Save content
Have you found this content useful? Use the button above to save it to your profile.

HMRC ‘reasonable excuse’ definition under fire

26th Jul 2011
Save content
Have you found this content useful? Use the button above to save it to your profile.

Thousands of taxpayers may have been wrongly fined by HMRC after a run of court rulings reveal that HMRC’s definition of ‘reasonable excuse’ is contrary to the law.

According to McGrigors, HMRC has lost more than half a dozen cases in the last six months in which it has been criticised by the courts for wrongly fining taxpayers.

It believes the courts have made it clear that HMRC’s guidance on fines is at odds with the law, and that its definition of “reasonable excuse” should not be taken at face value.

The law says that taxpayers should not be fined if they have a reasonable excuse for late payment of tax or an overdue tax return. Legislation does not define the phrase, but this string of rulings makes it clear that HMRC’s official interpretation is too narrow.

Jason Collins, a partner at McGrigors, told AccountingWEB: “HMRC has, quite literally, become a law unto itself where fines are concerned. The courts have been saying it’s not just a question of what the Revenue thinks is a ‘reasonable excuse’, it’s actually what ‘reasonable excuse’ itself, means.

McGrigors believes that the rulings represent the tip of the iceberg as the majority of taxpayers do not appeal fines because they assume that HMRC issues fines strictly in accordance with the law.

“HMRC has always published guidance on which exceptional circumstances count and for some people considering the size of the penalty and the cost of fighting it - they just accept it and take it on the chin,” Collins said.

The law firm says that HMRC guidance should not be taken as the letter of the law by taxpayers. Collins added: “The way in which HMRC’s guidance is worded makes taxpayers think they would stand little chance in a tribunal. Taxpayers who feel they have been unfairly fined really should challenge HMRC.”

In one of the recent cases the tribunal ruled that having insufficient funds to pay tax could constitute ‘reasonable excuse’ – contrary to what is stated in HMRC’s official guidance.

Lack of funds is likely to be an excuse put forward by many taxpayers to justify late or non-payment of tax, particularly with the 31 July tax payment deadline looming.

Collins added that “If HMRC issues fines over-zealously, it will be akin to a credit card company charging penalties for non-payment and making the cardholder’s indebtedness even worse.”

He concluded that “HMRC should revise its guidance because at the moment taxpayers are being misled.

“Surely, litigating against diligent taxpayers who have endeavoured to comply with their obligations but have failed for a good reason, cannot be the best use of HMRC's resources.”

Recent tribunal cases

Failing to file returns on time

Humphreys v HMRC [2011] UKFTT 98

A taxpayer who posted his return four days before the deadline was fined when the return arrived late. The tribunal ruled that HMRC had been wrong to impose a penalty despite HMRC guidance stating that postal delays could only be considered ‘reasonable excuse’ in the most extreme circumstances

Online filing difficulties

N A Dudley Electrical Contractors v HMRC [2011] UKFTT 260

A taxpayer who had set out to file his return online expecting to be able to use HMRC's advertised online filing facility subsequently discovered that he required additional software (a fact not highlighted by the advertising campaign) and so filed a paper return and was late in the payment of the tax. The tribunal ruled that HMRC had been wrong to impose a penalty

Genuine mistake

Leachman v HMRC [2011] UKFTT 261

A taxpayer who was fined for failing to file a P35 under the mistaken belief that his accountant would do so had the fine overturned by the tribunal which ruled that a genuine mistake can constitute a ‘reasonable excuse’

Insufficiency of funds

Kincaid v HMRC [2011] UKFTT 225

The taxpayer was unable to pay tax on time because of cashflow difficulties – partly caused by HMRC changing the taxpayer’s status – under the Construction Industry Scheme. The tribunal sided with the taxpayer against HMRC’s written guidance resulting in fines being cancelled.

Replies (22)

Please login or register to join the discussion.

By johnjenkins
26th Jul 2011 15:06

It would

appear that "flexibility" is indeed creeping in to replace rigidity. Now all we need is a bit of "common" to replace compliance.

Thanks (0)
By Top_Cat
26th Jul 2011 23:15

Cynical exploitation of taxpayers
Tax Office fine trader £100Trader asks accountant to appeal against itAccountant tells trader his charge for doing so will be £300 which the trader might, with lots of luck, and after numerous letters, get back from HMRC "if" his appeal is sucessful and "if" HMRC accept they were in the wrong.

Far cheaper to just pay the £100 - and THAT is what HMRC rely on.

Thanks (0)
By User deleted
27th Jul 2011 12:03

How does this relate to VAT?

Will we be able to reclaim VAT surcharges wrongly levied where a client's payment was a day late because his customer was a month late paying him?

