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A3: Reasonable excuses, carelessness and deliberateness
See also​
A3a. Reasonable excuse examples
T12: Accelerated payment notices: Reasonable excuse for not complying with accelerated payment notice
Y3: Professional negligence: breach of duty
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Distinguishing concepts
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- Reasonable excuse and reasonable care amount to the same thing
"In Hextall v HMRC [2023] FTT 00390 (TC) at [74] the Tribunal (Judge Sinfield and Mr Howard) held at [74] that there was no "meaningful distinction" between the two criteria of "reasonable care" and "reasonable excuse". I agree: in both the Tribunal must find the facts, and then on the basis of those facts, determine whether the taxpayer acted as a prudent and reasonable taxpayer (who was in the same situation as the taxpayer and who had same experience and relevant attributes) would have acted." (Harbron Recuit Limited v. HMRC [2025] UKFTT 23 (TCC), Judge Redston)
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"[39] I agree with the decision in Hextall v HMRC [2023] UKFTT 390 at [74] that no meaningful distinction can be drawn between 'reasonable care' and 'reasonable excuse'...If Mrs Manzi satisfies me that she took reasonable care, then she will also have satisfied me that she had a reasonable excuse in the circumstances of this case and vice versa." (Manzi v. HMRC [2024] UKFTT 563 (TC), Judge Newstead Taylor)
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"[36] Reasonable care and reasonable excuse are often considered to have the same material effect, with the exception of the last limb which requires, in the context of considering reasonable excuse only, use to consider whether the excuse was remedied without unreasonable delay. Therefore the first three limbs of the test, set out by the Upper Tribunal, in Christine Perrin v HMRC [2018] UKUT 156, are equally useful for establishing whether Mr Baron took reasonable care. Those first three steps are:
(1) first, establish what facts the taxpayer asserts give rise to a reasonable excuse;
(2) second, decide which of those facts are proven;
(3) third, decide whether, viewed objectively, those proven facts do amount to an objectively reasonable excuse for the default, e.g. by asking the question "was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?";" (Baron v. HMRC [2024] UKFTT 102 (TC), Judge McGregor)
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"[74] Bearing in mind the facts found above and the submissions of the parties, we do not see that there is any meaningful distinction between the two criteria of ‘reasonable care’ and ‘reasonable excuse’. In considering whether Mr Hextall was careless, we assess his conduct by reference to what would be expected of a prudent and reasonable taxpayer in the same position as Mr Hextall, ie taking into account Mr Hextall’s ability and circumstances. In relation to reasonable excuse, we must consider whether Mr Hextall had an excuse that is objectively reasonable taking into account Mr Hextall’s attributes and circumstances. It seems to us that if Mr Hextall satisfies us that he took reasonable care then he will also have a reasonable excuse in the circumstances of this case and vice versa." (Hextall v. HMRC [2023] UKFTT 390 (TC), Judge Sinfield)
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- Genuine mistake/oversight not the same as reasonable excuse
“Whilst the Appellant’s misunderstanding regarding the due date could be considered a genuine error, it does not amount to reasonable excuse.” (Disaster Recovery Northampton Ltd v. HMRC [2017] UKFTT 672 (TC), §38, Judge Connell).
“Applying what I regard as the correct test, I conclude that a mere oversight is insufficient to amount to a reasonable excuse, and that the penalties are not precluded from arising by reason of the asserted oversight on the part of LCPM.” (LC Property Management Ltd v. HMRC [2017] UKFTT 511 (TC), §26, Judge Berner).
“We agree with the Tribunal in Garnmoss Limited t/a Parham Builders v HMRC [2012] UKFTT 315 (TC) (Judge Charles Hellier and Ms Hewett) that the VAT Act does not provide shelter for mistakes, only for reasonable excuses: see Para [12] of that decision.” (Bromley v. HMRC [2016] UKFTT 758 (TC), §36, Judge McNall).
“We all make mistakes. This was not a blameworthy one. But the Act does not provide shelter for mistakes, only for reasonable excuses.” (Garnmoss Ltd v. HMRC [2012] UKFTT 315 (TC), §12).
But a genuine mistake may be part of a reasonable excuse
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"[102] This case is a clear example of a situation where, despite Mr Harbron doing his best to ensure that the correct steps were taken, a mistake was nevertheless made. However, a mistake does not prevent Condition A being met. As HMRC themselves say in their Compliance Manual at CH1140:
"People do make mistakes. We do not expect perfection. We are simply seeking to establish whether the person has taken the care and attention that could be expected from a reasonable person taking reasonable care in similar circumstances, taking into account the ability and circumstances of the person in question at the time the irregularity was submitted to HMRC."" (Harbron Recuit Limited v. HMRC [2025] UKFTT 23 (TCC), Judge Redston)
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- Reasonable cause not the same as reasonable excuse
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“But while it makes sense for a doctor who has failed to appeal a decision which could prejudice their career or a member of the GMC who fails to turn up to sufficient meetings that their membership is in danger of being terminated to be required to offer an excuse, in regulation 6 HOBDAR the claimant is seeking something to their advantage, not seeking to show why they should not be prejudiced, and it is odd to talk about the claimant in this situation having a reasonable excuse for failing to ask for their advantage in time. It makes more sense to say they have to give reasons or grounds for the failure…I therefore approach this case with no preconception that any decisions of the Upper Tribunal or a Court on the term "reasonable excuse" are binding on me, and nor are any of the qualifications found in some reasonable excuse provisions. But I do approach it on the basis that "for reasonable cause" means "on reasonable grounds".” (Sibleys Fuel and Marine Services v. HMRC [2016] UKFTT 777 (TC), Judge Thomas, §§82…83).
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Reasonable cause for late claims where HMRC accepted 11 previous claims late
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“This conduct by HMRC in letting 11 late claims be paid when there was no let out available would have led the appellant (the partnership, whether Clive or Ian was administering the scheme) to think that the 30 day rule that had been notified to the appellant, was not taken seriously by HMRC… In my view this conduct of HMRC's is a reasonable ground for having the claims admitted and therefore the claimant has shown that its failure was for reasonable cause.” (Sibleys Fuel and Marine Services v. HMRC [2016] UKFTT 777 (TC), Judge Thomas, §103).
Carelessness must be clearly alleged as alternative to deliberate, if to be relied on​
"[40] Following HMRC v William Ritchie and Hazel Ritchie [2019] UKUT 71 we can consider the issue of carelessness if HMRC specifically allege, as an alternative to deliberate behaviour, that the appellant had submitted inaccurate returns as a result of carelessness; and if they do so allege, that the appellant has then been given an opportunity to make submissions and provide evidence that that is not the case.
[41] HMRC have clearly pleaded, in their statement of case dated 22 June 2023, that in the alternative to deliberate behaviour, it is their view that the appellant has failed to take reasonable care. The appellant has been on notice that HMRC are arguing careless behaviour in the alternative to deliberate behaviour and has been given ample opportunity to make submissions and provide evidence to the contrary." (Thompson v. HMRC [2024] UKFTT 138 (TC), Judge Popplewell)
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Direct tax allowance for reasonable excuses
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"(2) For the purposes of this Act, a person shall be deemed not to have failed to do anything required to be done within a limited time if he did it within such further time, if any, as the Board or the tribunal or officer concerned may have allowed; and where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased." (TMA 1970, s.118(2))
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- Relieves the consequences of the failure but does not deem compliance
"[41] Having made that decision, it isn't strictly necessary to consider the second point regarding the consequence of section 118(2) but given that Ms Hayes argued it, I provide a decision on it for completeness.
[42] Again, this matter was considered by the Court of Appeal in Raftopoulou:
"66. Second, the deeming effect of the second part is of central importance. It does not deem anything to have been done, either within a time limit or at all. It provides only that the person in question shall be deemed "not to have failed to do it". It relieves the person of the consequences of failing to do the thing, which in the context of the TMA 1970 is a financial penalty, but does not go further and provide the benefits of having in fact done the thing which the person has failed to do."
[43] On this basis, even if there had been an extension of time, the effect would not have been to deem Ms Hayes to have filed her return on time for the purposes of the time limits for enquiries." (Hayes v. HMRC [2024] UKFTT 118 (TC), Judge McGregor)
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- Unreasonable delay does not prevent reasonable excuse having effect up to the time it ceases​
"[25] Mr Sokoya's legal avenues of appeal closed on 28 January 2008 on the refusal of his application to appeal to the Court of Appeal. In the absence of any other evidence of an excuse, in my view Mr Sokoya's excuse for failure to comply ceased on that date. I have considered whether this affects the operation of the reasonable excuse in relation to the penalty. The issue is whether the fact of the cessation of the excuse means that Mr Sokoya can at no time be regarded as not having failed to comply. I do not consider that would be the correct analysis of s 118(2). In my view there are two limbs of s 118(2). The first limb provides that the effect of a reasonable excuse is to deem non-failure up to the time that the excuse ceases, and separately the effect of the second limb is further to deem non-failure after the excuse has ceased if the person in question does what is required to be done without unreasonable delay after the excuse has ceased. Unreasonable delay can prevent something being deemed not to have failed to be done under the second limb, once the excuse has ceased, but cannot prevent the reasonable excuse from having effect up to the time the excuse ceases." (Sokoya v. HMRC [2009] UKFTT 163 (TC), Judge Berner)
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- But the reasonable excuse must exist at the time of the original failure​
"The important point here is that a reasonable excuse must be made out by reference to one or more circumstances which existed at the relevant filing date. As the Upper Tribunal explained in Matthew Harrison v HMRC, [2022] UKUT 00216 (TCC) (at [31]):
“Before us, the parties were agreed that a reasonable excuse must be made out by reference to one or more circumstances which existed as at the relevant filing date. We agree and consider this is clear from the legislation (where the penalty in respect of the “failure” is a reference to the failure to file by the deadline set out in the Schedule). Events which take place after that deadline would not therefore be relevant (except so far as, as a matter of evidence, they threw light on relevant circumstances existing at and before the filing date). Circumstances that existed after the filing date could of course be relevant to the second part of paragraph 23, namely whether the failure to file the return had been remedied without unreasonable delay.”" (Futcher v. HMRC [2022] UKFTT 401 (TC), Judge Baldwin)
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"[18] A serious illness which prevents a person from submitted their return is the archetypical “reasonable excuse”. In this case, the excuse was not present at the time of the filing deadline, but occurred later, preventing the Appellant from submitting his return before daily penalties began to be charged. The question is whether a supervening excuse which is capable of being a reasonable excuse falls within paragraph 23 of schedule 55 so as to enable the tribunal to quash the penalties.
