© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
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3a. Reasonable excuse examples
Reliance on advice
- Reliance on advice that returns not required reasonable excuse
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"[39] The tax advice, that returns were not required, relied upon by the Appellant, was later endorsed by legal advice. My finding, that the manner the services were provided was not shown to meet the statutory criteria to disapply the requirement of a return, is not a finding of failings or unreasonableness on the part of the Appellant’s advisors, that should be bourne by the Appellant. There were no warnings signs that should have caused the Appellant to question that advice.
[40] Relying on that advice was a reasonable thing for the Appellant to do, conscious of and intending to comply with their obligations regarding tax, but having the experience and other relevant attributes of the Appellant and placed in the situation of the Appellant at the relevant time." (Fastklean Ltd v. HMRC [2020] UKFTT 289 (TC), Judge Sukul)
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- Reasonable to rely on professional advice where taxpayer had professional expertise and took Counsel's advice but no HMRC advice
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"[96] In our view, taking into account that even though Marlow had tax and other professional expertise on its committee, it acted reasonably in seeking advice from VAT specialist accountants and counsel with specific expertise in relation to charity VAT in the light of the proposed construction and the state of the law following the FTT’s decision in Longridge. It also acted reasonably in relying on that advice in the way it did, in omitting to seek advice from HMRC and in accordingly issuing the zero-rating certificate. We therefore find Marlow had a reasonable excuse for issuing the incorrect zero-rating certificate." (Marlow Rowing Club v. HMRC [2020] UKUT 20 (TCC), Judge Raghavan and Judge Poole)
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- Taxpayer not careless in relying on adviser to look at detail
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"[149] If Mr Bevis had not been involved and if Mr Hicks had relied upon his own assessment of the scheme and the deductibility of the expenditure in his particular case, then he would clearly have been careless, in many of the ways alleged by HMRC. However, Mr Bevis was involved and took on the role of giving advice and making recommendations to Mr Hicks in the way we have described above. That fact obviously reduced the need for Mr Hicks himself to form his own independent view as to the relevant matters and we consider that it would be wrong to hold that Mr Hicks was careless for failing to do due diligence and pay 10 attention to the detail in the ways alleged by HMRC." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)
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- Failure to update advice if circumstances change may be negligent (but may not be causative)
"[77] In our judgment, the FTT was entitled to its conclusion that there was a prima facie case that Mr Hargreaves had been negligent in failing to obtain further advice from PwC. The Advice demonstrates that PwC thought it was of some importance for Mr Hargreaves to have a lease of property in Monaco, in his own name, lasting at least three years, for him to have a residence permit issued by the Monaco authorities and to demonstrate that he had moved personal belongings to Monaco. Moreover, as the FTT noted at [36] of the Decision, Mr Hargreaves had been told that, for a disposal of Matalan shares in 2000-01 to escape CGT, Mr Hargreaves would need to be resident outside the UK throughout the 2000-01 tax year. Yet, as the FTT noted in paragraph [54] of the Decision, Mr Hargreaves initially stayed at a hotel in Monaco, then lived on a yacht and only obtained a lease of an apartment in November 2000. He did not obtain a residence permit until August 2000 (with the result that, until then, the Monaco authorities regarded him as a “tourist”). He did not move any significant belongings to Monaco. The FTT clearly had these issues in mind in paragraphs [116] and [118] of the Decision. It was entitled to conclude that these changes of circumstances would have caused a reasonable taxpayer to ask PwC whether it would still be appropriate to claim to be resident outside the UK throughout 2000-01 and that Mr Hargreaves’ failure to do so amounted to a prima facie case of negligence.
[78] Having permissibly found a prima facie case of negligence, the FTT was then entitled to ask whether Mr Hargreaves had done enough to displace that prima facie case. Conceptually, Mr Hargreaves could have adduced evidence that in fact further advice had been taken. He could have put forward an explanation as to why neither he nor PwC considered that further advice was necessary. However, when Mr Hargreaves chose to put forward no evidence at all to answer the prima facie case, the FTT was entitled to conclude that he had indeed breached his duty. That said, the significance of Mr Hargreaves’ decision not to give evidence is limited. It justified the FTT’s conclusion that a breach of duty was established, but did not give rise to any special inference that all elements of HMRC’s accusation of negligence were established. Specifically, it did not necessarily establish that the Situation was “attributable to” Mr Hargreaves’ breach of duty.
