With the help of tax advisers, AccountingWEB has assembled a guide to the areas on which taxpayers have appealed late payment and filing penalties. [Updated 5 January 2012]
Originating from an idea developed by Atlas Chambers barrister Anne Fairpo, we’ve come up with a scorecard of ‘reasonable excuse’ cases.
Fairpo came up with the idea after there had been a series of decisions against HMRC where it was clear that the tribunal were taking a more lenient view.
Seeing as reasonable excuse is not defined by legislation, the words must take on their ordinary meaning, and as such we thought it would be useful to keep track of what did, or didn't count as reasonable in decided cases.
In the interest of looking for trends, Anne Fairpo commented: “It's not really surprising that there is this degree of inconsistency: by definition, ‘reasonable excuse’ is a subjective test rather than objective and so there will always be variation in interpretation.
“HMRC staff are under increasing pressure with fewer resources and so will not have time to check what previous internal decisions on a topic have been, so staff are taking their own view. Much as ‘no-one was ever fired for buying IBM’, it's probably easier under pressure to err on the side of caution. Within government, that's not usually on the side of the taxpayer,” Fairpo concluded.
HMRC suffered a horrendous April, when it lost six consecutive reasonable excuse cases. This run of defeats included some that followed the European Court of Justice precedent in Jusilla v Finland that tax penalties require the equivalent right to fair trial and “beyond reasonable doubt” proof as a criminal trial. However, the tide of reasonable excuse tribunal cases since then has run more strongly in HMRC’s favour.
Reasonable excuse decisions - YES
HMD Response International v HMRC 2011] UKFTT 472
15 July 2011 - HMRC claimed not to have received a return for 2010 by 19 May, but the first HMD Response and its agent heard about it was via a penalty notice for £400 on 27 September - too late to meet the deadline for another £100 increment on the penalty. The accountant produced a contemporaneous note in his office diary for 16 May showing that he had filed the return. He said that he genuinely and honestly believed that the filing had successfully taken place, the judges found and upheld the appeal. The ruling is also notable for its criticism of the unfairness of HMRC's PAYE penalty regime and for sending the charity a letter claiming it had been ignoring HMRC's efforts to resolve the matter while the penalties were still under review. [TC01322]
Maxine Barron v HMRC  UKFTT 482
7 July 2011 - Miss Barron appealed against a penalty of £54.07 levied against her in respect of a late payment of tax, as a result of impecuniosity. The tribunal said that while impecuniosity per se might not amount to a reasonable excuse, the cause of or reason for such impecuniosity might nonetheless amount to, or give rise to, a reasonable excuse. It found that they “are words in ordinary everyday use and the gloss that HMRC seeks to place upon them, cannot be justified.” [TC01329]
Tower Perkins Products and Services v HMRC  UKFTT 481
7 July 2011 - HMRC imposed penalties totalling £1,000 for the late filing of an employer’s annual return, P35. Elderly sole practitioner Mr Akhaney said that the delay occurred because he was taken into hospital on an emergency basis with a broken hip prosthesis. The court found that this reasonable excuse must have come to an end when Akhaney was able to and did return to work. The appeal was allowed in part and the penalty reduced from £1,000 to £600. [TC01328]
Rushworths Furniture v HMRC  UKFTT 480
7 July 2011 - The appellant had sent a copy of a computer-generated document headed "Submit Employer Annual Return" for Rushworths Furniture recording that the necessary P35 online submission was "complete". That information appeared under the heading "Previous Successful Submissions”. Online filing took place and it was not in default, regardless of whether HMRC’s computer system admits or denies that the online filing was received by it. The tribunal found that HMRC did not act fairly or in good conscience. [TC01327]
Alan Thomas Davies v HMRC  UKFTT 303
9 May 2011 - Mr Davies appealed against a £100 penalty for late submission of a monthly CIS return after relying on misleading advice of post office staff when the envelope was weighed for large letter postage. Next day delivery was not guaranteed, but he had allowed three days for delivery. In the circumstances the tribunal found it difficult to see what more the appellant could have done to ensure delivery on time. [TC01165]
