Debate over what constitutes a reasonable excuse

UK tax law now imposes many automatic penalties if a return is late or a mistake is made.

These penalties are issued by a computer without any investigation by any person at HMRC into the circumstances. Many penalties have been issued when the fault lies with HMRC. The taxpayer then finds himself in the position of having to prove himself innocent.

HMRC has issued guidance on what constitutes reasonable excuse for filing late. This includes: a failure in HMRC’s own computer system; a computer failure just before or during the preparation of on-line returns; or a serious illness has made the person responsible incapable of filing the return.

The guidance goes on to give examples of what it does not regard as reasonable excuse. This includes finding the on-line system too complicated to follow, or being let down by an accountant.

Unfortunately the guidance is wrong. Being let down by an accountant, for example, has been accepted as reasonable excuse. The leading case of Rowland v HMRC. TC 548 established this back in 2006. Equally it is known that appeals have been accepted when taxpayers did not realise that access codes were sent by post and not immediately by e-mail.

In 2011, HMRC was criticised by a judge for taking too narrow a view on “reasonable excuse” particularly in restricting it to exceptional circumstances.

The relevant words are: “HMRC argues that the appellant must show a reasonable excuse for not having made the necessary filing and that that reasonable excuse existed throughout the period of default. 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.” Mr T J Fisher [2011] TC01100 para 8.

The important point to remember is that if you have a reasonable excuse, you may contest a penalty.

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