[80]...The question which then arises is what would have happened if Mr Hargreaves had complied with his duty, and had sought and obtained the required further advice from PwC..." (Hargreaves v. HMRC [2022] UKUT 34 (TCC, Edwin Johnson J and Judge Jonathan Richards)
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- Depth and quality of advice must correspond to significance of the issue
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"[412] We do not consider that the evidence of obtaining advice by the business is sufficient to counter the evidence that the UK LLP was careless. The advice from PwC was predicated upon different structural elements to those involved with the actual operation of the Capital Interests. The advice obtained from both PwC and EY was lacking in depth and quality given the concerns raised by senior management in BCG and by the adviser, PwC, themselves. We conclude that the level of care taken in this respect was not in line with what would be expected of a prudent and reasonable taxpayer in the position of the UK LLP." (Boston Consulting Group UK LLP v. HMRC [2024] UKFTT 84 (TC), Judge Bowler)
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- Internal advice of sufficient quality to amount to reasonable care
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"[420] In relation to the deferral of profit allocation to the MDPs in 2012/2013 to 2013/2014, (assuming for these purposes that this was not effective), we are satisfied that the UK LLP was not careless. HMRC say that it was not reasonable to take this course of action without external advice. We do not agree. This is the sort of matter about which we would expect the internal department of a large corporate such as BCG, to be well qualified to take a view. In fact, the evidence shows that the internal tax department produced a memorandum considering matters such as UK Treasury forecasts which had modelled the tax impact of expected forestalling, and this memorandum was produced after obtaining advice from PwC that the deferral should work. We consider that was in line with what would be expected of a prudent and reasonable taxpayer in the position of the UK LLP." (Boston Consulting Group UK LLP v. HMRC [2024] UKFTT 84 (TC), Judge Bowler)
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- Failure to give express instruction unreasonable even if it was an implied term of retainer
"[78]...We also take into account that it was an implied term of Mr Abrol’s retainer that he should consider and advise upon steps Mr Ketley should take to mitigate his losses arising from any negligence on the part of his financial advisers.
[79] The issue to be addressed is whether Mr Ketley gave notification to HMRC without unreasonable delay after 14 October 2015, when he was advised that no certificate had been issued by HMRC. We are concerned with the period of 10 months between 14 October 2015 and 15 August 2016 and we shall initially focus on the actions and omissions of Mr Ketley and not those of Mr Fleet or Mr Abrol.
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[88] Mr Ketley did not at any stage between 14 October 2015 and 13 July 2016 give express instructions either to Mr Fleet or Mr Abrol to advise him whether a late notification could be given, or to engage with HMRC to see if they would accept a late notification. We consider that Mr Ketley’s failure to give express instructions to that effect was unreasonable." (Ketley v. HMRC [2021] UKUT 218 (TCC), Judge Cannan and Judge Greenbank)
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- Not required to have adviser's work checked by another adviser
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"[58] Also on the question of perversity, BFL argues that the FTT set an objective standard for “reasonable care” which would have required BFL, having engaged PPCL, to pay another professional to review PPCL’s documentation. We do not accept that submission. The FTT was not saying that a reasonable taxpayer would have obtained additional advice. Rather, its finding was that carelessness was established because BFL obtained no advice." (HMRC v. Bella Figura [2020] UKUT 120 (TCC), Nugee J and Judge Richards)
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​- Required to check non-technical aspects of return completed by adviser
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"[191] In our view, as trustee it was reasonable for MLT to rely on expert valuers only if they had:
(1) undertaken some steps to ensure that those on who they relied have the relevant expertise and
(2) even if they did so, to scrutinise the transactions in which they are involved to fulfill their role as trustee of the pension fund and to at least apply basic commercial acumen to test the valuations which are being provided.