Leachman v HMRC  UKFTT 261
19 April 2011 - This taxpayer was fined for failing to file a P35 under the mistaken belief that his accountant would do so. The tribunal found that if one person genuinely believes that another person is undertaking a particular task and that other person genuinely believes that the original person is undertaking that task, each is labouring under a mistake of fact. The tribunal ruled that a genuine mistake can constitute a “reasonable excuse” and applied the recent European Court of Justice Jusilla v Finland precedent that actions resulting in penalties needed to be proved beyond a reasonable doubt. [TC01125]
NA Dudley Electrical Contractors v HMRC  UKFTT 260
19 April 2011 - Electrical contractor appealed against a penalty imposed by HMRC consequent upon the late filing of a P35. The ground of appeal was that no P35 was issued to the appellant by HMRC and so it could not return that which it had not received. HMRC failed to satisfy the judge that it was justified in assuming that it need not send a paper return to the appellant simply because, as a matter of fact, its P35 for the year end had been filed online by its agent. [TC01124]
Louise Fernandez v HMRC  UKFTT 259
19 April 2011 - The appellant had attempted to use the online filing facility provided by HMRC but found herself denied access to the site. She also sent e-mails to customer support seeking assistance. The tribunal found that she had a reasonable excuse because the online filing facility did not work as it should when she tried to use it. HMRC also failed to provide her with the help that she had requested within a reasonable time. A second appeal was not allowed as the reasonable excuse could not apply to her continued failure to file. [TC01123]
TJ Fisher (T/a The Crispin) v HMRC  UKFTT 235
11 April 2011 - The appellant left the business and paid his employees up to date and issued them with P45s. As the business ceased, an employer’s annual return should have been submitted to HMRC. No such return was made and HMRC sent a fixed penalty charge of £800. During a telephone call with HMRC Fisher requested advice about what was required when he closed his business. HMRC said he should send a letter, which he did, but did not advise that any further returns would be necessary once the PAYE deducted taxes had been paid up to the date P45s were issued. The appellant was misled by omission rather than by commission, the tribunal ruled. [TC01100]
Yusuf Budiadi v HMRC  UKFTT 233
8 April 2011 - Mr Budiadi left employment with UBS and received a further payment shortly after. The company deducted only basic rate tax from the payment that did not relflect that he paid higher rate income tax. As he was unaware that his employer had not deducted all tax that was properly deductible and payable, he satisfied the tribunal criteria for reasonable excuse. [TC01098]
Kincaid v HMRC  UKFTT 225
6 April 2011 - Appellant was unable to pay tax on time because of cashflow difficulties, partly caused by HMRC changing the taxpayer’s CIS status. The tribunal found difficulties with HMRC’s contention, due to the wording of the legislation, and HMRC was unable to refer the tribunal to any previous decisions in support of their position on this point. [TC01090]
Dental IT v HMRC  UKFTT 128
18 Feb 2011 - A doctor appealed against default surcharges imposed for the late payments of VAT for quarters ending in January and April 2010 totalling £1,245.74. Reliance on misleading advice given by HMRC helpline staff was considered ‘reasonable excuse’ for a mistake in a tax return. [TC01002]
Humphreys v HMRC  UKFTT 98
2 Feb 2011 - Taxpayer 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 its guidance that postal delays could only be considered ‘reasonable excuse’ in the most extreme circumstances. Tribunal ruled it was a reasonable excuse for a taxpayer to demonstrate that lateness was caused by misleading or inaccurate information provided to him by the person who now seeks to levy a surcharge based upon that lateness. [TC00974]
Runham & Naramore v HMRC  UKFTT 55
17 Jan 2011 - Taxpayers appealed against £100 penalties for failing to submit a land transaction returns within 30 of the transaction. Their solicitor posted an SDLT return that that was apparently not received by HMRC. When solicitor discovered the return had not been received, she immediately filed the return online and paid the tax by electronic transfer. The judge ruled that the tribunal is not bound by HMRC’s construction of “reasonable excuse”. [TC0933]
