be optimistic and are looking for solutions..... I'm not sure that tarring them in an entirety as 'incompetent and arrogant' is encouraging any change.

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By petersaxton
29th Sep 2011 09:17

I'm an optimist then!

So many people just look for the easy way out and don't like it if they get told it won't work and why and what should be done.

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By User deleted
29th Sep 2011 09:26

Easy way out

Exactly, it's the adding 'why' & 'what should be done' that makes the difference. Anyone can say 'it won't work'..

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By Owain_Glyndwr
29th Sep 2011 09:58

You want to know where to start -

There will be NO improvement in HMRC without root and branch change.

The current top management does not command the respect of the workforce (or anyone else come to that) and behaves in an arrogant manner just like the MP's did over their expenses.

There is a culture of failure in HMRC where they consider it acceptable to make errors (well its not their money is it), and then hit hard pressed families with threatening demands for back taxes without a word of aplogy or any explanation.

During an interview in September 2010 Dave Hartnett was asked if he would step down because of the vast number of errors. His reply was that he would not be stepping down because other countries also get it wrong. Staggering. He thinks that because others make a mess it's ok for him too mess it up too.

Of course he is not on his own, just look at the astounding arrogance of Lesley Strathie who seemed to try to blame taxpayers for HMRCs incompetence when questioned by the Treasury Select Committee.

http://www.thisismoney.co.uk/money/news/article-1704524/Tax-boss-We-made-no-mistakes.html 

 

No wonder the staff are disinterested, surly, often downright rude, and display a couldnt care less attitude.

 

 

 

 

 

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By User deleted
29th Sep 2011 10:06

Where to start

But you've again given no suggestions what they should do to improve things.... That's the difference in attitude.

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By Owain_Glyndwr
29th Sep 2011 10:22

Suggestions
Fire Hartnett, Stathie & co and replace them with someone who actually cares about getting things done right. Now heres a novel suggestion - how about someone who has actually worked at HMRC and knows somehing about tax?Close the call centres.Move back to a regional system where people who live in Barnsley deal with Barnsley tax office.Remove the uncertainly caused by recent fiascos by putting deadlines on HMRC - any tax liability not notified within a set time limit - say 6 months after year end - cannot be collected unless fraud can be proven.Simplify the system by aboloshing national insurance - so that people know the true rate of tax they pay.Where HMRC make errors give taxpayers exactly the same rights as HMRC - ie automatic penalties levied on HMRC.HMRC staff found to be incompetent (ie too many errors) should be fired just as they would in private industry.Increase the entrance requirements for HMRC to improve the quality of staff.

 

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Replying to ShirleyM:
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By pauljohnston
03rd Oct 2011 11:39

Practical and simple ways of improvement

As Companies House have done for accounts and for annual returns, arrange for an email system to send out reminders for P35s etc.  When one enrolls for PAYE via the email system we have to give an email address so it is only a matter of the right person at HMRC giving the order.  A fair number of the HMRC errors regarding self-assessment could be avoided by using a simple email system.  All the system need do is alert us to a potential problem.  eg ABC Ltd a P35 is expected for the year ended 5th April....  This should be filed by..... OR An SA100 request was issued on .... and this must be filed by....

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By User deleted
29th Sep 2011 11:42

Good ideas

Some decent ideas there :)

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By j graver
03rd Oct 2011 13:52

I hit the same brickwall in trying to back date a flat rate application which is allowed in certain circumstances

Unfortunately they have not had a case to date having any circumstances  after the issuance of notice 733 brought in after the success of  J Anderson v HMRC  2007 !!!!!!!!! (upper tier decision)

vat rules are more stringent than their other tax counterparts for fairness

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By johnjenkins
03rd Oct 2011 14:57

"reasonable excuse"

Is just that - not ridiculous excuse, not exceptional or any other ous or nal excuse. It's common sense. If you don't have the money to pay your bills cos your client hasn't paid you, what's the point in a penalty? - interest yes.

We need to get rid of compliance and the penalty regime. Yes, if tax payers take the mick then they ought to be penalised but not carte blanche.

So we are talking about trust - as long as governments don't trust tax payers (some might say why should they) we will have this conflict and it will get worse.

Let's get Maggie's feel good factor back and all get back to how it should be.

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By taxhound
04th Oct 2011 12:02

In defence of the new system

One pleasant surprise recently (not sure why it was a surprise, but has not happened to any of my other clients yet) - client forgot to include some interest from an account of her 2010 itr.  HMRC opened an enquiry, charged a penalty of 15% but then suspended it for a year subject to good behaviour on my client's part. 

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By johnjenkins
04th Oct 2011 16:32

Have to assume

client not on 40% otherwise HMRC giving our money away.

So assuming not on 40%. Tax deducted normally so no loss to HMRC. Can't see why HMRC would want to charge a 15% suspended penalty in return for good behavoiur. Simple error, no loss to HMRC don't sound right to me.

I wonder if it could be appealed against.

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By taxhound
05th Oct 2011 13:23

client was a 40% taxpayer

But under the new system, penalties (not the additional tax) can be suspended, which seems fairt to me where the client made a genuine mistake (she did not omit the interest on purpose.  It was an account which was closed during the year and she forgot about it).  I think 15% penalty is a bit harsh so I am happy with this new system.

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By johnjenkins
05th Oct 2011 14:15

It would

therefore seem that a penalty will be issued even for a genuine mistake. Surely this has to be appealed. The fact that HMRC has suspended the penalty doesn't really make it a good system. They could have just allowed you to amend or done a repair themselves. I think we can safely assume that automatic penalties are now with us for genuine errors.

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By johnjenkins
05th Oct 2011 14:19

Going on from this

It might just be worthwhile in December and certainly January to put estimated figures in tax returns to allow that little bit extra time to make sure there are no genuine errors.

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