On that front too, it is unacceptable that HMRC is not on the faster pay system, as where funds are late received expensive CHAPs fee often have to be incurred to avoid surcharges.

IMHO this is a much more serious issue than a fixed penalty

Thanks (0)
By dszczepaniak
27th Jul 2011 12:13

Is HMRC working on strict deadlines?

I have quite few clients who are due refund for previous years and in some cases 'security checks' take as long as 12 months (money has not yet been repaid, so it can take longer).

My clients would most probably get interest on the top of refund, but should not HMRC be paying surcharge as well?

Thanks (0)
By nickselectaccounting
27th Jul 2011 12:34

Fairness vs due process
I am going to rush to the defence of HMRC on this one, in light of recent events. I have a client that was fined thousands of pounds for late cis returns. The client had stopped trading and the cis fines were being sent to the prior accountant. They were being sent to the old accountant as we were in the process of changing.
When I wrote a letter and made a telephone call I managed to speak to someone that understood the clients position, applied some common sense and reversed all of the charges.

The fact that the client had stopped trading and that I had made good all of the outstanding returns as nil returns in the interim really did help our case.

I am going to retract slightly when looking at it from a different perspective.. . .if I had not taken action, what would the outcome be?

It is however encouraging that weaknesses are being highlighted. . it is the only way that improvements can be made. . . I believe that working together is the only way forward . . . .

Thanks (0)
By charles.underwood
27th Jul 2011 12:42

Appeals cheaper than you think

An appeal against a direct tax penalty should go to HMRC in the first instance.  If they reject the appeal, the next stage is to submit the "Notice of Appeal" form to the Tribunal Centre and attach a copy of the letter you sent to HMRC explaining the circumstances.  If the appeal is against a fixed penalty, it will be a "default paper" case without a hearing.  HMRC will write to the Tribunal Centre giving their reasons for rejecting the appeal and the Tribunal Centre will give you the opportunity to comment.  Thereafter, the papers will go to a judge who will issue a written decision.

I have seen a number of written decisions and the judges seem sympathetic to cases with some merit.

The key point is to explain the facts clearly in the original letter of appeal to HMRC.  That letter will be read by people who have not seen other papers and so it should be complete and self explanatory.

Thanks (0)
By Mouse007
27th Jul 2011 13:28

Three more cases

Yusuf Budiadi v Revenue & Customs [2011] UKFTT 233 (TC) (08 April 2011)

“HMRC contends that "a reasonable excuse" necessarily involves some exceptional event within or without the taxpayer’s control. That involves HMRC putting an unjustified gloss upon the ordinary English words that Parliament has chosen to use. A "reasonable excuse" is just that and does not, as a matter of statutory interpretation, require that there should have been some exceptional event whether within or without the appellant's control.”

Louise Fernandez v Revenue & Customs [2011] UKFTT 259 (TC) (19 April 2011)

“HMRC contends, wrongly, that a "reasonable excuse" must amount to some kind of exceptional circumstance or event beyond the control of the taxpayer. I do not accept that legal analysis. Parliament has quite clearly used the phrase "reasonable excuse". Those are ordinarily everyday English words which must be given their ordinary and natural meaning. Their ordinarily natural meaning is not that there has been an exceptional event outside the control of the taxpayer.”

Mr T J Fisher (T/a The Crispin) v Revenue & Customs [2011] UKFTT 235 (TC) (11 April 2011)

“Incorrectly, HMRC contends that a reasonable excuse must be based upon an exceptional circumstance or exceptional event. As a matter of law, that is wrong. If Parliament had intended to say that a person could only avoid a penalty by establishing that an exceptional event or exceptional circumstance had arisen it would have said so. Parliament chose to use the phrase "reasonable excuse" which is an ordinarily expression in everyday usage which must be given its natural meaning. A reasonable excuse may involve an exceptional event but need not necessarily do so."

Anthony Leachman t/a Whiteley and Leachman v Revenue & Customs [2011] UKFTT 261 (TC) (19 April 2011)

" HMRC argues, wrongly, that before a person can establish a "reasonable excuse" it must be established that there are exceptional circumstances or some exceptional event giving rise to the default. That is not what Parliament has laid down. Parliament has used the ordinary English words "reasonable excuse" which are in everyday use and must be given their normal and natural meaning."

Thanks (0)
By michaelblake
27th Jul 2011 14:08

See also Rowland v IRC SpC 548/06

The case of Rowland v IRC SpC548/06 may also be helpful where the "failure" has occured as a result of an agent giving incorrect advice, and the client has relied upon that advice - see HMRC guidance at EM4110

In general terms what needs to be remembered, as McGrigors point out, is that:

1. “Reasonable excuse” is not defined by the legislation and therefore the words must take on their ordinary meaning, and 

2. What might constitute a reasonable excuse is up to the Tribunal  to decide and they can look at the facts and decide whether in the light of those facts it was reasonable for the client to have done what he has done. The Tribunal's power to look at all the facts is an unfettered power and there are no matters that they cannot take into account in deciding the matter.