[19] This point was considered in the case of D R Sudall v HMRC [2017] UKFTT 0404 (TC), where Judge Richards decided that the reasonable excuse must exist at the time of the submission deadline. His reasoning was as follows:
“21. Paragraph 23 applies where there is a reasonable excuse for “a failure to make a return”. That raises a question of interpretation, namely whether Mr Sudall must establish a reasonable excuse for the initial failure to file by 31 October 2013, or whether Mr Sudall could argue that, even though there was no reasonable excuse for the original failure to file (so the £100 penalty is still due), he nevertheless has a reasonable excuse for filing more than six months late so that the six-month penalty is not due.
22. I consider that the scheme of the legislation makes it clear that, for the defence of reasonable excuse to be available, there must in all cases be a reasonable excuse for the initial failure to file on time. My reasons are as follows:
(1) Paragraph 1(1) and 1(2) of Schedule 55 make it clear that all penalties imposed by paragraphs 2 to 13 of Schedule 55 are imposed for a failure to submit a return by the filing date. The relevant “failure”, therefore, that triggers both a £100 penalty and a six-month penalty is, specifically, a failure to file by the filing date.
(2) Paragraph 5 of Schedule 55 imposes the penalty where the “failure” (namely the failure to file on time) continues more than six months after the penalty date. Paragraph 5 penalties do not, therefore, penalise a new “failure” (to file within six months of the penalty date), but rather the original “failure” to file on time, where that continues for more than six months.
(3) Therefore, the “failure” set out in paragraph 23 (which has to be the subject of a “reasonable excuse”) must be a reasonable excuse for the original failure to file on time. That is emphasised by paragraph 23(2)(c) of Schedule 55 which provides for an excuse to be treated as continuing in certain circumstances. If Parliament had not wanted to impose a requirement that a “reasonable excuse” must excuse the initial failure to file, paragraph 23(2)(c) would not have been drafted in the terms it is. The implication of paragraph 23(2)(c) is that, where there is a continuing failure to file a return, in order for the defence of “reasonable excuse” to be available, the excuse must both exist on the filing date and continue (within the terms of paragraph 23(2)(c)).
(4) If Parliament had wished to deal with the situation where there is no original “reasonable excuse” for late submission, but subsequently a reasonable excuse starts, it would have needed to explain when a reasonable excuse is treated as starting. However, Parliament has not done so, instead focusing its attention in paragraph 23(2)(c) on when a reasonable excuse ceases”
[20] A similar approach was adopted in the case of Buivydas v HMRC [2017] UKFTT 0557 (TC).
[21] I agree that the legislation requires that the excuse is present at the time of the original deadline. Once there has been a failure to file on time, penalties accrue by reference to the period during which the failure continues, but there is no new failure (to which a new reasonable excuse might apply) at the points where daily or six month or twelve month penalties become due." (McCulloch v. HMRC [2018] UKFTT 277 (TC), Judge McKeever)
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Possible special circumstances
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"[23] I recognise that this interpretation might be thought to produce harsh results. For example, a taxpayer may have no good reason for filing late, but two months and 30 days after the penalty date may have prepared a return and be on the verge of submitting it. If the taxpayer is subsequently struck ill, admitted to hospital and prevented from filing the return for a further month, the defence of “reasonable excuse” would not, on my interpretation of the legislation, prevent daily penalties from accruing. However, in such a case it would still be open to HMRC to mitigate the daily penalties because of “special circumstances” and, if HMRC’s decision on this issue was flawed, the Tribunal could change it." (Sudall v. HMRC [2017] UKFTT 404 (TC), Judge Richards)
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VAT limits on reasonable excuse
"(1) For the purpose of any provision of sections 59 to 70 which refers to a reasonable excuse for any conduct—
(a) an insufficiency of funds to pay any VAT due is not a reasonable excuse; and
(b) where reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse." (VATA 1994, s.71(1))
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General approach to reasonable excuse
"[21] The standard to be adopted is that of the responsible trader, explained by Judge Medd QC in The Clean Car Co Ltd v C&E Commissioners [1991] VATTR 234 as follows:
"The test of whether or not there is a reasonable excuse is an objective one. In my judgment it is an objective test in this sense. One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do?"" (Archer v. HMRC [2023] EWCA Civ 626, §18, Whipple, Simler, Falk LJJJ)
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"[81] When considering a “reasonable excuse” defence, therefore, in our view the FTT can usefully approach matters in the following way:
(1) First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer’s own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts).
(2) Second, decide which of those facts are proven.
(3) Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of 35 the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the FTT, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”
(4) Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased). In doing so, the FTT should again decide the matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times." (Perrin v HMRC [2018] UKUT 156 (TCC) and see Archer v. HMRC [2023] EWCA Civ 626, §18, Whipple, Simler, Falk LJJJ)
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"In practice, most of the considerable volume of “reasonable excuse” cases before the FTT involve variations on a limited number of themes: typically, disputes about HMRC correspondence, difficulties with online filing, reliance on advisers, an incomplete awareness of statutory obligations, and health or financial problems. In such situations, while its application to the facts may not always be easy, the approach summarised in Perrin needs no gloss." (Sheiling Properties Limited v. HMRC [2020] UKUT 175 (TCC), Trower J and Judge Thomas Scott)
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- No single reasonable course of action
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"[103] The test to be applied is whether or not BPIL has a reasonable excuse for the default. We do not consider that an otherwise reasonable course of action necessarily becomes unreasonable as a result of another, arguably more reasonable, course of action being available. The question is a matter of fact and degree to be judged in all the circumstances of the case. The test is not that no other option was available, or that the course of action was the best course in the circumstances." (Bicester Property Interiors Limited v. HMRC [2023] UKFTT 13 (TC), Judge Frost)
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"​The test is one of reasonableness. No higher (or lower) standard should be applied. The mere fact that something that could have been done has not been done does not of itself necessarily mean that an individual's conduct in failing to act in a particular way is to be regarded as unreasonable. It is a question of degree having regard to all the circumstances, including the particular circumstances of the individual taxpayer. There can be no universal rule; what might be considered an unreasonable failure on the part of one taxpayer in one set of circumstances might be regarded as not unreasonable in the case of another whose circumstances are different." (Nigel Barrett v HMRC [2015] UKFTT 329 (TC) (Judge Berner))
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- Omission must be something that a reasonable taxpayer ought to have done
"[20] We should also mention that the very phrase “reasonable care” indicates that the test will be satisfied, provided that the care taken is reasonable. It carries with it the implication that perfection need not be reached, and it necessarily recognises that errors might occur even when a reasonably prudent taxpayer has taken that degree of care which is requisite when dealing with the respondents. A taxpayer might genuinely and honestly misconstrue legislation; a taxpayer might inadvertently make an arithmetic error or press an inappropriate key on a computer keyboard (and fail to notice having done so); or genuinely mis-remember a salient fact. The test is not to ask whether any such error or failure would have occurred in a perfect world, because that would be to elevate the test beyond that which is applicable. The test is not to ask whether the taxpayer could have done something else which, if done, might have revealed the error unless the doing of that other task is itself something which a reasonable taxpayer ought to have done, and which, if done, would have revealed the initial error." (Cannon v. HMRC [2017] UKFTT 859 (TC), Judge Geraint Jones QC)
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- Mere existence of an inaccuracy does not establish carelessness
"[27] The Tribunal does not accept the Respondents' case that where the taxpayer cannot show that it qualified for a given relief then it follows that the taxpayer will have been careless, since that would entail the mere existence of an inaccuracy determining that the same inaccuracy was careless. In the absence of the Respondents setting out any other case on careless inaccuracy, and in the absence of the Respondents taking specific issue with the assertions made out in the Appellant's Grounds of Appeal that are subject to Mr. Thomas' declaration of truth, the Tribunal is not prepared to conclude that what the Appellant has said in them is inaccurate." (H&H Contract Scaffolding Ltd v. HMRC [2024] UKFTT 151 (TC), Judge Watkinson)
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- Assess based on circumstances existing at time of default
"[31] Before us, the parties were agreed that a reasonable excuse must be made out by reference to one or more circumstances which existed as at the relevant filing date. We agree and consider this is clear from the legislation (where the penalty in respect of the “failure” is a reference to the failure to file by the deadline set out in the Schedule). Events which take place after that deadline would not therefore be relevant (except so far as, as a matter of evidence, they threw light on relevant circumstances existing at and before the filing date). Circumstances that existed after the filing date could of course be relevant to the second part of paragraph 23, namely whether the failure to file the return had been remedied without unreasonable delay." (Harrison v. HMRC [2022] UKUT 216 (TCC), Judge Raghavan and Judge Andrew Scott)
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- Assess by reference to a reasonable and prudent person in the taxpayer's position
"[120]...The cases indicate that the conduct of the individual taxpayer is to be assessed by reference to a prudent and reasonable taxpayer in his position: see, for example, Atherton v HMRC [2019] STC 575 (Fancourt J and Judge Scott) at [37]." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)
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- Assess inaccuracy in context of tax return as a whole (including declaration)
"[80] There are many decided cases as to what amounts to carelessness in relation to the completion of a self-assessment tax return. The cases indicate that the conduct of the individual taxpayer is to be assessed by reference to a prudent and reasonable taxpayer in his position: Atherton v HMRC [2019] STC 575 (Fancourt J and Judge Scott), at [37]. The issue as to ‘carelessness’ must be considered and decided in the relevant context and the tax return must be read as a whole. The context in the present case is the delivery of a self-assessment tax return pursuant to ss 8 and 9 TMA. Under s8(2), the person making the return is required to declare that to the best of his knowledge, the return is correct and complete." (Malcolm v. HMRC [2021] UKFTT 207 (TC), Judge Manyarara)
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- Take account of size of business and size of sums involved
"[80] We consider that 'reasonable' in this context needs to be both by relevance of the size of the business (what it is reasonable for a business with 3 people in to have in the way of processes and checks) and also by the size of the payments being made. The payments made in the years in question were significant, totalling over £700k to United Contract Services and Ultimate Payroll in 2015/16.
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[92] We appreciate that the directors felt they could rely on a long standing employee. However, given the significant impact that failure to comply with the regulations would have on the company, we do not think that sufficient reasonable care was taken to ensure that the regulations were complied with." (Access Contracting Services ltd v. HMRC [2023] UKFTT 973 (TC), Judge Allatt)
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"[80] The tribunal also accepts that the standard of care required by Regulation 9 is one that must be appropriate and proportionate to the particular contractor’s business.
[81] The Tribunal is of the view that given the not inconsiderable size of its turnover, its long history and experience in the construction industry and size of annual sub-contractor payments it makes, the appellant was not a small company who was dealing with CIS on an occasional basis. It had a member of staff who was dedicated to processing the invoices and applying CIS deductions at the relevant time." (Maypine Construction Limited v. HMRC [2016] UKFTT 833 (TC), Judge Rupert Jones)
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“[18] The standard required by Regulation 9 is that the business must take reasonable care in its compliance with the CIS. It does not require that mistakes must never be made. We consider that the standard of "reasonable care" is one that must be appropriate and proportionate to the particular contractor's business. The compliance systems to be expected of a substantial multi-national contractor with a large and sophisticated accounting department are very different from the systems to be adopted by a small business. In the case of PDF, we are satisfied that it took reasonable care to meet its obligations under the CIS. The fact that this is the only error that PDF has ever made under the CIS in ten years is the practical evidence of this.” (PDF Electrical Ltd v. HMRC [2012] UKFTT 708 (TC), Judge Aleksander)
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- Take account of extent of errors (high level of compliance or systemic failures?)