[192] On the first of these tests, at least until the appointment of Mr Manchester in 2011, Morgan Lloyd’s reliance on their own expert reports was misplaced, given the obvious lack of experience of those who were carrying them out, such as Mr Kelly of Seabright." (Morgan Lloyd Trustees Limited v. HMRC [2023] UKFTT 355 (TC), Judge Short)
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"[27] Had the return included complex, technical matters she might have had to rely on her accountant to deal with the technical aspects but she would still be expected to check that the stated amounts of income etc were correct. This return did not contain any complex or technical aspects. Either Miss McCann relied on the accountant and did not check the return at all or, if she did check it, she failed to note that it omitted over £13,000 of additional employment income over and above the £8,841 she declared as well as the other items.
[28] I conclude that she failed to take reasonable care to avoid any inaccuracy in her tax return and that a penalty under Schedule 24 was properly due." (Mccann v. HMRC [2020] UKFTT 347 (TC), Judge McKeever)
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Reliance on professional to carry out task
- Reasonable to assume accountant would deal with administrative tasks
"[46] We are with Dr Rizvi on this point. McKenzie Knight had looked after him for well over 20 years and had done so well. They were appropriately qualified to look after his tax returns. Judging Dr Rizvi’s behaviour by the standards of a prudent and reasonable taxpayer, it does not seem to us to be imprudent or unreasonable for a taxpayer to assume that a well-qualified firm of accountants would make sure that any formal requirements needed before a particular tax position could be adopted (here, a relief claimed) had in fact been obtained. This is not an area where the person preparing the tax return needs to discuss a position or obtain information from the taxpayer. The return preparer simply needs to make sure that they have had sight of the required form. In the case of Dr Rizvi’s EIS investments, these forms had always come through McKenzie Knight. It was not careless of Dr Rizvi to assume that the accountants preparing his tax return would deal with mechanical, administrative tasks such as making sure that any required paperwork had been obtained." (Rizvi v. HMRC [2023] UKFTT 124 (TC), Judge Baldwin)
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- Reasonable to assume adviser would identify relevant filing requirements for CIS
"[160] I do not agree that Mr Barrett’s actions were unreasonable. In my view, the steps taken by Mr Barrett to employ an accountant who evidently held himself out as able to provide a comprehensive service, both as regards accounting and tax, for a small business such as that of Mr Aspros, and in providing all relevant documentation to Mr Aspros, were the actions of a reasonable taxpayer in the position of Mr Barrett. Whilst Mr Barrett did not undertake any research in to Mr Aspros’ capabilities before appointing him, he was reasonably entitled to assume, from Mr Aspros’ acceptance of the appointment, that Mr Aspros would be competent to deal with both the accounting and tax aspects of his business. I do not accept that such a reasonable taxpayer would necessarily have taken separate steps to inform himself, independently of his accountant, of his obligations to make returns under the CIS, whether by seeking a second opinion, or by consulting HMRC, or HMRC’s published guidance, himself.
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[164] In my judgment, in the circumstances of this case, it was not unreasonable for Mr Barrett to have been unaware of the filing obligations in question, and by appointing an accountant in the way that he did Mr Barrett acted as a reasonable taxpayer, aware of his own limitations in tax and accounting matters, would have done. There was nothing unreasonable in the manner in which Mr Barrett conducted his relationship with Mr Aspros, or in the timely provision of relevant information from which Mr Aspros could reasonably have been expected to identify the relevant filing requirements for a business such as that of Mr Barrett. It was not unreasonable for such a taxpayer to have assumed that Mr Aspros was able to, and would, advise on any relevant tax obligation that was apparent from the information provided to him. Nor was it unreasonable for a taxpayer such as Mr Barrett, having received from Mr Aspros 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 Aspros, or HMRC, or indeed anyone else.
