Reasonable excuse round-up 2017
Philip and Sarah McNeill round up the latest cases appealing late filing or late payment penalties, where the taxpayer argued – and won – on the grounds of reasonable excuse.
The cases here are a mixed bag, but in view of the imminent arrival of Making Tax Digital one trend worth noting is the potentially disruptive impact of technology. Post going off the tracking radar (Trzcinska) and clients doing their own thing with PDF attachments and filing online as well as on paper (Creative Eye) reflect this.
Another significant thread is the challenge the tax system presents to vulnerable taxpayers trying to engage with HMRC (Hindocha).
Taxpayer Theodore Laverty appealed penalties of £1,700 for failure to submit SA returns on time and won.
Having moved to Vietnam for work, Laverty appointed accountants in Belfast to act on his behalf. His agent notified HMRC that Laverty’s main residence in Glasgow had been let out.
Problems arose because Laverty didn’t receive post in Vietnam, and the 64-8 authorisation process went awry.
Laverty’s agent explained that there is “no residential post” in their client’s part of Vietnam.
HMRC maintained that it records undelivered correspondence, and that “there are no records to show that any mail was returned undelivered.
“Therefore these documents are deemed to have been served within the ordinary course of postal delivery in accordance with the Interpretation Act 1978,” stated the Revenue.
Tribunal expressed doubts as to whether the Interpretation Act applies in Vietnam, and if HMRC’s procedures cover return of undelivered post there.
Unfortunate and unbelievable
The postal theme continued. HMRC said it had failed to receive not just one 64-8, but a copy 64-8 as well.
“If one item of post goes astray that is unfortunate but if a second item of post is received but the attachment to it being a copy of the first item is also not received that borders on the unbelievable,” the Tribunal commented.
Tribunal noted the lack of reply to Laverty’s agent when they raised questions about the way 64-8s are processed.
“HMRC’s statement of case is silent on the subject. Tribunal finds that silence deafening.”
Tribunal found that Laverty had taken ‘adequate steps’ to take care of his tax affairs in his absence by appointing an accountant as agent and completing a 64-8.
“The appellant would not have expected HMRC to fail to process that form so that the accountant did not receive the copies of correspondence from HMRC,” Tribunal noted.
As soon as Laverty returned to the UK he checked the position regarding his tax returns, and the outstanding returns were submitted within six weeks.
Whilst the reasonable excuse came to an end in January 2013 with his return to the UK, the delay in submission “was rectified within a reasonable period on 7 March 2013.”
There was also victory for taxpayer Magdalena Trzcińska, whose 2011-12 SA return was posted to HMRC on 29 May but not received.
Thanks to a Royal Mail ‘signed for’ slip, counter-stamped by the Post Office, Trzcińska could prove her return had been sent on time, even though HMRC maintained that the return couldn’t be located on the Parcelforce Track and Trace system.
The judge noted that if Trzcińska’s envelope hadn’t been handed across the counter, the audit trail would have been lacking.
Paper and online
An interesting feature of this case is that Trzcińska tried to rectify the position by submitting a return online five months after the deadline. This did not disturb Tribunal’s finding that a paper return had been submitted 13 months earlier.
Victory for two limited liability partnerships run by the same husband and wife team, Creative Eye Photography and Helipix, appealing penalties for late submission of partnership returns.
The problem arose because partnership returns were attached as PDF documents along with SA returns submitted online.
The partners, a Mr and Mrs Galvin, said they had checked with the tax office the previous year that using the PDF attachment route “was an acceptable means of delivering our Partnership Returns.”
Having – as they understood – been given the green light, the Galvins repeated the procedure for the 2011-12 returns.
Not only had the partners filed the PDF copies online, they had also sent in paper copy “to make doubly sure”.
HMRC maintained that the Galvins misunderstood the position because previous late filing penalties had been cancelled when the same PDF filing procedures had been followed.
Attaching a PDF was “not an acceptable method of filing your Partnership Tax return,” HMRC stated.
HMRC did, however, acknowledge that “with hindsight” it should have ‘taken (the) opportunity to educate Mr Galvin’ on the proper procedure.
Electronic or not
One of the points Tribunal had to consider was how to categorise a PDF file. Is it or isn’t it an electronic return? And what are the knock-on implications in terms of filing deadlines?
Electronic returns go through the government gateway and don’t require a signature. Non-electronic returns don’t go through identity and security checks, and so need a ‘wet signature’.
In this case, Tribunal decided that the Galvins had submitted a non-electronic return. Unfortunately it wasn’t signed, so HMRC duly returned it.
By the time the Galvins signed the forms and returned them to HMRC, it was 7 February 2013. With an online filing deadline of 31 October 2012, this left them open to daily penalties.
Tribunal, however, accepted the taxpayers’ belief that they had cleared the use of PDF attachments.
HMRC “failed to confirm in writing that it was unacceptable and that the partnership return must be submitted on its own … on paper by 31 October or online using 3rd party software by 31 January following the date of issue.”
Watch this space. Whatever the impact of the general election on plans for MTD, taxpayers are surely likely to cross swords with HMRC on issues like these again.
Victory for taxpayer Pradipkumar Hindocha, appealing nearly £1,500 in penalties for late filing and late payment.
Hindocha put forward a diagnosis of anxiety and depression as his reasonable excuse.
This case is significant for the clarification HMRC has given as to what type of health conditions can give grounds for claiming reasonable excuse claim.
“HMRC would agree that coma, major heart attack stroke or any other serious mental or life-threatening illness as a reasonable excuse”, it stated.
One of HMRC’s contentions was that “the appeal is not concerned with specialist or obscure areas of tax law. It is concerned with ordinary everyday responsibilities of the appellant.”
Its understanding was that “where illness is an ongoing condition the appellant would be expected to make arrangements for making and sending the tax return in on time.”
In this case, it argued that 5 April 2011 to 31 January 2012 was “sufficient time under most circumstances.”
Day to day
Letters from Hindocha and his son explained that it was exactly the day-to-day routine that Hindocha had been unable to cope with.
Tribunal agreed that the anxiety, panic attacks and depression constituted a ‘serious’ mental illness. It also agreed that it had affected Hindocha in such a way that he was unable to make the type of arrangements HMRC expected.
His “day-to-day living has deteriorated along with his quality of life … not actually being able to get the menial day to day activities done, let alone his finances and taxes.”