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"[62] Ms Barton is the administrator working to the direction of Mr Fullwood; she maintains the Company's register for its subcontractors; processes a large volume of invoices each month from subcontractors; and prepares monthly CIS returns. We note that some 750 invoices and the £1million in payment are processed on average per month, which means that the number of CIS payments in dispute would represent a very small fraction of the overall volume of payments being processed in 2017-18 and 2018-19. It is a clear indication that Gelder took reasonable care to a significant extent, and that there is a robust system in place to deliver a high level of compliance; and the disputed incidents of compliance are to be evaluated in the wider context that there is clearly no systemic failure resulting from the measures implemented." (Gelder Ltd v. HMRC [2021] UKFTT 294 (TC), Judge Poon)
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"[82] The appellant has rightly and fairly accepted that it has made at least two categories of errors in relation to CIS deductions. This is not simply one isolated and technical category of error that has been repeated. These different types of errors have been repeated on multiple occasions in relation to multiple contractors over a number of years. The fact that the appellant’s actions continued for a number of years indicated a lack of care." (Maypine Construction Limited v. HMRC [2016] UKFTT 833 (TC), Judge Rupert Jones)
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"[18] The fact that this is the only error that PDF has ever made under the CIS in ten years is the practical evidence of this.” (PDF Electrical Ltd v. HMRC [2012] UKFTT 708 (TC), Judge Aleksander)
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- Were there checks and balances in place to identify anomalies?
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"[64] We consider the evidence in the round, and reach the conclusion that the system in place was sufficiently robust, with checks and balances to pick up anomalies. Mr Gray is one of seven quantity surveyors responsible for the management of larger projects. The surveyors are organised in a team under a senior quantity surveyor, who would provide supervision and guidance on any technical issues and queries. There are industry standards that a QS can refer to in ascertaining the reasonableness of the materials cost in a subcontractor’s invoice. The CVR system serves as a check on the overall costs of any one project that a QS needs to monitor at all times; there are the QS appointed by Gelder’s clients, who would function as a countercheck on the judgment of an internal surveyor. As Mr Fullwood has emphasised, on these construction projects, there is always QS against QS to test the fairness of cost valuation." (Gelder Ltd v. HMRC [2021] UKFTT 294 (TC), Judge Poon)
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- HMRC published guidance which, if followed, would have avoided errors
"[85] The fact is that HMRC did publish guidance, which if followed, would have avoided the appellant making errors in CIS deductions. It is reasonable to have expected the appellant, given its size and frequency of CIS processing, to have read the guidance, have systems in place to monitor and respond to any change in guidance and to apply the rules based on this understanding." (Maypine Construction Limited v. HMRC [2016] UKFTT 833 (TC), Judge Rupert Jones)
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Excuse based on belief: belief must be reasonable
"[43...Finally, in respect of beliefs, I remind myself that the Upper Tribunal in Perrin concluded that for an honestly held belief to constitute a reasonable excuse, it must also be objectively reasonable for that belief to be held. " (Manzi v. HMRC [2024] UKFTT 563 (TC), Judge Newstead Taylor)
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- Reasonable belief that the required action had been taken
"[17] We find that the Appellant believed that she had submitted the return, hence why she then submitted the payment shown on it. We find that, bearing in mind that this was the first time that the Appellant had submitted a return online, the Appellant reasonably believed that she had submitted the return by submitting the “check your return/results” section and then viewing the tax calculation summary. The Tribunal does not accept the Respondents’ submission that the presence of the warning about the tax return being 90% complete, and the tax calculation stating that it was estimated mean that this Appellant could not reasonably had believed that she had submitted the return. The Appellant’s evidence, which we accept, is that she did not see those parts on the screen.
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[25] The Tribunal finds that the Appellant has proved that she had a reasonable excuse for the failure. The Tribunal finds that it was objectively reasonable for the Appellant to have believed that she had filed the Self Assessment return until HMRC’s letter of 2.8.21, and thereafter the default was remedied swiftly." (Watt v. HMRC [2022] UKFTT 329 (TC), Judge Watkinson)
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- Seek guidance where there is uncertainty
"[86] Whether or not there are common misunderstandings within the industry as to the CIS Regulations, it would not be taking reasonable care simply to adopt the same and continued practice without first checking whether it was compliant. Where there is uncertainty a reasonable person can be expected to seek guidance from an appropriate source. The appellant engaged at least one member of staff to deal with the CIS aspect of the business and it should be expected that reasonable and proportionate care would be taken to read, understand, and apply the requirements within the CIS regulations." (Maypine Construction Limited v. HMRC [2016] UKFTT 833 (TC), Judge Rupert Jones)
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Carelessness is specific to an individual​
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"(3) Given that careless behaviour is specific to an individual, we can see no basis on which we can accept HMRC’s contentions in respect of Mrs O’Neil and Mrs McCallum in the face of a total lack of evidence about their decision-making processes and no suggestion that we should look to Mr O’Neil as the person they relied on." (O'Neil v. HMRC [2023] UKFTT 290 (TC), Judge Short)
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- Need to identify the person's abilities and circumstances
"[19] Reasonableness is to be determined in each case depending on the facts. The analysis of Judge Berner in Barrett v HMRC [2015] UKFTT 329 (TC) at [161] is of assistance:
"The test is one of reasonableness. No higher (or lower) standard should be applied. The mere fact that something that could have been done has not been done does not of itself necessarily mean that an individual's conduct in failing to act in a particular way is to be regarded as unreasonable. It is a question of degree having regard to all the circumstances, including the particular circumstances of the individual taxpayer. There can be no universal rule; what might be considered an unreasonable failure on the part of one taxpayer in one set of circumstances might be regarded as not unreasonable in the case of another whose circumstances are different."" (Archer v. HMRC [2023] EWCA Civ 626, §18, Whipple, Simler, Falk LJJJ)
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"[120] Whether acts or omissions are careless involves a factual assessment having regard to all the relevant circumstances of the case. There are many decided cases as to what amounts to carelessness in relation to the completion of a self- assessment tax return. The cases indicate that the conduct of the individual taxpayer is to be assessed by reference to a prudent and reasonable taxpayer in his position: see, for example, Atherton v HMRC [2019] STC 575 (Fancourt J and Judge Scott) at [37]." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)
​
"[69] HMRC's guidance on careless inaccuracy its Handbook at CH81120 states:
Every person must take reasonable care, but 'reasonable care' cannot be identified without consideration of the particular person's abilities and circumstances. HMRC recognises the wide range of abilities and circumstances of those persons completing returns or claims.
So whilst each person has a responsibility to take reasonable care, what is necessary for each person to discharge that responsibility has to be viewed in the light of that person's abilities and circumstances.
For example, we do not expect the same level of knowledge or expertise from a self-employed unrepresented individual as we do from a large multinational company. We would expect a higher degree of care to be taken over large and complex matters than simple straightforward ones.
[70] At CH81140, HMRC acknowledge that:
People do make mistakes. We do not expect perfection. We are simply seeking to establish whether the person has taken the care and attention that could be expected from a reasonable person taking reasonable care in similar circumstances, taking into account the ability and circumstances of the person in question [...]" (Brown v. HMRC [2024] UKFTT 245 (TC), Judge Aleksander)
​
"[342] We began by establishing the characteristics of “the reasonable person in the position of Mr Strachan”. In our view, that person would have the following characteristics:
(1) He would be intelligent: Mr Strachan obtained a double first from Cambridge University.
(2) He would be financially aware: Mr Strachan worked in the City, including as RTZ’s Chief Financial Officer.
(3) He would not have been a tax expert, and would not have understand all the technicalities of domicile law: Mrs Strachan said that this was “probably” the case for both her and Mr Strachan, see §323.
(4) However, he would nevertheless have understood that in 1987, HMRC had ruled that he was domiciled in Connecticut (and not in the USA): that this was Mr Strachan’s understanding can be seen from his letters to HMRC.
(5) He would have known that a domicile claim involved sheltering money from UK tax: Mr Strachan knew this from his discussions with Mr Tulloch.
(6) In particular, the reasonable person with the intelligence and financial awareness of Mr Strachan, who had participated in the discussions which preceded the granting of the Domicile Ruling and so was fully aware of the facts on which it was based (see §200(2)), would have safely retained a copy of the Domicile Ruling, and checked it regularly, to see whether any changes to the factual position might have impacted on its validity and had he been unsure of the position, would have asked his tax advisers to review the position and if necessary to take further specialist advice.
(7) If, for whatever reason, neither he nor his advisers had retained a copy of the Domicile Ruling, he would not have relied on his recollection but would have similarly asked his tax advisers to review the position and if necessary obtain further specialist advice.
(8) Even without a copy of the Domicile Ruling, the reasonable person in Mr Strachan’s position would have known that following the sale of Kielwasser Road in 2006, he had no possible “home” in Connecticut. He would also have known that other key facts (see §200) had changed over time, and in particular that he had continued to live and work in London for more than 25 years, together with his wife (and for seven years, his step-daughter)." (Strachan v. HMRC [2023] UKFTT 617 (TC), Judge Redston)
​
- Possession of expertise leading to higher standard
"[80]...HMRC emphasise that although Mr Wood was not a VAT expert, he did have tax expertise and submitted that we should, accordingly, hold Marlow to a higher standard. We agree his background is relevant and accordingly take account of it together with the directors’ role as charity trustees in evaluating the terms in which advice was sought and acted upon." (Marlow Rowing Club v. HMRC [2020] UKUT 20 (TCC), Judge Raghavan and Judge Poole)
​
- > But taxpayer who is tax barrister not expected to know all tax law
"[53] There was a third string to the respondents’ bow in that they contended that the sideways loss relief claim failed in any event, because, by reason of section 74C Income Taxes Act 2007, such relief would not be available unless the appellant had spent an average of 10 hours per week engaged in the furnished holiday letting business. Although this was not majored upon by the respondents, it was raised as an issue before us. The appellant’s position is that if such a pre-condition to sideways loss relief existed at the relevant time he was not aware of it nor is there any reason why he should have been aware of it. He puts forward the latter proposition because by reference to the respondents’ Guidance in respect of furnished holiday lettings and any reliefs associated therewith, such guidance makes no reference to any such requirement. In other words, the respondents’ case must rest upon the fact that because the appellant is a barrister he must be taken to know almost every single detail of our extensive and complex tax legislation which, we are satisfied, is quite unrealistic because that is beyond the capability of any ordinary mortal. Those of us who sit in this Tribunal regularly will have come across senior personnel from the respondents’ organisation who feel confident and comfortable to deal with the intricacies of one particular area of taxation, but, if questioned about a different and distinct area of taxation, often respond that they know nothing about that other area given that he/she has had no experience of working in that other area of taxation. It is simply a matter of reality that even senior personnel working within the respondents’ organisation readily accept and assert that they usually only have expertise in a particular area of taxation law in which he/she is immersed as part of his/her employment.