3. HMRC's guidance on the subject is their interpretation of what the words mean and nothing else. They also often qualify the guidance by saying "we would not normally accept that" implying that there are always, even in thier view, exceptions. 


- Michael Blake

Thanks (0)
By justsotax
27th Jul 2011 14:17 currently appealing some penalties...

using 'reasonable excuse' following an issue caused by the previous agent - will be interesting to see what the revenue conclude

Thanks (0)
By lawmaniz
27th Jul 2011 18:20

What does 'reasonable' mean?
'Reasonable' means that which is rational. So a 'reasonable excuse' is one that is based on rational factors. If a taxpayer can point to a rational explanation for what has happened then he or she should not be fined by HMRC.

Thanks (0)
By andrew.hyde
28th Jul 2011 09:18

Meaning of reasonable
I wonder whether it's 'reasonable' just to pick out one definition from several. For example one dictionary I use has

1. agreeable to reason or sound judgment; logical: eg a reasonable choice for chairman.
2. not exceeding the limit prescribed by reason; not excessive: eg reasonable terms.
3. moderate, especially in price; not expensive: eg The coat was reasonable but not cheap.

and I'm sure there are more out there.

Thanks (0)
By Mark Three
28th Jul 2011 09:53

HMRC bank account

I'm with Old Greying Accountant on the HMRC banking farce.  It uses Natwest, which is on faster payments, to receive cheque payments for PAYE.  I think it uses CITI, not on faster payments, to receive electronic payments.  It seesm that the bear of small brain is alive and well at HMRC.

On this thread generally, it has been very helpful to consider appealing on the basis of 'reasonable excuse'.  HMRC has a tendancy to use the stick against taxpayers that are trying their best to be compliant, and fail to understand that a much more 'let us work to resolve this' approach to those taxpayers, would be best for all concerned.



Thanks (0)
By SamanthaSmith
28th Jul 2011 13:40

Reasonable excuse

Has anyone any experience of appealing late payment surcharges where:

Cheque was sent by post with 3 days until payment deadline

HMRC state they didn't receive it until 5 days later

Client has a flawless payment history having only been late on this occasion due to having had a heart attack in recent months and therefore affairs dealt with later than normal.

We have the cheque from the bank showing the date it was drawn up as evidence of when it was sent.

We have appealed but HMRC are just rejecting the appeal out of hand. It is a £900 surcharge so well worth fighting over!

Am interested in the Notice of Appeal to the tribunal, is this something we can just go for now that we have had our appeal to HMRC rejected?



Thanks (0)
Replying to dropoutguy:
By Jim Broome
03rd Aug 2011 17:02


SamanthaSmith wrote:

Cheque was sent by post with 3 days until payment deadline

HMRC state they didn't receive it until 5 days later

Client has a flawless payment history having only been late on this occasion due to having had a heart attack in recent months and therefore affairs dealt with later than normal.

We have the cheque from the bank showing the date it was drawn up as evidence of when it was sent.

We have appealed but HMRC are just rejecting the appeal out of hand. It is a £900 surcharge so well worth fighting over!

Am interested in the Notice of Appeal to the tribunal, is this something we can just go for now that we have had our appeal to HMRC rejected?


This doesn't make sense to me. The payment deadline was presumably 31 January. Surcharges are levied against tax not paid by 28 February and if your client paid (per HMRC) 5 days later than the deadline then there would still be no surcharge - unless you mean that the client paid much later than the due date but near the 28 February...

Thanks (0)
By Hearts007
28th Jul 2011 21:09

Non cooperation with the IR

Always remember it is our clients that pay our fees. The IR are the enemy.

In wars there are always enemies.

Thanks (0)
By alisonhale
28th Jul 2011 21:48

HMRC penalties vs Reasonable excuse
Do you think the reasonable excuse debate also applies to fines levied by Companies House?

I find a fine of £750 for late filing of dormant company accounts is excessive and unreasonable.

Would appreciate others' thoughts and experiences with Companies House.

Alison Hale

Thanks (0)
By SamanthaSmith
29th Jul 2011 11:19

Companies House use very different terminology in respect of penalty appeals, such as exceptional and catastophe. In Chapter 4 of their guide to Penalties:

Chapter 4 - Late filing penalty appeals

1. Can I appeal?

You may appeal against a penalty, but it will only be successful if you can show that the circumstances are exceptional.