[165] Accordingly, I conclude that Mr Barrett had a reasonable excuse for the non-filing of the CIS returns for which the penalties under s 98A TMA have been determined." (Nigel Barrett v HMRC [2015] UKFTT 329 (TC) (Judge Berner))
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Carelessness of adviser​
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- Accountant relying on Counsel's opinion supporting improbable interpretation not negligent
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"[136]... Our own view is that the interpretation of section 730 propounded by Montpelier was an improbable one and unlikely to be accepted by a tribunal or a court. We note that the FTT concluded at [116] that “the Montpelier reading of section 730 was plainly wrong” which goes a little further then we would go. However, we have to acknowledge that Montpelier had obtained Counsel’s Opinion which stated that the effect of section 730 was indeed as Montpelier propounded. A copy of that Opinion was provided to Mr Bevis. In the light of that fact, we consider that it would not be right to hold that Mr Bevis was careless in relying upon this Opinion." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)
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- Unreasonable failure of adviser to investigate factual basis of advice
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"[138]...Although Montpelier had said that Mr Hicks was “precisely the category of financial trader for whom the Scheme worked to generate a tax loss”, there are two reasons why it was not reasonable for Mr Bevis to fail to investigate Mr Hicks’ trading position. The first is that the importance of Mr Hicks establishing that he was a dealer in the right to receive dividends was emphasised by paragraph 11 of Counsel’s Opinion which had been provided to Mr Bevis. The second reason is that it was not reasonable for Mr Bevis simply to rely on statements made by Montpelier when seeking to sell the scheme to taxpayers without Mr Bevis forming his own view (taking advice if need be) as to such a matter." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)
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- Unreasonable failure of adviser to inform taxpayer that adviser not qualified to form independent view
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"[139]... It was careless of Mr Bevis to take on that role when the FTT held that he was not in a position to, or qualified to, form an independent opinion on the detailed workings of 10 the Scheme (FTT decision at [175]). If Mr Bevis had made it clear to Mr Hicks that he was not qualified to offer him any advice or recommendation as to his participation in the scheme or as to the completion of the relevant part of the assessments, then Mr Hicks would have known that he could not rely on Mr Bevis, but Mr Bevis did not make that clear but took on the role of giving relevant advice. That advice was clearly 15 wrong in relation to the deductibility of the expenditure.
[140] By taking on the role of a tax adviser to Mr Hicks in this respect, Mr Bevis has to be judged by the standard of a reasonably competent tax adviser giving advice to a taxpayer on this matter. The advice which Mr Bevis gave was not advice that could have been given by a tax adviser of reasonable competence." (HMRC v. Hicks [2020] UKUT 12 (TCC), Morgan J and Judge Brannan)
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- Failure to make any independent assessment of accuracy of figures
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"[95] ... Yet the Counsel’s Opinion stated clearly that the key issue concerned the ability of the Scheme participants to rely on the Scheme transactions being trading transactions for them. Counsel stated clearly that the participant “must be able to demonstrate a pattern of dealing which leaves no doubt that he is trading in the right to receive dividends”.
[96] Mr Bevis was fully aware of Mr Callen’s trade, but, just as in the Hicks case, he took no action to investigate whether Mr Callen had established the necessary pattern of trading when completing Mr Callen’s 2008/2009 and 2009/2010 tax returns. He therefore included the expenditure without having addressed whether it was properly deductible on the basis of the Counsel’s Opinion; let alone on the basis of core principles of UK tax rules requiring expenditure to be wholly and exclusively for the purposes of a person’s pre-existing trade if it is to be deducted. This is not a case where a tax advisor considered the issues and reached a view which proved to be wrong. Mr Bevis did not attempt any independent assessment at all.
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[101] Again, Mr Bevis simply copied the entries provided to him by Montpelier in a spreadsheet with little or no thought as to whether they were correct..." (Callen v. HMRC [2022] UKFTT 40 (TC), Judge Bowler)
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- Failure to advise client to seek expert advice
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"[98] Mr Callen has described Mr Bevis as his tax adviser, not a tax expert. However, if Mr Bevis did not have expertise in the areas at which the Scheme was directed and therefore felt unable to properly assess the Scheme, it was incumbent upon him as an adviser to seek expert advice, or inform Mr Callen that he could not advise him on it, or the completion of his tax return as a result thereof.
