Judge refutes HMRC definition of "reasonable excuse"

A NUMBER of tribunal rulings have refuted the Taxman's definition of a "reasonable excuse" as being applicable only in exceptional circumstances.

Geraint Jones QC (pictured) oversaw four hearings regarding penalties imposed for late filing of end-of-year P35 forms and late payment of self-assessment returns. In three of the cases, Jones found completely in favour of the taxpayers: Anthony Leachman, Ballysillan Community Forum and NA Dudley Electrical Contractors.

In each case, the judge relied on a European Court of Human Rights ruling that stated the penalties imposed by HM Revenue & Customs were "in the nature of a criminal penalty". As such, he said HMRC must "satisfy me to the criminal standard" – beyond reasonable doubt – that it was an unreasonable mistake on the taxpayer's behalf that filing did not take place.

The Dudley case centred around a £400 penalty, with Jones finding that the company filed the P35 late as a result of HMRC having failed to deliver it in the forst instance because the company had filed online previously. Jones asserted that the "reasonable excuse" defence "uses ordinary English words in everyday usage which must be given their plain and ordinary meaning".

Jones added: "HMRC argues that a ‘reasonable excuse' must be some exceptional circumstance which prevented timeous filing. That, as a matter of law, is wrong. If Parliament had intended to say that the penalty would not be due only in exceptional circumstances, it would have said so in those terms."

Jones also criticised HMRC for imposing a second penalty while deliberately failing to send reminder about the first penalty.

"In my judgment, it is not open to HMRC to take advantage of its own default in sending a timeous default notice to a taxpayer. That would offend the common law principle of fairness and most right-thinking members of the public would find it repugnant, especially on the part of a public body," he said.

Richard Mannion, partner at Smith & Williamson, said: "There have been half-a-dozen cases in the past 12 months where HMRC has not had a chance, such as when their computer systems fail, so why did they go to tribunal? HMRC must look to its own procedures in these cases."

The first-tier tribunal system as a whole has been working well, he added: "There was always a suspicion that the tribunals were in the pocket of the district inspector. Quite clearly, the tribunals are an independent organisation.

"If you think you have been hard done by, don't be afraid to go to the first-tier tribunals. It is certainly not all one way."