2. What is exceptional?

The registrar has very limited discretion not to collect a penalty. It may be applied when an unforeseen catastrophe strikes a company at a critical time. This might include, for example, a fire destroying records a few days before the filing deadline.

3. What is not exceptional?

The registrar cannot consider an appeal in the following circumstances as they are outside his discretion:

your company is dormant;you cannot afford to pay;your accountant was ill;you relied on your accountant;these are your first accounts;you are not familiar with the filing requirements;your company or its directors have financial difficulties (including bankruptcy);your accounts were delayed or lost in the post;the directors live or were travelling overseas;another director is responsible for preparing the accounts.

Further information about late filing penalty (LFP) appeals can be found in our LFP Appeals Manual

4. Do I still want to appeal?

If, after reading the above, you still wish to appeal, you must do so in writing and address your letter to the address shown on the front page of the penalty notice. We will normally reply within 10 working days and will suspend recovery action while we are considering your appeal.

5. What happens if my appeal is rejected?

If your appeal is rejected you can write to the senior appeals manager, Late Filing Penalties Department at the appropriate office in Cardiff, Edinburgh or Belfast.

If the senior appeals manager upholds the penalty, you can ask for the Independent Adjudicators to review your case.  All communication with the adjudicators must be in writing.  Please do not write to the adjudicators until you have heard from the senior appeals manager.  Further information about the adjudicator can be found on our website.

Please note: Parliament decided that discretion resides solely with the registrar. The registrar’s discretion is limited and the adjudicators cannot force him to reverse his decision to collect a penalty.

6. Can I pay the penalty by instalments?

Yes. If you have difficulty in paying the penalty outright then we will normally accept payment by monthly instalments. These are usually over 4 months and exceptionally over 10 months, depending on the amount you have to pay. You must make any request to pay by instalments in writing and explain why you cannot pay the penalty immediately.

Thanks (0)
Jason Piper
By Jason Piper
29th Jul 2011 11:20

@SamanthaSmith - a similar case that went to Tribunal

The following case might be useful; the Tribunal were clearly sympathetic to the taxpayer's evidence in a similar (but not identical) case.  TC01165 Mr Alan Thomas Davies vs Commissioners

Thanks (0)
By cfield
29th Jul 2011 12:00

£750 penalty for dormant company

Alison, there is a very simple way of getting the £750 penalty cancelled which may or may not be applicable to you, and that is simply to strike it off. Once the dissolution process is under way, Companies House will cancel any outstanding penalties and it will only cost you £10. Just phone them and they will tell you this.

Of course, if the company is dormant because it's sole purpose is to own property, or there is a shareholder dispute or outstanding creditors, dissolution is clearly not an option. However, many dormant companies are those that have ceased trading and the shareholders simply haven't got round to disposing of them. In that case, then dissolution using Form DS01 is your answer. Just make sure you empty the bank account and transfer any assets to the shareholders before the dissolution date.


Thanks (1)
By User deleted
30th Jul 2011 01:37

I have long thought ....

... that if a company has had no movement on it accounts there should be a box on the Annual Return to tick that exempts the need for filing, seems such a wast of time and effort sending what are essentially the same documents year after year.

Thanks (0)
By RonSloan
26th Sep 2011 18:48

Online filing difficulties - N A Dudley Elec Contrs v HMRC

Your brief summary in the main article describes a case where additional software had been required to file online, but which is quite different from the circumstances set out in the full case transcript in UKFTT 260.  So, can someone please provide the correct reference to the software related case outlined in the main article.

Thanks (0)
By davss
11th Mar 2013 13:15

£1300 fine for late filing 11/12


I have the above to pay for late filing and am trying to assess my chances. Basically, I took a career break and went off on a 9 months trip to other continents consequently being away for more than one year. Though, prior going away was trying to get all my tax matters sorted out hence asked my accountant who's responsible for my LTD accounts to deal with personal TAX on my behalf. I tried to register multiple times (have a proof) and was always failing, firstly due to a missing UTR or not receiving it from HMRC upon my requests, or system errors preventing me from doing it. My accountant also tried to register multiple times as my agent but had failed too.
In the end he kindly offered to pay a £100 fine but we somehow misunderstood each other in emails and the fine was left unpaid including two previous years 2009-2011. There was different laws regarding fines for those years hence didn't get charged much for it and only for year 11/12.
I finally got to register an account after a couple of system errors and manual activation by HMRC telephone helpdesk. Their system is basically unstable and not working properly rejecting registrations. Therefore, could you please advise on my chances of appealing against it and is there anyone here who could help to lead / communicate with HMRC for a reasonable fee providing my chances are greater than 50%? PM me please or reply here.

Regards, David

Thanks (0)