[99]...Yet he never told Mr Callen that he lacked the expertise to complete his tax returns 14 as a result of the participation in the Scheme. He did not seek the advice of someone with more expertise. He simply copied entries provided to him by Montpelier with no engagement of any independent consideration of assessment thereof." (Callen v. HMRC [2022] UKFTT 40 (TC), Judge Bowler)
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- Advice that is incomplete in a major respect is careless
“And while we would say that some of Mr Russell’s advice is not obviously wrong about the law, it is necessarily incomplete as he did not know of the pre-occupation period, or if he did know he didn’t deal with it, so we cannot say that it was appropriate professional advice if it was incomplete in a major particular.” (William v. HMRC [2017] UKFTT 449 (TC), §366, Judge Richard Thomas).
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- Adviser may be careless if he fails to corroborate advice allegedly given by another adviser
“In our view he was careless in not corroborating in any respect what Billy told him after the meeting. A simple phone call between people who knew each other well professionally would probably have sufficed to show that Mr Russell’s advice on the permitted area point was more nuanced than that which Billy had told him and may not have been based on complete information.” (William v. HMRC [2017] UKFTT 449 (TC), §357, Judge Richard Thomas).
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- Expected to be aware of HMRC guidance
"[50] The next question, which we can deal with equally briefly, is whether when they performed those functions McKenzie Knight were careless in not making sure that Dr Rizvi had an EIS3 for each EIS claim he was making. The short answer to that question is yes. As we have discussed in the context of answering the question whether Dr Rizvi was himself careless, checking whether there was an EIS3 is a relatively mechanical, undemanding exercise. The need for it is obvious. It should be at the forefront of the mind of any firm whose clients make EIS investments, even more so in the case of a firm like McKenzie Knight (both before and after its acquisition by Mr White’s firm) where that firm promoted EIS opportunities actively to its clients. Even a firm which did not “sell” EIS opportunities and simply prepared tax returns for individuals should have been aware from the material produced by HMRC (if not from their study of the primary legislation) how important holding an EIS3 was. To allow a client to make a claim for EIS relief without making sure that the client held a valid EIS3 is carelessness of a high order." (Rizvi v. HMRC [2023] UKFTT 124 (TC), Judge Baldwin)
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Reliance on HMRC's advice/conduct
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- Re filing tax return - reasonable
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"[50] The Appellant had been registered to file self-assessment returns since 2015 or earlier. Although therefore she and her partner have experience filing such returns, I accept that they held an honest belief that they had submitted everything appropriately in October 2018. In allowing an extension of time to January the Respondent effectively concedes that that was a reasonable belief. Having not received the notification until February 2019 and then immediately made the submission asked of them, in my judgment it is reasonable to rely on the advice given by telephone in both February and April." (Gatward v. HMRC [2020] UKFTT 363 (TC), Judge Hudson)
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- Reasonable excuse where HMRC accept 11 previous claims late
“The individual facts and circumstances also include the appellant's knowledge that 11 out of date claims were paid, even when they were as late or, in one case, much later than those in the present case, and the lack of any information about the change to regulation 6(4) and the apparent change of policy…I have no hesitation in finding that any reasonable claimant may have behaved as the appellant did in the same circumstances. Had it been necessary to make a decision on this point I would have held that the appellant had a reasonable excuse for not filing its claims in time.” (Sibleys Fuel and Marine Services v. HMRC [2016] UKFTT 777 (TC), Judge Thomas, §§82…83).