[54] We accept the appellant’s evidence that he was not aware of any such 10 hour requirement and so did not make a claim for sideways loss relief knowing that he had failed to meet any such requirement. We are satisfied that there was nothing careless about the appellant’s lack of such awareness." (Cannon v. HMRC [2017] UKFTT 859 (TC), Judge Geraint Jones QC)
​
- Inexperience leading to lower standard
"[61] This tax liability was due by 7 March 2014. Had he filled in the return correctly the penalty for non-payment would have been £0. Although the delay in seeking to rectify the position was extreme, I have dealt with that above. I do accept that it was Mr Jama’s naïveté and inexperience that led to the penalty as imposed. I do consider that given Mr Jama’s lack of experience and personal circumstances, and the fact that he found himself in a baffling situation without the skills to rectify it, that his actions in failing to pay the tax - on monies that he had not received - was reasonable." (Jama v. HMRC [2020] UKFTT 336 (TC), Judge Hudson)
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Witness evidence of subjective reason for non-compliance not necessarily essential
​
"[68] It is not right, however, to suggest that the taxpayer is required to file witness evidence to support his case. A taxpayer will very often want to put evidence in the form of a witness statement before the tribunal to explain the reason for non-payment. This is particularly so where the reason is personal (a death in the family, or a difficulty in the business, as examples). But it is up to the taxpayer to decide how they wish to present their case on reasonable excuse and what evidence they wish to rely on in support of it; much will depend on the particular circumstances of the particular case. Further, there is no requirement that a taxpayer must give evidence to the tribunal to establish that the reason they put forward for non-payment is the real reason, and that other reasons (such as impecuniosity) can be discounted. It is open to the taxpayer to invite the tribunal to draw an inference that the reason advanced, whether or not that is evidenced by a witness statement in support, is the real or causative reason for non-payment. Tribunals have power to regulate their own procedure (noting in particular rule 5 of the Tribunal Procedure (FTT) (Tax Chamber) Rules 2009, SI 2009/273) and should not find themselves constrained as to the sort of evidence they can accept when it comes to reasonable excuse, or any other sort of appeal." (Archer v. HMRC [2023] EWCA Civ 626, §18, Whipple, Simler, Falk LJJJ)
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Relying on evidence of litigation as reason for non-payment
​
"[69]...The appellant's case before the UT was that judicial review proceedings were the reason for non-payment; there was plenty of evidence about that judicial review in the form of the various orders and judgments of the Administrative Court and the Court of Appeal, as well as the agreement with HMRC in December 2017; the appellant was entitled to rely on that body of material to demonstrate his reason for non-payment. He was not required to file a witness statement giving his personal views of the merits of the judicial review or referring to professional advice received. It is questionable in any event what weight his personal views of the merits would have had. Further, it was open to the appellant to invite an inference that the judicial proceedings were indeed the cause of his non-payment (although I acknowledge that the appellant has only developed that aspect of his case in this Court, so the UT can hardly be criticised for not addressing it). Whether the UT accepted the appellant's case based on the "external" evidence before it is a different matter going to the merits. My concern is that the UT dismissed the appellant's case in limine solely and simply on the basis that the appellant had failed to provide subjective evidence by way of witness statement. If it did that, I think it was in error." (Archer v. HMRC [2023] EWCA Civ 626, §18, Whipple, Simler, Falk LJJJ)
​
Subjective evidence may be required where no external evidence of merits of judicial review
​
"[70] In fairness to the UT, their approach seems to have followed HMRC's invitation to rely on [81] of Sheiling (see UT [137]-[138]) to conclude that it was necessary to take account of the taxpayer's subjective belief as part of the assessment of reasonable excuse (see [140(2)]) and that it was "inevitable" that the taxpayer should give evidence of his or her subjective beliefs (see [144]). But the background facts in Sheiling were very different. In that case, the taxpayer's judicial review had been stayed behind other claims and it appears that no decision on permission for judicial review had been made, so that by the time of the reasonable excuse appeal in the tribunal there was no "external evidence" of the merits of the judicial review (see [10] of Sheiling). It was for that reason that the UT in Sheiling appears to have shifted its focus to the reasonableness of the taxpayer's belief that the APN issued to him was procedurally invalid, in order to avoid a mini-trial of the merits of the taxpayer's case on judicial review (see [81]). This case is different because by the time the reasonable excuse appeal was adjudicated, the judicial review proceedings had concluded. It was on the "external evidence" about the judicial review that this appellant relied; he was entitled to do that. The approach to the evidence advocated in Sheiling [81] was not apposite. Further and in any event, Sheiling is an APN case, and I am not persuaded that it assists in the resolution of this case, for reasons I will discuss further below." (Archer v. HMRC [2023] EWCA Civ 626, §18, Whipple, Simler, Falk LJJJ)
​
- Cannot rely on beliefs that the taxpayer did not hold
"[69]...irrespective of whether a belief of the taxpayer in the invalidity of the APN on particular grounds might in principle form an objectively reasonable excuse, in the present case the FTT found as a matter of fact that Mr Jones did not have any understanding of the merits of the claim, and specifically did not have any knowledge of the designated officer points. In other words EPL's decision not to pay the amounts specified in the APNs did not, as a matter of fact, rely on a belief as to the invalidity of the APNs on the designated officer grounds. Instead, Mr Jones simply relied on a belief that the judicial review would succeed based on trust in the expertise of his advisors. That was, the FTT found, not reasonable for a person in Mr Jones' position; and in any event that belief was not tenable after 12 December 2017 (when the Court of Appeal's judgment in Rowe was handed down).
...
[79] ... In the absence of any findings of fact that Mr Jones believed that the effect of the interim relief order meant that the judicial review would succeed, or that EPL was no longer liable to pay by the due date, or that EPL would escape liability for penalties for non-payment if the judicial review claim failed, the FTT was bound to find that EPL did not have a reasonable excuse." (Exclusive Promotions Limited v. HMRC [2023] UKUT 269 (TCC), Bacon J and Judge Sinfield)
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Scope of reasonable mistake depends on legislative purpose
"[78]... However, we have concluded on balance that it would be unduly restrictive to determine that a belief as to procedural invalidity could never be a reasonable excuse in respect of a penalty for non-payment of the APN. In our opinion, there is a difference between substantive invalidity and procedural invalidity, because in relation to procedural invalidity the policy considerations considered in Beadle and in other cases cannot simply be assumed to apply in undiluted form. Where the taxpayer’s belief is essentially that what purports to be on its face an APN is not an APN at all, because it does not satisfy the statutory conditions, the policy considerations driving the APN code are necessarily less persuasive in determining the objective reasonableness of that belief."(Sheiling Properties Limited v. HMRC [2020] UKUT 175 (TCC), Trower J and Judge Thomas Scott)
Reasonable excuse must continue until default/omission ends
"[50] We consider that, on receipt of that letter, Mr Baron became aware of the potential for HICBC to apply to him. The terms of the paragraph set out above are very clear. In our view, it was not objectively reasonable for Mr Baron to take no further action other than speaking to his partner at this stage. His first action to remedy the issue was not taken until after the June letter.
[51] As a result, we find that Mr Baron did not take action to remedy the failure without unreasonable delay and therefore we cannot find that he had a reasonable excuse for the failure to notify." (Baron v. HMRC [2024] UKFTT 102 (TC), Judge McGregor)
​
“It is well-established and clear from the wording of this provision that the Tribunal must consider whether there was a reasonable excuse for the entire time that the taxpayer failed to do what was required of him to be done.” (Bryne v. HMRC [2017] UKFTT 144 (TC), §48, Judge Mosedale).
- Ceases to be relevant at the time when HMRC raise discovery assessment
​
"[45] I apply the Perrin approach in considering whether or not Mrs Manzi had a reasonable excuse.
...
[49] Fourth, this step is not applicable on the facts of this case as at 1 June 2021 the Respondents no longer required Mrs Manzi to complete a SAR. They did not invite her to do so because this was now a discovery position." (Manzi v. HMRC [2024] UKFTT 563 (TC), Judge Newstead Taylor)
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Successive reasonable excuses
“…however, we accept that s 118 should be treated as encompassing successive reasonable excuses as that is consistent with Parliament’s intention to relieve a taxpayer of liability where he acted reasonably.” (Bryne v. HMRC [2017] UKFTT 144 (TC), §51, Judge Mosedale).
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Ignorance of the law
​​
- Depends on the circumstances
​
"[82] One situation that can sometimes cause difficulties is when the taxpayer’s asserted reasonable excuse is purely that he/she did not know of the particular requirement that has been shown to have been breached. It is a much-cited aphorism that “ignorance of the law is no excuse”, and on occasion this has been given as a reason why the defence of reasonable excuse cannot be available in such circumstances. We see no basis for this argument. Some requirements of the law are well-known, simple and straightforward but others are much less so. It will be a matter of judgment for the FTT in each case whether it was objectively reasonable for the particular taxpayer, in the circumstances of the case, to have been ignorant of the requirement in question, and for how long. The Clean Car Co itself provides an example of such a situation.” (Perrin v. HMRC [2018] UKUT 156 (TCC), Judge Herrington and Judge Poole)
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- Query whether reasonable to be ignorant of need to notify HMRC of liability to HICBC
"[81] Taking into account the lack of guidance in the Child Benefit claim form for those in Mr and Mrs Hextall’s position and the absence of any subsequent communications, either by way of a general campaign aimed at those in their position or direct correspondence, we have concluded that it was objectively reasonable, in the circumstances of the case, for Mr Hextall to have been unaware of the requirement to notify HMRC that he had become liable to the HICBC in the 2015-16 tax year. We also find that, as nothing changed in relation to Mr Hextall’s awareness of his obligation to notify until HMRC sent him the ‘nudge’ letter in November 2019, Mr Hextall has established that he had a reasonable excuse for failing to notify and did not fail to take reasonable care in relation to the 2016-17 tax year. Accordingly, the assessments in relation to in relation to the 2015-16 and 2016-17 tax years were made out of time." (Hextall v. HMRC [2023] UKFTT 390 (TC), Judge Sinfield)
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However
​
"[63] Furthermore, in Johnstone v HMRC [2018] UKFTT 689 (TC) (‘Johnstone’), Judge Poon summarised the judicial position in respect of whether HMRC have a duty to notify all taxpayers potentially affected by the HICBC, at [49]:
“(1) HMRC do not have a statutory duty to notify all taxpayers potentially affected by HICBC. By statutory duty, we mean a duty that is provided by Parliament and laid down by statute. For example, HMRC have a statutory duty to issue a notice of assessment for any tax liability to be enforceable.
