Print

HMRC's definition of 'reasonable excuse' makes for a waste of time and resources: it is "too narrow" according to First Tier Tribunal Judge Ann Redston. As a result cases come to the Tribunal when they could be resolved by HMRC.

During the course of a recent late return and tax payment penalty appeal, Christine Perrin v HMRC TC03614, Redston J compared the precedents set in past case authorities and concluded that HMRC had erroneously relied on a definition made by a dissenting judgment from the Court of Appeal as a persuasive authority when it decided to describe a reasonable excuse as "an unexpected or unusual event" in its publications. She noted that that in the earlier tribunal decision Electrical Installations v HMRC [2013] UKFTT 419 (TC)  Judge Brannan and Mr Simon agreed that a dissenting judgment cannot be regarded as the correct one to follow because of course it is the majority judgment which decides a case.

Partly allowing the taxpayer's appeal (the taxpayer was confused by online filing notifications and received muliple penalites), Redston J wrote in her decision, "as a result cases will come to the Tribunal when they could have been resolved by HMRC. This is a waste of time and resources, as well as causing unnecessary stress to taxpayers."

There is no statutory definition of "reasonable excuse". HMRC ususally defines reasonable excuse (see leaflet SA370 and on its webpages) as: 

"a 'reasonable excuse' is when some unforeseeable or unusual event beyond your control has prevented you from filing your return on time".

Redston J's commentary on a reasonable excuse from the above case: 'To be a reasonable excuse, the excuse must not only be genuine, but also objectively reasonable when the circumstances and attributes of the actual taxpayer are taken into account."

In considering attributes of a reasonable taxpayer, this is "a responsible person with the same experience and other relevant attributes of the taxpayer and placed In the same situation as the taxpayer".

The judge is not the first to observe that HMRC's defintion of reasonable excuse is wrong, in the 2011 penalty case Leachman v HMRC TC01125, Geraint Jones J's well publicised decision states, "...HMRC argues, wrongly, that before a person can establish a "reasonable excuse" it must be established that there are exceptional circumstances or some exceptional event giving rise to the default. That is not what Parliament has laid down. Parliament has used the ordinary English words "reasonable excuse" which are in everyday use and must be given their normal and natural meaning."

UPDATE: The Perrin case was appealed to the Upper Tribunal who upheld the decision of the FTT saying that the excuse must not only be genuine but also objectively reasonable taking into account the experience and other relevant attributes of the taxpayer.