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Ignorance of the law
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- Taxpayer on notice of charge that might affect him - no reasonable excuse
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"[27] ... I do not think that it was reasonable for this appellant to have been ignorant of this obligation. HMRC had notified him that he might be affected by the charge; they set out in brief the parameters of the circumstances in which that might be the case; they directed him to a website where he could check whether the charge applied to him; they explained that if it did apply he should register for self-assessment by 5 October 2013 so that he could declare the child benefit that he received and pay the tax charge; they told him that he might be able to avoid self-assessment in future years if he chose to opt out of receiving child benefit." (Gummatira v. HMRC [2020] UKFTT 283 (TC), Judge Popplewell)
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- Wealthy taxpayer failing to take advice despite promptings not reasonable
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"[173] As we have mentioned above, Mr Niasse asserts that he believed that on his arrival in the UK that he did not need to file a tax return. Even if we accept that assertion on the basis of Mr Shah's evidence, we note that the relevant penalties for these purposes relate to the late filing of the returns for the tax years 2016/17 and 2017/18. By the time that these returns were due, Mr Niasse was in receipt of the notices to file the tax returns and several reminders in relation to the tax year 2015/16. They would have put him on notice that he may have an obligation to file a return. Furthermore, Mr Niasse is a professional footballer. He was supported by professional advisers, such as Mr Rita. He had not inconsiderable income and yet failed to obtain relevant advice and to file his returns despite these promptings.
[174] We conclude that Mr Niasse did not have a reasonable excuse for his failure to file his returns for the tax years 2016/17 and 2017/18." (Niasse v. HMRC [2024] UKFTT 179 (TC), Judge Greenbank)
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- HMRC not obliged to inform taxpayers of changes in the law
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"[21] Judge McGregor in Mrs Gaimin Nonyane v The Commissioners for Her Majesty’s Revenue & Customs [2017] UKFTT 11 (TC) said at paragraph 28
“I agree with HMRC’s submission that it is not obliged to notify all customers of changes in law.”
[22] In Hesketh & Anor [2017] UKFTT 871 (TC), an appeal concerning late filing penalties, Judge Barbara Mosedale said at paragraph 82:
“So it follows that ignorance of the law cannot have been intended by Parliament (in general at least) to amount to a reasonable excuse for not complying with it. Neal recognised an exception for complex, uncertain law but (in line with Parliament’s intent) if such exception exists at all, it must be a rare exception.”
[23] Judge Mosedale continued at paragraph 93:
“… for anything to be a reasonable excuse for a failure, it must cause the failure. Yet HMRC’s failure to tell the appellants about the change in the law did not cause their ignorance: it merely failed to change it. Mr and Mrs Hesketh were ignorant of the new filing requirement: HMRC did not write to tell them about it so they remained ignorant of it long after the due date had passed. The failure to write to them did not cause their ignorance and so it could not in law be an excuse for it.”
[24] Judge Anne Scott in David Lau v The Commissioners for Her Majesty’s Revenue & Customs [2018] UKFTT 230 (TC) supported this view at paragraph 33:
“…HMRC are under no obligation to notify individual taxpayers.”
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[31] While the Tribunal has some sympathy for Mr Cooke as he was serving in Afghanistan at the time HICBC was introduced we are persuaded by the cases already quoted that HMRC had no duty to inform him of the introduction of HICBC. " (Cooke v. HMRC [2020] UKFTT 339 (TC), Judge Rankin)
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- Not obliged to rummage through HMRC's information in case of a relevant change of law
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"[28] In my view it is not incumbent on the objectively reasonable taxpayer without notice of a change in tax law to go rummaging through all of HMRC’s information on the off chance that there might be something which is hidden away in it which is relevant to his tax position.
[29] Is it a reasonable for this taxpayer not to have so rummaged? In my view yes. I can see no reason why he was not entitled to assume that the Child Benefit regime would not continue unaffected given that he was outside the self-assessment regime, was being paid as an employee, and there was nothing to put him specifically on notice of the changes other than HMRC’s information (press releases etc) together with information on their website of which I have found as a fact that this appellant was not aware. HMRC have not indicated the publications in which those press releases featured, and that they had “trickled down” so that it would have been impossible for any individual in this country not to have seen them." (Jacques v. HMRC [2020] UKFTT 311 (TC), Judge Popplewell)
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- Ignorance of change in law introduced whilst abroad reasonable excuse
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"[41] HMRC consider that Mr Baron has not put forward specific factors that acted on him specifically and contributed to his lack of awareness. We do not agree. We consider that he has adduced facts that are specific to him and are not of general application to the wider taxpayer body. HMRC did not challenge Mr Baron's evidence on these matters.
