Julie Cameron considers a lack of flexibility by HMRC towards a taxpayer who had hit rock bottom. The first tier tribunal (FTT) cancelled the late filing penalties.
Krzysztof Pokorowski (TC06970) was sleeping rough or in temporary hostels at the time his 2014/15 tax return was due for filing in January 2016 and HMRC pursued him for late filing penalties.
The maximum £1,600 of penalties had accrued by the time the tax return was submitted on 8 July 2017. The FTT considered HMRC’s refusal to reduce the penalties on the grounds of either reasonable excuse or special circumstance.
It was not disputed that the return had been filed late. The FTT considered the penalty rules in Schedule 55 FA 2009 and the meaning of the terms ‘reasonable excuse’ and ‘special circumstances’ as interpreted in previous cases. In doing so, they criticised HMRC’s choice of cases and remarked that the exclusion of the case reports in the documents provided as evidence was “unfair and unjust”.
Pokorowski represented himself and would not have had ready access to law reports.
No forwarding address
Pokorowski’s life had been in crisis since returning from a visit to Poland in April 2014. He was evicted from his permanent address but did not advise HMRC.
The notice to file a return issued in April 2015 and eventual penalty notices issued between February 2016 and 2017 were sent to his old address and were therefore never received.
Given that he had lost his job, had no money, been evicted and his belongings had been lost or stolen, advising HMRC was perhaps the last thing on his mind. The FTT labelled the tax authority’s insistence in this regard as an absurdity – just what do you tell HMRC if you actually have nowhere to live?
HMRC had referred to the definition of special circumstances in Clarks of Hove v Bakers Union as something “out of the ordinary run of events” and the FTT found HMRC’s contention to be flawed – being homeless and sleeping on the streets was exceptional and abnormal.
The tribunal concluded “no reasonable HMRC officer acting reasonably could have reached a decision that Pokorowski’s circumstances were not ‘special’”.
HMRC had maintained that Pokorowski had not exercised reasonable “foresight and due diligence” for his responsibilities under the Taxes Acts, citing the VAT case Clean Car Company  VATTR 234. HMRC also maintained that by definition, such a long delay (a year and five months) could never be considered to be reasonable.
The FTT noted the definition relied on from Clean Car was incomplete. The full judgement in this case mentioned the effect of health issues or some “difficulty or misfortune” specific to the taxpayer on the ability to comply.
On the second leg of the reasonable excuse legislation, that the failure must be remedied without unreasonable delay once the excuse has ceased to apply, the FTT found that Pokorowski had complied with his obligations by filing the return within three months of finding permanent accommodation.
The tribunal considered that Pokorowski’s circumstances did amount to a particular difficulty or misfortune, and permitted his reasonable excuse claim, commenting that if the excuse had failed, they would have reduced the penalties to nil as a special reduction.
HMRC was unreasonable
HMRC did not emerge smelling of roses from this case. The FTT considered it likely that Pokorowski had mental health issues over this time, which HMRC should have recognised.
The tax authority was slated for unreasonableness and the sheer absurdity of assuming that someone struggling with the basic needs of Maslow’s hierarchy would have the ability to comply with their tax obligations.
TaxAid can help
Pokorowski was fortunate enough to be able to turn his life round and eventually filed his return without apparently needing third party input. He was sufficiently recovered to represent himself.
The features of his life at this low point over a period of some three years: homeless, jobless, no money and precious little personal belongings, strike me as similar to the experiences of the clients of TaxAid.
This tax charity helps those with tax difficulties who need professional help but lack the means to pay for it.
If HMRC insists on sticking to the rules rigidly, the taxpaying public will need to call more and more on TaxAid and its sister charity: Tax Help for Older People.
About Julie Cameron
Freelance chartered tax adviser and writer focussing on private client and tax adminsitration for individuals, I also volunteer for Bridge the Gap.