(2) What initiatives or measures HMRC had taken to raise awareness of HICBC were matters of internal policy decisions, over which the Tribunal has no jurisdiction.
(3) The cohort of taxpayers likely to be affected by HICBC is not readily identifiable from the information held by HMRC, especially when the recipient of the child benefit and the taxpayer liable to HICBC are not the same person, as is the case here.
(4) The ‘Child Benefit’ is not a means-tested benefit, and as such, the Child Benefit Agency does not hold data to enable any identification of the recipients that may be affected by HICBC.
(5) The proposition that the Child Benefit Agency makes para 21 provisions relevant is completely misguided. Paragraph 21 of Sch 41 addresses situations wherein the taxpayer has relied on an agent, such as an accountant, to notify HMRC of a liability to tax…
(6) …Under para 21, the reliance on an agent to notify a liability to HMRC gives rise to a defence for the taxpayer because there is a contractual relationship between the taxpayer and the agent for such a responsibility to be discharged. The CBA has no contractual relationship with Mr Johnstone to undertake to notify HMRC of his liability to HICBC.
(7) Mr Johnston has also suggested that the process whereby taxpayers get sent the awareness letter by HMRC was unfair, as it clearly had left some affected taxpayers out. Such a challenge can only be done by way of a judicial review at the High Court, as this tribunal has no general supervisory jurisdiction by way of judicial review.
[64] Similarly, in Lau v HMRC [2018] UKFTT 230 (TC) (‘Lau’), at [33], Judge Anne Scott held that HMRC are under no obligation to notify individual taxpayers." (Cooke v. HMRC [2023] UKFTT 369 (TC), Judge Manyarara)
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- Lay person not expected to be aware of retrospective legislation
"[124] Whilst I have concluded that the Appellants were aware of the “primary law”; that SDLT was chargeable on purchases of property, and that they were aware that they were entering into a scheme to avoid all or most of the SDLT which should have been paid, there is no evidence that they understood the technical detail of how the scheme was supposed to work. Nor would one normally expect a layman to be aware of the introduction of retrospective legislation or to be able to analyse its legal effects. A lay person who is unaware of retrospective legislation and/or who fails to realise the retrospective legislation applies to them cannot be regarded as failing to take reasonable care in failing to do what the legislation requires.
[125] In the case of the Shaw Appellants, HMRC informed them about the retrospective legislation but they were advised by ELS that it did not apply to them. A person who relies on the advice of someone they reasonably believe to be competent to give advice will normally be regarded as taking reasonable care (see Atherton above). The question whether the individual is liable because of a failure to take reasonable care by the advisor is a separate issue, which I consider below.
[126] In any event, the burden lies on HMRC to prove, on the balance of probabilities that the Appellants were negligent. Mr Goulding has produced no evidence to this effect. He asserts that the Appellants ought to have been monitoring the position after completion and the fact that the Appellants failed to file amended returns amounts to acting in a negligent way.
[127] I prefer [the taxpayer's] contentions. Using the distinction in Neal, this is not a case of basic ignorance. The possibility that retrospective legislation might require you to revisit a transaction that had been returned under advice and disclosed is not something that a reasonable lay taxpayer would reasonably be expected to be aware of." (G C Field & Sons Ltd v. HMRC [2021] UKFTT 297 (TC), Judge McKeever)
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- Rules so obscure or rarely applicable it may be reasonable not to be aware of them
"[83] Fairly and properly, Mr Nannery accepted that the appellant, through its staff, was simply not aware of all the CIS rules. The tribunal does not accept that the rules which gave rise to the errors were so obscure or so rarely applicable that the appellant could not reasonably or proportionately informed itself of them..."
(Maypine Construction Limited v. HMRC [2016] UKFTT 833 (TC), Judge Rupert Jones)
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Tax avoidance schemes
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- Packaged tax avoidance scheme not per se negligent: what would reasonable taxpayer entering into scheme do?
“It was accepted by HMRC that entering in to a packaged avoidance scheme is not in itself a negligent act and the Tribunal accepts that the Taxpayers could not be expected to understand the legal and tax implications of the trust arrangements and the Capital Redemption Policy acquisition and redemption, the order in which documents needed to be signed, or the basis on which HMRC might argue that the transactions should not be respected for tax purposes. In each of these instances we accept, as reflected by the previous decisions in this area, that these are matters for which a reasonable taxpayer might properly be expected to rely on its professional advisers…The critical question for this Tribunal is how much enquiry should a sophisticated taxpayer be expected to make in respect of a packaged scheme in which advice has been provided by professional advisers and all documents have been drafted by them.” (Litman v. HMRC [2014] UKFTT 89 (TC), §§36…38, Judge Rachel Short)
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- Client not expected to consider technical soundness of scheme in detail
“We have concluded that the level of due diligence required of a taxpayer in respect of the technical and legal aspects of such a scheme is low, when professional advisers are involved and the relevant areas of law are technical, as is the case here. In that respect, we do not think that the Taxpayers were negligent in not understanding the details of the acquisition and disposal of the Capital Redemption Policies, the timing of the signing of the relevant documents or how the tax losses were actually being generated.” (Litman v. HMRC [2014] UKFTT 89 (TC), §38, Judge Rachel Short)
- But expected to take steps to ensure important commercial aspects implemented
“In conclusion, it is this Tribunal’s view that the failure to enquire into the basic commercial reality of the transactions entered into by these Taxpayers is negligence for these purposes and that a reasonable taxpayer, including one prepared to enter into a packaged scheme like this, would have ensured that the commercial elements of the transaction, including the loan in particular, stood up to some commercial scrutiny and had been properly implemented. The Taxpayers should not have claimed the capital losses on their tax returns without at least understanding that an actual transaction had been entered into, that some money had moved and that the transaction was not a sham.” (Litman v. HMRC [2014] UKFTT 89 (TC), §47, Judge Rachel Short)
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Reliance on an adviser
​
- Distinction between professional acting as functionary or as adviser
"[16] There can be no doubt that there is a distinction to be drawn between a taxpayer who uses a professional adviser, such as an accountant holding himself out as competent to advise on particular tax matters, as a mere functionary rather than to give advice on technical matters within his field of expertise. It will usually not be open to a taxpayer to assert that he has a reasonable excuse for late filing of documents because he entrusted that mechanical task to his accountant. The position will be otherwise if a taxpayer asserts that he has a reasonable excuse for making an incorrect deduction or claiming an incorrect relief if the basis of that claim has been reliance upon a professional adviser holding himself out as having the requisite expertise to advise upon the matter, where it was reasonable for the taxpayer to seek and rely upon such advice." (Cannon v. HMRC [2017] UKFTT 859 (TC), Judge Geraint Jones QC)
​
"[24] ...If a taxpayer claims that his accountant has been negligent, for example, by failing to meet a deadline for filing a return or undertaking some or other administrative task, then the negligence of the accountant will not usually provide a defence to a penalty because the accountant is simply acting as the taxpayer's agent or functionary in filing the document that needs to be filed by a particular deadline. In other words, he is acting as a mere agent or functionary for his principal; but not as an independent professional adviser. However, in a situation where a professional adviser is not retained simply to act as a functionary, but is retained to give professional advice based upon the best of his skill and professional ability, he is not then a functionary or agent for his principal. He is a professional person acting under a retainer to give professional advice upon identified issues. He is bound to provide that advice to the best of his professional skill and ability, whilst taking reasonable care in and about preparing and giving that advice. In other words, he is acting as a true professional, rather than as an agent or functionary." (Mariner v. HMRC [2013] UKFTT 657 (TCC), Judge Geraint Jones QC)
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- Usually reasonable to rely on advice that is not obviously wrong
​
"[17] It is reasonable to start from the position that tax laws and tax rules in this country are generally complex, often convoluted and change regularly. There can be no doubt that a person might need to rely upon the expertise of an accountant or other professional adviser who has (or who professes to have) expertise in tax matters when filing a tax return, whether that return relates to income tax, capital gains, corporation tax or a multitude of other individual taxes. The average man in the street cannot reasonably be expected to have a working knowledge of the vast mass of United Kingdom tax legislation, notwithstanding the artificial legal presumption that individuals are presumed to know the law. Whilst many individuals might have a working knowledge of the most basic principles attaching to the better-known taxes, it is not to be expected that such persons will have a detailed working knowledge of the intricacies surrounding even the most common taxes, such as income tax, VAT and/or capital gains tax, given the complexity that Parliament has seen fir to introduce thereto. The respondents contend that that proposition should be watered down in this case because the appellant is somebody who gave tax advice in a professional capacity, at least in respect of one niche area of tax law." (Cannon v. HMRC [2017] UKFTT 859 (TC), Judge Geraint Jones QC)
​
"[25]...However, when a professional person acts in a truly professional advisory capacity, the situation is otherwise and reliance upon properly provided professional advice, absent reason to believe that it is wrong, unreliable or hedged about with substantial caveats, will usually lead to the conclusion that a taxpayer has acted reasonably.. In our judgement it is not careless to rely upon a professional adviser who holds himself out as having appropriate expertise in and about a person’s tax affairs and dealings with the respondent. The situation might be different if the appellant has reason to believe that his professional adviser may not be correct or that it is being contended that his adviser is not correct in his approach to the relevant tax affairs. But that, as we find as a fact, is not the present situation. The respondent has argued that a person is careless even if the negligence or carelessness is that, and only that, of the professional adviser even when that advisor is not acting as a mere functionary, but in a truly professional capacity. It is clear from what we say above that we reject that submission as wrong in law." (Mariner v. HMRC [2013] UKFTT 657 (TCC), Judge Geraint Jones QC)
​​​
“[105] We are of the view that the question whether a taxpayer has engaged in negligent conduct is a question of fact in each case. We should take the words of the statute application of the statutory words. However, we accept that negligent conduct amounts to more than just being wrong, or taking a different view from the Revenue. We also accept that a taxpayer who takes proper and appropriate professional advice with a view to ensuring that his tax return is correct, and acts in accordance with that advice (if it is not obviously wrong), would not have engaged in negligent conduct.” (AB v HMRC [2007] STC (SCD) 99, Judge Brice)
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- Factors suggesting advice not reliable have to be fairly obvious