[42] These are Mr Baron's absence from the country on military operations; the fact that the children in question were not his and he had no financial involvement in their upbringing; the fact that he did not know that his partner had ever claimed child benefit; the fact that the original claim for child benefit made by his partner was made a time before any warnings were included regarding the earnings limits.
[43] On the basis of these specific factors, we find that ignorance of the HICBC was objectively reasonable for Mr Baron and that he had therefore taken reasonable care in the two tax years 2015/16 and 2016/17 to avoid the insufficiency of tax." (Baron v. HMRC [2024] UKFTT 102 (TC), Judge McGregor)
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"[34] In my view, Mr O’Connor’s absence from the UK during the time the Charge was publicised by the Government does make his lack of awareness objectively reasonable. HMRC argue that this position should have changed after Mrs O’Connor claimed child benefit, given the information on the Charge given in the child benefit application form. I have found that the child benefit form completed by Mrs O’Connor shortly after their return to the UK did contain information on the Charge - however, I have also found, by inference from Mr O’Connor’s evidence that he was not aware of the Charge until HMRC wrote to him about it in October 2019, that Mrs O’Connor did not convey that information to her husband. Whilst these facts may indicate that Mrs O’Connor’s conduct did not meet the standard of a reasonably conscientious taxpayer, I do not find that this can be said of Mr O’Connor - it cannot be said that because Mr O’Connor left the claiming of child benefit to his wife, and did not enquire actively with her as to what information was on the child benefit form, that he fell short of what would be expected of a reasonably conscientious taxpayer. After all, the claiming of child benefit was not, in itself, a tax matter; due to the Charge, it had tax consequences; but the point here is that Mr O’Connor was unaware of this." (O'Connor v. HMRC [2020] UKFTT 354 (TC), Judge Citron)
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- Ignorance of technical area of law not negligent
“The authorities make it clear that an innocent error can amount to negligence as in Anderson, but ignorance of technical areas of law such as the settlements legislation, does not amount to negligence.” (Litman v. HMRC [2014] UKFTT 89 (TC), §35, Judge Rachel Short).
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- Lulled into a false sense of security
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"[40]...On the facts of the present appeal, we find that the Appellant had been in effect lulled into a false sense of security. The official information he had received meant that he gave no thought to HICBC. There was no concealment on his part, nor carelessness. It is true that the duty fell on him to disclose the liability, but the information about his household’s receipt of Child Benefit was available to HMRC and HMRC were slow to act. That is not to be read as a criticism of HMRC because it was likely to be a question of what resources were made available by the government and there are no doubt many competing priorities.
[41] There was some modest delay on the Appellant’s part in his communication with HMRC but that included the end of year period. Few people hurry to deal with unwelcome matters. The delay was in our view insignificant and the Appellant remained in contact with HMRC. Perhaps this question may be finely balanced, but the Tribunal is required to act justly. We find that the combination of inadequate information from official sources and the long delay in notifying the Appellant of the HICBC liability, despite HMRC’s ability to verify the position directly without any need to contact the Appellant, amounts when seen as a whole to a reasonable excuse. It was not simply a situation of ignorance of the law as such on the Appellant’s part." (Hill v. HMRC [2020] UKFTT 316 (TC), Judge Manuel)
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- Query whether reasonable to be ignorant of need to notify HMRC of liability to HICBC
"[75] There have been a number of appeals to the Tribunal against HICBC penalties in recent years, with differing outcomes. I adopt the approach (which has been set out and applied by Judge Popplewell in various cases, eg Chattaway v HMRC [2023] UKFF 752 (TC) and followed by some other judges) that a taxpayer is likely to have a reasonable excuse where:
(1) they were not under an obligation to complete a tax return up to the tax year prior to that in which the HICBC applied because, primarily, they were paid through PAYE and had no other income justifying a need to notify;
(2) they (or their partner) were in receipt of child benefit payments prior to the introduction of HICBC with the consequence that the application itself made no reference to HICBC (the child benefit claim form since the introduction of HICBC clearly sets out when the charge applies);
(3) they had not received notification from HMRC directly at any point prior to the contact which led to the issue of the tax assessment; but
(4) acted promptly in ceasing to claim child benefit and engaged actively with resolving the historic tax liabilities as soon as HMRC did make contact." (Burchett v. HMRC [2024] UKFTT 121 (TC), Judge Zaman)
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"[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
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"[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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Supply chain fraud
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- Unreasonable failure to investigate whether goods were duty paid
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[80] I find that B&M’s checks of suppliers related to the supplier and not to the supplier’s further supply chain, nor was there any check made as to their suppliers’ due diligence processes with regard to each supply of goods but, rather, a reliance on the statements made by the supplier both as to whether duty was paid and why the goods were available at a low price to B&M.
