What is a “reasonable excuse”

Penalties are often imposed by HMRC for late payment of tax or filing, and the legislation says that these penalties apply unless there is a ‘reasonable excuse’. HMRC have always taken a very strict line, stating that something wholly exceptional and out of any control of an individual must have happened for events to be regarded as providing a ‘reasonable excuse’.  But there have recently been some cases in the First Tier Tribunal (the tax equivalent of a magistrates court) where the Judge has decided that it is HMRC who are not being reasonable.  In no uncertain terms,  the Judge said that HMRC’s view that exceptional circumstances must apply was “as a matter of law” wrong.  The Judge overturned a penalty imposed where a company had made a genuine mistake by filing something on-line in “test” mode, so although they genuinely thought they’d filed the return, HMRC never received it.  This, the Judge decided WAS a reasonable excuse.  As the judge said, if parliament had meant the circumstances had to be exceptional to provide an excuse, they would have said so.

Now, First Tier Tribunal cases are not binding in law but it’s hard to see how HMRC can ignore such a clear view from an independent tribunal.  So if you receive a penalty and think you have what YOU think is a reasonable excuse, talk to your Barnes Roffe LLP contact for advice.

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