"[25-2] In our judgement when a person seeks appropriate professional advice from somebody who is a professed expert in the applicable discipline, it will almost always be reasonable for the person who has sought out such advice to rely upon that advice provided only that that person has selected a seemingly competent professional adviser, unless there are factors to the knowledge of the recipient of the advice which indicate to him that it ought not to be relied upon. In our judgement such factors would have to be reasonably obvious rather than subtle or such as might only be picked up by a fellow professional. It was not argued by the respondents that on the facts of this case the situation falls into that latter category. In this case the appellant’s own abilities meant that he was in a better position to assess his accountant’s degree of proficiency and expertise, which bears mainly upon the issue whether it was reasonable for the appellant to seek and rely upon his advice (on the matters to which we refer below)." (Cannon v. HMRC [2017] UKFTT 859 (TC), Judge Geraint Jones QC)
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- Whether advice sufficient to give reasonable excuse depends on facts
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"[81]...As set out in the Clean Car test the hypothetical appellant will be taken to share such attributes of the particular appellant as the tribunal considered relevant to the situation – whether and what advice it is considered appropriate to seek and from whom will depend on the particular facts pertaining to the particular appellant." (Marlow Rowing Club v. HMRC [2020] UKUT 20 (TCC), Judge Raghavan and Judge Poole)
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- Advice by email exchange is a commonplace of commercial legal practice
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"[157] [Counsel for HMRC] criticised the Appellant for the apparent informality of an email exchange with its legal advisers. We do not agree that such an exchange was inappropriate - indeed, it is a commonplace occurrence of commercial legal practice, of which this Tribunal has considerable experience, that tax advice is frequently given by email." (Canadian Solar EMEA GmbH v. HMRC [2024] UKFTT 85 (TC), Judge Brannan)
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- Reason for taking advice relevant: genuine aim of clarifying tax position and acting accordingly
​
"[82] Moving on to evaluating the advice Marlow actually sought and obtained, we agree the question of the objective of seeking that advice will be a relevant factor. However, we disagree with HMRC that, on the facts of this case, the reason for seeking counsel’s advice was simply to mitigate a penalty that it was feared might be imposed. It is clear from the terms of the instructions sought that the appellant was genuinely seeking advice on the question of liability. Both the terms of the instructions and the proposal that counsel should advise in stages (giving a written opinion, only if counsel thought the strategy of standing behind the principles in Longridge “had legs”) is consistent with Marlow appreciating that there was a risk that counsel might not advise in the way they were hoping for. It is correct that there was also an objective on the part of Marlow to mitigate the risk of a penalty – we agree with HMRC that it does not matter whether this was erroneously thought to be a penalty in the vein of Corporation Tax rather than a s62 VAT penalty – but that does not detract from the main objective in seeking advice being to ascertain whether the supplies would be zero-rated taking account of the FTT’s reasoning in Longridge. Furthermore, we do not consider that the additional objective of seeking to mitigate a penalty which might be imposed is necessarily objectionable. Part of the intention of a penalty is to incentivise certain behaviour – and in this case the concern over a penalty played a part in incentivising Marlow to seek specialist professional advice (which could have gone either way in terms of the conclusion on liability). We see no reason why that should be held against Marlow; if it were, that might in turn encourage taxpayers to be less transparent about their reasons for seeking advice. What is relevant is that the taxpayer is seeking advice which is appropriate to their circumstances with the genuine aim of clarifying their tax position and acting accordingly." (Marlow Rowing Club v. HMRC [2020] UKUT 20 (TCC), Judge Raghavan and Judge Poole)
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- Not required to take advice from another adviser where there is scope for different views
​
"[119] It is, unfortunately, far from unusual for a particular piece of tax legislation to contain a “grey area”. It is commonplace for there to be more than one tenable interpretation of a provision or its application and for an advisor to “take a view” as to which interpretation should be adopted. That will generally be the interpretation which is most favourable to the taxpayer. It may be acknowledged that that interpretation is not beyond challenge, but provided the view is a reasonable one, the advisor is entitled to take it and to advise the taxpayer on that basis and the taxpayer is entitled to rely on that advice.
[120] A taxpayer who consults an advisor he reasonably believes to be competent and experienced in the relevant field, and who is advised that his tax return may properly be completed on the basis of a particular view of the legislation, would normally be regarded as having taken reasonable care to submit an accurate return, even if he understood that there were other possible interpretations of that legislation. This would not be the case if the taxpayer should have realised that the return had been completed on the basis of a view that was obviously untenable,
[121] We do not consider that a taxpayer is obliged to take advice from another advisor in this situation. Where there is scope for different views about a provision, there is no guarantee that another advisor’s opinion will be the “correct” interpretation. We are, by definition, considering a situation where there is uncertainty which may ultimately need to be resolved by the tribunals or the courts; different people may well take different views, all of which are tenable." (Gedir v. HMRC [2016] UKFTT 188 (TC), Judge McKeever)
​
- Cannot expect accurate advice if adviser not given full and accurate facts​
"[24]...The very purpose of obtaining professional advice against a full disclosure of pertinent facts, is to gain advice as to how one should proceed, whether it be by reference to medical treatment, legal matters, accountancy or tax matters or a multitude of other matters where the input of true expertise is appropriate before a person can make an informed decision on how he should proceed." (Cannon v. HMRC [2017] UKFTT 859 (TC), Judge Geraint Jones QC)
​
"[106]...The Appellant confirmed a number of matters under cross-examination. These were that he understood the importance of being accurate and complete in what he told his advisers when seeking legal or tax advice, that advice could only be based on the facts which he gave his tax adviser, and that if he did not give his adviser the full facts, the adviser could not be expected to give him accurate and correct advice. He also accepted that it was fundamental to his claim to be non-resident that he genuinely and actually worked full-time under a contract of employment for the tax year 1998-99. He knew that unless he had worked for a full tax year on a full-time basis in Holland, he could not rely on paragraph 2.2 of IR20 to support his claim for non-residence..." (Hankinson v. HMRC [2009] UKFTT 384 (TC), Judge Avery Jones)
​​
"Where an inaccuracy in a document has been made despite the person having taken reasonable care to get things right, no penalty will be due. Examples of when a penalty would not be due include
[...]
- acting on advice from a competent adviser which proves to be wrong despite the fact that the adviser was given a full set of accurate facts, see CH84530" (CH81130)
​
- ​Consider caveats in advice
​
"[88] So, while although he expressed initial reservations about giving an “absolute” decision, counsel then dealt with the key issues of concern regarding whether a zerorating certificate could be issued and proceeded to give advice that it could. (As an aside we note that given that there was an opportunity for counsel to request and obtain further information from Marlow prior to giving advice (Mr Wood’s statement refers to exchanges on 19 August, 6 September and 12 September) and Marlow was charged a not insignificant sum for the advice, it might be expected that Marlow might understandably feel short-changed if, as a client, it turned out that what it received was not advice on the point it had sought)." (Marlow Rowing Club v. HMRC [2020] UKUT 20 (TCC), Judge Raghavan and Judge Poole)
​
- Reasonable taxpayer would update advice on domicile
​
"[343] We therefore agree with Mr Stone that the reasonable person in Mr Strachan’s position would not have assumed he continued to be non-domiciled, but instead would have refreshed the advice he had received over a quarter of a century earlier." (Strachan v. HMRC [2023] UKFTT 717 (TC), Judge Redston)
​
- Even if no express advice consider if there was implicit reassurance
​
"[61(1)] The FTT had made detailed findings at [81] as to the care that Mr Wightman took to select an appropriate practitioner to prepare documentation in full knowledge that the documentation would need to meet specific requirements. The FTT should have gone on to consider, when formulating its conclusions at [88], whether even in the absence of specific advice, BFL obtained implicit reassurance that the loans would qualify which was enough to amount to the taking of reasonable care. By analogy, a person who instructs a lawyer to act on the purchase of a house might be said to obtain implicit advice to the effect that the documents will operate to convey title simply from the fact that the lawyer prepares those documents and identifies no problem with them.
...
[85] ... (2) Although Mr Wightman did not obtain express advice from PPCL that the Falken 1 loan was an authorised employer loan (see [89] of the Decision), BFL did rely on PPCL to produce documentation and make necessary filings to achieve that outcome. When PPCL produced loan documentation that was reasonably detailed, in the absence of any suggestion that it was defective, Mr Wightman concluded that the documentation would achieve the desired result.
(3) It was reasonable for Mr Wightman to derive that reassurance in the circumstances." (HMRC v. Bella Figura [2020] UKUT 120 (TCC), Nugee J and Judge Richards)
​​
"[35] In our judgment, in the circumstances of this case, it was not unreasonable for Mr Mabe to have been unaware of the filing obligations in question, and by appointing a chartered accountant in the way that he did Mr Mabe acted as a reasonable taxpayer, who was very aware of his own limitations in tax and accounting matters, would have done. It was not unreasonable for such a taxpayer to have assumed that Mr Entwhistle was able to, and would, advise him on any relevant tax obligation that was apparent from the information provided to him. Nor was it unreasonable for a taxpayer such as Mr Mabe, having received from Mr Entwhistle no indication that any filing obligation had been incurred in respect of his use of sub- contractors, not to have raised the question himself whether there might be a filing obligation of which he was unaware, either with Mr Entwhistle or HMRC." (Mabe v. HMRC [2016] UKFTT 340 (TC), Judge Gillett)
​
- Query the relevance of Katib
​
"[34] We add that it is also rare for reliance on an adviser to provide a person with a reasonable excuse, both because such reliance is prevented by Sch 5 para 23(2)(b) from providing such an excuse unless the person can show he took reasonable care, and for the reasons given by Ward LJ in Hytec Information Systems v Coventry City Council [1997] 1 WLR 666 at p 1675..." (Purple Sunset Limited v. HMRC [2023] UKFTT 659 (TC), Judge Redston)
​
"[70] In HMRC v Katib [2019] UKUT 189 (TCC) (“Katib”), the Upper Tribunal had to consider the extent to which reliance on an adviser was a justifiable reason for failing to make an appeal on time. However, Katib is also relevant in the context of penalties in considering whether there is a reasonable excuse for the inaccuracy. In that case, the adviser did not provide competent advice to Mr Katib, misled him as to what steps were being taken to appeal and failed to appeal on his behalf. That is more extreme than the situation in this case.
[71] On the facts of that case, the Upper Tribunal concluded that the failings by the appellant’s agent could not be relied upon by the appellant." (Beesley v. HMRC [2023] UKFTT 650 (TC), Judge Anne Scott)
​
Careless adviser/professional
​
- Judge by reference to standard of reasonable competent person in professional's role
​
"For the purposes of this decision, we accept the submission by Mr Marks that the reasonable care which should be taken by a taxpayer is assessed by reference to a prudent and reasonable taxpayer in the position of the taxpayer in question. We extrapolate this as regards a person acting on behalf of the company by saying that the reasonable care which such an adviser should take is assessed by reference to a prudent and reasonable adviser in the position of the adviser in question.