15 July 2011 – This case involved an appeal against a penalty for the late filing of P35 returns. On 8 April 2010 Writtle College Services sent its P35 return to HMRC but didn’t realise that in order to make a successful submission it was necessary to untick the test submission box. When HMRC acknowledged receipt Writtle assumed its P35 had been filed. HMRC issued a £400 penalty to Writtle in a letter dated 27 September 2010. The tribunal found the company had a reasonable excuse and the penalties were not due. [TCO1325]
23 July 2010 – Martin Stone suffered from significant health problems yet ran a construction company. He was issued a fine of £31,800 for submitting no monthly Construction Industry Scheme returns from May 2007 - October 2009. The ruling praised Stone, calling him "stoical" stating that in and of itself, his health would be a "borderline" reasonable excuse. However with a failure from HMRC to send the right forms to Stone, making it a "physical impossibility" for him to remain on top of the tax returns, the appeal was upheld. [TC00684]
1 June 2011 – This was an appeal against two default surcharges imposed in respect of the late payment by the Mr Knapper of tax in respect of the 2007/08 tax year. The tribunal considered that the appellant’s case went beyond a mere claim of inability to pay, rather, his case was that unforeseen acts of a third party beyond his control had brought about a financial predicament that left him unable to pay. On the basis of his oral evidence and the documentary evidence submitted, the tribunal considered that the financial consequences of the unexpected and unforeseeable termination of a consultancy agreement, coupled with the fact that the payments received by the appellant under the agreement turned out to be significantly less than what he was expecting, are in combination sufficient to amount to a reasonable excuse in the circumstances of this case. [TC01220]
30 June 2011 - Consult Solutions appealed a ₤500 penalty for failure to submit an employer’s annual return (P35), claiming it had only been trading for eight months, and this was the first time that it had been required to file an end of year return online. HMRC advised the appellant that its online return failed because of a systems or internet error. The tribunal found that the firm’s lack of knowledge of the receipting arrangements was understandable given that this was the first time they had used the online facility, and that the systems or internet error was beyond their control. [TC01282]
29 June 2011 - The club appealed against penalties of £565, £500 and £500 imposed for late filing of the 2005-06, 2006-07 and 2007-08 end of year returns (P35) respectively. The club treasurer had filed the 2004-05 return online but found it complex and reverted to paper filing for 2005-06. However, because the club had used online filing for 2004-05, HMRC did not issue a paper form for 2005-06 and the Club missed the filing deadline. HMRC provided no evidence that the club was told it would not receive a paper form because they had filed online the previous year, as per the Dudley case. [TC01281]
8 August 2011 - The case concerned an appeal against a penalty for late notification of chargeability to Self Assessment income tax for 2006/07. The appellant explained that they had relied on his accountant to notify HMRC of his liability to tax in April 2007. The accountant did so in April 2008. The tribunal was satisfied that the accountants sent the form and that it was either lost in the post or mislaid by HMRC on receipt. In considering whether reliance on a third party can amount to reasonable excuse for the purposes of levying any surcharges for late payment, the tribunal cited the Thorne case and Enterprise Safety Coaches cases where reliance on a third party was accepted as a reasonable excuse. The appeal was allowed. [Summary borrowed with thanks from Smith & Williamson's 30 August Tax Update] [TC 01380]
Reasonable excuse decisions - NO
Peacock Developments v HMRC  UKFTT 491
7 July 2011 - An automatic penalty was levied against Peacock by HMRC for failure to file its Contractor’s Monthly Return. The tribunal found that even when it gave the words ‘reasonable excuse’ their ordinary meaning it could not accept that where the manner in which a business is organised results in late filing, that fact is sufficient to establish a reasonable excuse for that late filing. It said: “If it was capable of amounting to a reasonable excuse, it would mean that any poorly administered company would be able to rely upon its own shortcomings to establish a reasonable excuse in respect of consequent defaults.”