In both cases there is an objective and a subjective element. The objective element is the prudent and reasonable taxpayer or adviser. But reasonable care must be tested against the personal or professional qualities, expertise and experience, which either the taxpayer or the adviser actually has or holds out as having. So whilst there is one standard (reasonable care) what is reasonable in one case, may not be reasonable in another, depending on the personal and professional attributes of the taxpayer and adviser." (Keighley v. HMRC [2024] UKFTT 30 (TC), Judge Popplewell)
​
"[94] Given my findings regarding Mr Callen’s perception of what Mr Bevis was doing as well as what Mr Bevis was holding himself out as doing and in fact did, I am clear that Mr Bevis took on the role of a tax adviser to Mr Callen and, applying Hicks, I must therefore judge Mr Bevis by the standard of a reasonably competent tax adviser giving advice to a taxpayer." (Callen v. HMRC [2022] UKFTT 40 (TC), Judge Bowler)
​
- Need evidence of what a reasonably competent adviser would have done
"[151] HMRC asserted that ELS was negligent in not advising the Appellants to amend their returns, but as Mr Chacko said, they have not provided any evidence as to what a reasonably competent tax adviser would have done or whether a reasonably competent tax adviser would have taken the view, at the time, that section 194 applied to this scheme. HMRC have not discharged the burden of proving on the balance of probabilities that ELS were negligent." (G C Field & Sons Ltd v. HMRC [2021] UKFTT 297 (TC), Judge McKeever)
​
- Failure to address relevant provisions in report was careless
"[159] But even without this information, it is our view that when loans are being written off the unallowable purpose provisions are a matter of fundamental importance to any advice regarding the propriety and technical basis for asserting that a partial write-off of a loan could be taken as a tax-deductible debit in the accounts and tax return of the lender. The unallowable purpose provisions are renowned for having an extensive but somewhat undefined scope and thus impact on both the creation of a loan relationship and matters affecting it.
[160] So, we do not think that the submission that the justification for failing to address unallowable purpose in the GT report as its being irrelevant, has merit.
[161] We would have expected that unallowable purpose would have been addressed in the report if only to reject its application to the circumstances. If this had been the case, and depending on the rationale given for that dismissal, it is much more likely that we would have found that GT had taken reasonable care in compiling the report." (Keighley v. HMRC [2024] UKFTT 30 (TC), Judge Popplewell)
​
Reliance on a third party
​
- Barrister not expected to reconcile fee print out from chambers to bank statements (unless reason to doubt)
"[59] Now that the respondents put their case on the basis of a want of reasonable care, rather than this being a deliberate error, the assertion is made on the basis that when the appellant asked his clerks for a computer printout of his fee income, aged debt and payments made to his Chambers, in readiness to prepare his accounts which would form the basis of information inserted into a relevant tax return, the appellant should not have placed reliance thereon without undertaking an audit or a reconciliation by reference to his banking records. We reject that contention. It would involve a barrister in such a situation having to undertake audit or reconciliation work quite over and beyond that which is it is reasonable to expect. That is because a barrister is entitled to place reliance upon those in a responsible position within his Chambers tasked with keeping the records in proper order. The concept of proportionality is relevant. Given that a barrister in any properly run set of Chambers is entitled to place faith in the integrity and reliability of the accounting records maintained by his clerks, with which he is unable to interfere, it is in our judgement quite disproportionate to expect any such barrister then to embark upon the extremely time-consuming and laborious process of auditing and/or seeking to reconcile those records. We arrive at that conclusion because, as stated above, the duty is to take reasonable care; [60] In our judgement, a barrister in the position of the appellant takes reasonable care by placing reliance in the integrity and reliability of his Chambers’ maintained accounting records unless he has some good and proper reason either to doubt their integrity or accuracy. When the appellant came to have his accounts prepared, very many months after this one fee had been posted to his computer ledger a couple of days after its actual receipt (so as to put it in a different accounting year), we see no reason why the appellant should suddenly have considered that he should check whether his clerks had entered a single fee as received a couple of days after its actual receipt." (Cannon v. HMRC [2017] UKFTT 859 (TC), Judge Geraint Jones QC)
​
HMRC's advice/opinion
​​
- ​Not obliged to seek advice from HMRC (HMRC expected to take view most favourable to them)
​
"[122] Nor is a taxpayer obliged to seek advice from HMRC. There may be occasions when it is helpful to ascertain HMRC’s view on a particular provision, but the taxpayer does not necessarily have to agree with it! In a case where a range of views are possible, HMRC would be expected, and entitled, to take the view which is most advantageous to it in the same way as the taxpayer would be expected, and entitled, to take the view which is most in his favour." (Gedir v. HMRC [2016] UKFTT 188 (TC), Judge McKeever)
​
- Not necessary if HMRC would be in no better position to advise on interpretation of the law than a professional adviser
​
"[93] ... More crucially there would be little point, in these circumstances, in approaching HMRC because what they would receive from HMRC would, in any case amount only to HMRC’s view of the law – and HMRC would be in no better position to advise on what the correct position was as to the interpretation of the law than a professional adviser. As an aside we note the relevance of whether or not advice is sought or not from HMRC will depend on the facts. There may well be cases where seeking advice from HMRC might be a necessary component of a “reasonable excuse” defence – but it will very much depend on the taxpayer’s situation and the relevant legal issue. We are satisfied, on the facts of this case, that there was nothing to be gained in approaching HMRC for a view and that the fact this was not done should not count against Marlow.
[The taxpayer] referred us to the Upper Tribunal’s decision in Commissioners for Revenue and Customs v Greenisland Football Club [2018] UKUT 440 (TCC). In that case HMRC were appealing against the decision of the FTT that the football club was not liable for a s62 VAT penalty in respect of a zero-rating certificate given in relation to a new clubhouse. The FTT held the supply was zero-rated and even if it was not, that the football club had a reasonable excuse as it accepted the club’s evidence that it had sought professional third-party advice. As explained by Horner J (at [65] onwards) HMRC disputed the FTT’s acceptance of the club’s oral evidence to that effect. In their skeleton for the UT appeal they argued the appellant ought to have taken professional advice and/or advice from HMRC. Horner J noted HMRC’s position changed to arguing that the club should have sought advice from HMRC in any event. That change in position received short shrift and the judge went on to note there was no mention on HMRC’s VAT Notice 708 which advised a taxpayer to seek advice direct from HMRC..." (Marlow Rowing Club v. HMRC [2020] UKUT 20 (TCC), Judge Raghavan and Judge Poole)
​
- Carefully taking a view contrary to HMRC's published advice not careless​
​
"[65] Considering all of the evidence before me, HMRC have not established that the insufficiency was brought about carelessly. There were two different inaccuracies which resulted in the insufficiency, namely a failure to put the redress in one of the taxable income boxes (and they had drawn attention to this in the “white space” and by including the attachments) and the incorrect calculation of the liability in those attachments (which, whilst wrong, was carefully and knowingly based on Mr and Mrs Rosser’s position as to how the tax should be calculated). Assessing their conduct by reference to the actions of reasonable and prudent persons, the insufficiency was not brought about carelessly by them. " (Rosser v. HMRC [2022] UKFTT 106 (TC), Judge Zaman)
​
Reasonableness of non-payment of tax pending judicial review​
​​
- Reasonable to await outcome of first-instance court
​
"[92] For the first period, which runs from the service of the closure notices, through the issue of the judicial review claim on 29 March 2016, up to the point at which Jay J dismissed the judicial review, I would accept that on a balance of probability the appellant had an objectively reasonable excuse for non-payment. There was an obvious problem with the closure notices which did not contain amendments to the taxpayer's self-assessed returns. The appellant's judicial review was described by Kerr J as having a real prospect of success and by me as being arguable. Kerr J granted interim relief to prohibit HMRC from seeking to enforce the tax debt while the judicial review proceeded. The whole point of the judicial review was to establish whether the tax was payable at all, and there was a risk that the judicial review would be undermined or rendered nugatory if the tax was paid.
[93] I would not have required any more evidence than is currently before this Court to reach that conclusion. Specifically, I would have been willing to infer that the judicial review was the appellant's reason for non-payment. There is evidence, in the form of the appellant's statement in the judicial review, to establish that he had the funds available to pay, at least at this stage." (Archer v. HMRC [2023] EWCA Civ 626, Whipple, Simler, Falk LJJJ)
​
- Additional evidence required to show it is reasonable to await outcome of CoA appeal
​
"[90] I consider next the second period (ie, from the decision of Jay J until the hand-down of the Court of Appeal's decision on 30 November 2017). There was a short time of around 2 weeks in February/March 2017 when no permission or interim relief was in place, but I would not base my decision on the existence of that relatively short gap which can, I think, be bridged by section 118(2). The key feature of this period is that the appellant now had a judgment against him, expressed by Jay J in trenchant terms, suggesting that he should pay up because one way or another he was going to lose. It is true that by 7 March 2017 he also had an order granting permission to appeal (on the standard necessary for a second appeal) as well as interim relief, and that Henderson LJ's order was expressed in terms which might have given cause for optimism. It is also true that the risk remained that the judicial review (now on appeal) might be jeopardised by payment of the tax, although that was surely now a smaller concern, simply because success in the judicial review looked less likely.
[91] There are factors going both ways in this period. I have concluded that on balance the loss of the case at first instance meant that it was no longer permissible for the appellant simply to point to the existence of the judicial review, without more. If, however, the appellant had adduced some further evidence for this period, to fill in the gaps and explain why payment was not made, and to establish that the judicial review as it was ongoing really was the reason for non-payment, it might have been possible to reach a conclusion in his favour." (Archer v. HMRC [2023] EWCA Civ 626, Whipple, Simler, Falk LJJJ)
​
- Not reasonable to fail to pay whilst waiting for UKSC decision on permission
​
"[87] On any view, the appellant should have paid the tax by, say, mid-December 2017. In fact, the appellant paid the tax on 22 June 2018, over six months later. That is fatal to this appeal, because that period of delay cannot be viewed as reasonable. On 17 November 2017, the Court of Appeal concluded that the defects in the closure notices were cured by section 114(1); interim relief was discharged and permission to appeal was refused. At that point the tax was due pursuant to the closure notices as validated pursuant to section 114. It might have been reasonable for the appellant not to have paid the tax forthwith, not least because section 118(2) envisages a taxpayer having a reasonable time to make the payment once the reasonable excuse ceases, and a period of a week or two would not seem unreasonable in the context of this long-running case and given the amounts involved. But after that, the appellant's arguments run dry. The appellant was not reasonably entitled to rely on HMRC's agreement not to enforce the debt as a basis for continued non-payment. That agreement amounted to an administrative act by HMRC, reached on a pragmatic basis. It carried no assurance that surcharges would not be imposed. The marking of his account as "payment suspended" was consequential on HMRC's agreement, and was simply an internal measure, again for administrative purposes. It carried no assurance that surcharges would not be imposed.
[88] In this period, the appellant was seeking permission for a second appeal to the Supreme Court, to try to overturn a unanimous and compelling judgment of the Court of Appeal which told him in clear terms that he owed the tax. He was entitled to seek that second appeal of course, but it does not provide him with a reasonable excuse for continued non-payment.