McCann v HMRC  UKFTT 440
5 July 2011 - Appeal was dismissed against late payment surcharge. McCann had claimed that that the unpaid tax arose as a result of only basic rate tax being deducted from his redundancy payment, whereas a 40% deduction should have applied. The tribunal ruled that ignorance of the law is no excuse; it was open to him to contact his former employer at the time he received his P60 or soon afterwards. [TC01293]
Blue Forest v HMRC  UKFTT 447
5 July 2011 - Blue Forest appealed against the imposition of a default surcharge of ₤699.34 under s 59 VATA 1994. However the tribunal found that the appellant had the means to pay its VAT on time, and could have used a payment method that would not have resulted in late payment. It found that “a reasonably diligent taxpayer would have considered other methods of making timely payment if the method it first contemplated was not available.” [TC01300]
Kellswater v HMRC  UKFTT 430
30 June 2011 - The Kellswater Reformed Presbyterian Church lost its appeal against £400 in penalties for failing to submit a P35 for the year ending 5 April 2010. The Church did not possess a computer and the treasurer’s machine was not compatible with HMRC’s system. In spite of its lack of technical expertise, the tribunal found that a prudent employer would have used the help available from HMRC for online filing, and explored options of seeking technical expertise outside the congregation. [TC0128]
RFL Consultants v HMRC  UKFTT 431
30 June 2011 - The appellant’s reason for default was that HMRC was high blood pressure in the month before the return was due. The tribunal found that the illness did not constitute a reasonable excuse because the timing of the illness did not correspond to the period of default. It was satisfied that the appellant’s actions were not those of a prudent employer exercising reasonable foresight and due diligence and having proper regard for its responsibilities under the Tax Acts. [TC01284]
Grant Vehicle Repairs v HMRC  UKFTT 420
28 June 2011 - Company bookkeeper accepted that she had forgotten to send the VAT payment due on after her domestic partner arranged a “surprise” holiday. The return was submitted in good time, but the payment was not received until eight days after the due date. The tribunal found that the company director and secretary, who both had an involvement with the company’s general business administration, were available. [TC01273]
Impossible TV v HRMC  UKFTT 413
24 June 2011 - Delayed VAT payments arose as a result of the appellant having online banking problems when he came to arrange payment. The tribunal was given no detail of these financial difficulties and was not told whether they were solely the result of lack of knowledge about limits on online payments or the result of computer or telephone line failure. Appeal dismissed. [TC01266]
Hoar Cross Parish Council v HMRC  UKFTT 362
6 May 2011 - The tribunal found that the return was not submitted by the deadline. It considered it improbable that the HMRC system would receive a return without generating a confirmation message, and without the system recording that the return had been received. It also found that if an attempt was made by the appellant to submit a return online within the deadline, it should have been apparent to the appellant at the time that the attempt had been unsuccessful.
Toolbox.net v HMRC  UKFTT 363
6 May 2011 – It found that an employer does not discharge the responsibility to submit a return merely by seeking in good faith to submit a return online, if the return is not received by the HMRC computer system. The tribunal considered it improbable that the HMRC system would receive a return without generating a confirmation message.
Tony Bacon Decorators v HMRC  UKFTT 497
28 April 2011 - A penalty was imposed for the late submission of the monthly Construction Industry Scheme (CIS) return. The court found that the appellant was clearly experienced in the CIS and conversant with the requirements of the CIS regulations to submit monthly returns on time. It was the appellant’s responsibility to ensure that the CIS monthly return was filed on time. The appellant had not produced any evidence to show that the return was posted in time to reach HMRC.
Rocco Mana t/a Spearmint Rhino Rouge v HMRC  UKFTT 153
2 March 2011 - Rocco Mana lost its appeal against three default surcharges levied on it in respect of its late payment of VAT. The First-tier Tribunal found the lap dancing company’s claim that it was unable to receive post as not a reasonable excuse. It found that the company ought to have known its VAT liability, the date on which it was due to be paid, and should have put in place an effective system for receiving its post. [TC01027]
19 May 2011 – The appellant appealed against a £180 penalty for the late filing of its P35 employer’s annual return for the tax year 2009/10. Freshwater’s objection was that it submitted the correct forms online in time, but was unable to receive any form of receipt or confirmation of delivery or warning that delivery was ineffective. It then took HMRC four months to advise him of non-receipt. However an internal review found there had been no problems with the HMRC computer systems at the relevant time that prevented the appellant from filing successfully. The tribunal found that it was improbable that the HMRC system would receive a return without generating a confirmation message, and without the system recording that the return had been received. [TC01219]
25 July 2011 - The appellant claimed expenses above threshold and caught by Self Assessment legislation, resulting in late payment and failure to notify HMRC of a new address. Mackey claimed that underpaid tax should have been collected from his PAYE coding, but his Self Assessment return was not captured in time for correct coding to be implemented before payment due. The appeal was dismissed on the grounds that it was the appellant’s responsibility to ensure that the tax codes were correct and to notify HMRC of any changes. Mackey had the opportunity at that time to provide HMRC with a more realistic estimate of his expenses so that the correct code could have been operated. [TC01347]