[89] By mid-December 2017, a responsible taxpayer, especially one who benefited from expert legal advice as this taxpayer did, would have paid the tax. Any concerns which the appellant might at one point have harboured about the judicial review becoming nugatory in the event of success had receded in significance, given that the prospects of success in the judicial review were now looking remote. Further, HMRC had offered to repay the tax if the appellant was successful in the Supreme Court and at the very least, investigation of alternative ways of safeguarding the appellant's position in the event of success was required. It was not reasonable or responsible simply to sit back and wait for the Supreme Court's permission decision. These were not the actions of a responsible trader conscious of and intending to comply with his obligations regarding tax, applying Clean Car. Further, it could not simply be inferred by this point that the real reason for non-payment was the continued understanding or belief that the tax was not payable because of the defective closure notices; there was a real possibility that the appellant just did not want to pay the tax or that he wished to retain the cashflow benefit of keeping hold of the money for a bit longer." (Archer v. HMRC [2023] EWCA Civ 626, Whipple, Simler, Falk LJJJ)
​
- Should have known of connection to fraud is not deliberate
​
"[256] We do not agree with Mr Watkinson’s submission that an inaccuracy which is based on a finding that OWD should have known of a connection to the fraudulent evasion of VAT constitutes a deliberate inaccuracy. We gratefully adopt the explanation of a deliberate inaccuracy set out in Auxilium. As the Tribunal in Auxilium went on to explain, the question of whether there is a deliberate inaccuracy is a subjective test; it is not whether a reasonable taxpayer might have made the same error or even whether this taxpayer failed to take all reasonable steps to ensure that the return was accurate. It is a question of the knowledge and intention of the particular taxpayer at the time.
...
[260] Mr Watkinson submitted that the description by Moses LJ of what is caught by “should have known” goes beyond carelessness. We agree that the description is such that someone who is found to meet this threshold will almost inevitably be found to have been careless; but the ease with which that conclusion can be reached does not mean that they should be treated as having knowingly provided HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. Our conclusion was that OWD should have known that this was the case; but that is not actual knowledge.
[261] We have concluded that the inaccuracy in OWD’s returns was not deliberate." (Bachra v. HMRC [2023] UKFTT 91 (TC), Judge Zaman)
​
Fraud/dishonesty
​
- Judge by reference to the standards of ordinary decent people
​
"[15] The tests required to show dishonesty were summarised in Byers v Revenue and Customs Commissioners [2019] UKFTT 310 (TC) ("Byers") as follows:
[142] .... Following Ivey v Genting, the test for dishonesty to be applied in both criminal and civil proceedings is Lord Nicholls' test in Royal Brunei v Tan, as clarified by Lord Hoffman in Barlow Clowes.
[143] Lord Nicholls' test was applied in determining "dishonest" in the context of a penalty under s 60 VATA by Judge Pelling QC (sitting as a High Court Judge) on Sahib Restaurant Ltd v HMRC (Case M7X 090,9 April 2009, unreported):
"in my view, in the context of the civil penalty regime [contained in what was then s 60 of the Value Added Tax Act 1994] at least the test for dishonesty is that identified by Lord Nicholls in Tan as reconsidered in Barlow Clowes. The knowledge of the person alleged to be dishonest that has to be established if such an allegation is to be proved is knowledge of the transaction sufficient to render his participation dishonest according to normally acceptable standards of honest conduct. In essence the test is objective - it does not require the person alleged to be dishonest to have known what normally acceptable standards of honest conduct were."
[144] That the civil test of dishonesty is essentially objective is confirmed by Lord Hoffman is Barlow Clowes, where it is stated at [10]:
"Although a dishonest state of mind is a subjective mental state, the standard by which the law determines whether it is dishonest is objective. If by ordinary standards a defendant's mental state would be characterised as dishonest, it is irrelevant that the defendant judges by different standards."
[145] While the test for dishonesty is primarily objective, Lord Nicholls has remarked on the subjective element that remains relevant to the test as follows:
"Honesty, indeed, does have a strong subjective element in that it is a description of a type of conduct assessed in the light of what a person actually knew at the time, as distinct from what a reasonable person would have known or appreciated. Further, honesty and its counterpart, dishonesty, are mostly concerned with advertent conduct, not inadvertent conduct."
[146] In respect of how this 'subjective element' is to be taken into account by the court, Lord Nicholls' guidance is:
"Likewise, when called upon to decide whether a person was acting honestly, a court will look at all the circumstances know to the third party at the time. The court will also have regard to the personal attributes of the third party such as his experience and intelligence, and the reason why he acted as he did."
[147] A s.61 penalty is predicated on a s.60 penalty being imposable on the body corporate in the first place. Section 60(1) of VAT provides:
"(1)(a) for the purpose of evading VAT, a person does any act or omit to take any action, and (b) his conduct involves dishonesty ..."
[148] It is clear from the statutory wording under sub-s 60(1)(a) that the conduct involving dishonesty is not restricted to the commission of an action, but includes an omission to act. The statutory wording in this regard accords with case law authority on the meaning of dishonesty, as Lord Nicholls in Royal Brunei stated at p106;
'Nor does an honest person in such a case deliberately close his eyes and ears, or deliberately not ask questions, lest he learn something he would rather not know, and then proceed regardless"." (Hanlon v. HMRC [2024] UKFTT 175 (TC), Judge Tilakapala)
​
"[134] However, both of those cases applied the test to determine dishonesty in R v Ghosh [1982] 1QB 1053 which has subsequently been superseded (as acknowledged by both parties) by the test set out in Ivey v Genting Casinos (UK) Ltd [2017] UKSC 67 at para 74:
“When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”
[135] Notably, Ivey makes clear that there is no requirement that the taxpayer in a case such as this must appreciate that what he has done is, by the standards of ordinary decent people, to be dishonest." (Grantham Ceilings & Interiors Limited v. HMRC [2022] UKFTT 99 (TC), Judge Bowler)
​
- Knowing involvement in and facilitation of orchestrated fraud is dishonest
​
"[76] The themes which emerge are: first, that Mr Trees was knowingly involved in facilitating the fraud; secondly, that he took part in orchestrated transactions that he knew were connected to fraud; and, thirdly, that he took steps to conceal the fraud. We find that each of these themes are dishonest by the objective standards of ordinary decent people. This is because each of these themes go beyond knowledge in that they involve active participation in the fraud. This is furthered by the fact that Mr Trees necessarily took the extra step of declaring the transactions and claiming input tax in respect of them, notwithstanding his knowledge about the connection to fraud." (Trees v. HMRC [2024] UKFTT 516 (TC), Judge Chapman KC)
​
- Giving implausible evidence is dishonest
​
"[101] We find that Mr Trees' conduct in this regard was dishonest by the objective standards of ordinary decent people. In saying that Mr Trees' evidence was "implausible", Judge Mosedale and Mrs Hunter went beyond simply saying that his evidence was unreliable or not accepted. Giving implausible evidence in a witness statement and in oral evidence is dishonest by the objective standards of ordinary decent people as it is an attempt to deceive the tribunal. This is perpetuated by it being inherent in the finding that Mr Trees knew that CCA's transactions were connected to fraud that he also knew that CCA was not entitled to reclaim the input tax. We note that although this was necessarily after the transactions, it is to be seen objectively as an attempt within the CCA Appeal to conceal the fraud." (Trees v. HMRC [2024] UKFTT 516 (TC), Judge Chapman KC)
​
- Reclaiming VAT which taxpayer had not paid and knew supplier would not be able to pay is fraud/dishonest
​
[158] We were repeatedly told that those involved thought that if the disputes were settled GC would pay Holdings, but that was a very significant caveat. We readily accept that if the disputed money had been received the outstanding amounts would have been paid by GC to Holdings. Furthermore, this is not a case of a pre-planned fraud or an MTIC arrangement. However, making the GC reclaims for VAT which had not been paid to Holdings and which GC knew Holdings would be unable to pay to HMRC given the deep-rooted financial problems was dishonest when the approach required by Ivey v Genting is applied of that of the ordinary decent person." (Grantham Ceilings & Interiors Limited v. HMRC [2022] UKFTT 99 (TC), Judge Bowler)
​
- Wilful blindness as dishonesty
"[30] Here, the Appellant's position is, essentially, that he did not know that VAT evasion was taking place. This is, he says, because he entrusted the running of his Company to third parties and assumed and was, at times, told by those third parties, that they were taking the steps necessary to ensure the Company's compliance with its obligations including its VAT obligations. He asks us to believe that he was naive and overly trusting but not at any time dishonest.
[31] Having taken into account the evidence made available to us, we find that HMRC has satisfied us that on the balance of probabilities, the Appellant either (a) was aware of the Company's excise duty and VAT evasion activities, or at the very least (b) chose not to investigate whether the Company was in compliance with its tax obligations (including its VAT obligations) in case he learned something that he would rather not and then proceeded regardless. In either event his behaviour was, we consider, dishonest by ordinary standards or the normally accepted standards of honest behaviour." (Hanlon v. HMRC [2024] UKFTT 175 (TC), Judge Tilakapala)
​
- Unlikely that trader would commit audacious fraud right under the noses of HMRC at exquisite risk of being detected
"[221] We stop short of finding that he actually knew because this would necessarily connote, in this case, a finding that Mr Crothers was a fraudster of an especially audacious kind: it would make him a person prepared to commit fraud, over the course of many months, right under the noses of HMRC (and knowing he was under intense scrutiny by HMRC - under extended verification), at exquisite risk of the fraud being uncovered at any moment; and then that he was a person prepared and equipped to brazen it out, even before the Tribunal, throughout the course of a lengthy and searching cross-examination.
[222] We simply do not think that Mr Crothers is that person. We consider him to be a clever and resourceful man, and, if he really were an actual fraudster who wished to cover his tracks, he would have done a better job." (Wholesale Distribution Limited v. HMRC [2024] UKFTT 514 (TC), Judge McNall)
​
Exceptional circumstances
"[179] Albeit relating to completely different legislation, Lady Justice Arden, as she then was, in R (oao) Rowe & Others v HMRC [2017] EWCA Civ 2105 said in relation to the phrase “exceptional circumstances” that “In my judgement, the circumstances which are likely to constitute exceptional will be varied and case specific …”. Looking at the case law to which we have been referred, we agree.
[180] We also note that The New Shorter Oxford English Dictionary defines “exceptional” as being “Of the nature of or forming an exception; unusual, out of the ordinary; special”.
[181] Exceptional is not the same as unique." (Ocean Choice International Limited v. HMRC [2023] UKFTT 289 (TC), Judge Anne Scott)
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Confusing situation created by HMRC
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"[200] The facts of that case are completely different to the facts in this case because there is no fraud in this instance and the appellant has acted in good faith. Nevertheless we consider that it is relevant in the sense that the very confused information disseminated by HMRC, which appears to have confused even their own officers, has undermined the system and contributed to the reason that the customs debt was incurred. Therefore the situation for the appellant was certainly beyond the normal commercial risk relating to its business." (Ocean Choice International Limited v. HMRC [2023] UKFTT 289 (TC), Judge Anne Scott)