[81] As such, I find that B&M did not take any substantive steps to confirm whether the supplier’s statement that duty had been paid was a reasonable statement for the trader to make in respect of any particular order. B&M’s submission that it considered that its terms and conditions, requiring a warranty and reimbursement in the event of a cost to B&M in the event of failure to comply, would deter rogue traders as suppliers does not mean that its due diligence in this context provides them with a reasonable excuse. The terms and conditions simply provide B&M with some potential contractual redress when it incurs costs as a result of a relevant failure in the supply chain.
[82] B&M argued that Ruby had refused to provide further evidence of the duty paid status of the goods but Ruby had refused, as this would reveal the identity of their supplier. However, there was no evidence that B&M had sought any information about Ruby’s own due diligence processes or (for example) sought redacted evidence of duty payment, neither of which would have required identifying particular suppliers, which could have provided documentary support for any assurances received from Ruby.
[83] The decision of the Court of Appeal in Euro Wines confirms that what is required for reasonable excuse is that the business can show that they undertook due diligence as to the supply of goods (at [38] onwards). It is not enough to carry out due diligence on the supplier. At [40], the Court approved the wording of the Upper Tribunal in the same case, that “In every case a trader who is at the point of acquiring dutiable goods has the opportunity to take steps in order to satisfy itself about whether duty has been paid before going ahead. A trader who goes ahead without being satisfied knows or ought to know it is at risk”. B&M did not take steps to satisfy itself whether duty had been paid when it was at the point of acquiring dutiable goods: it relied on statements made by its suppliers without having taken any steps to confirm that those statements could be relied upon as evidence that duty had been paid.
[...]
[88] It was also argued that B&M could not have obtained satisfactory proof of duty paid status as even HMRC had been unable to obtain such proof. This rather misses the point: if unable to obtain reasonable evidence that goods were duty paid, I consider that a reasonable taxpayer (in the Perrin sense) would not undertake the transaction." (B&M Retail Limited v. HMRC [2023] UKFTT 34 (TC), Judge Fairpo)
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- Should have made further enquiries
"[64] The Appellant is not able to surmount the equivalent hurdle in the present appeal. If it had carried out some due diligence into Mr Patel or Hi Line Cash and Carry, it might well have discovered some irregularity which would have alerted it to a problem with the order. The evidence of Mr Baldock was that walk-in customers were a rarity in the business. He said that there was on average about one every month. Mr Patel was such a customer. Moreover, Mr Patel had never placed an order with the Appellant before. In addition, Mr Phipps knew, and Mr Baldock should have known, of the obligations which Palletways had placed upon its Members when it came to Unknown Shippers. All of this should have led a responsible person, conscious of, and intending to comply with, its obligations under the tax legislation but having the experience and other relevant attributes of the Appellant and placed in the situation in which the Appellant found itself at the relevant time to make some further enquiries into Mr Patel and Hi Line Cash and Carry.
[65] We accept that the events in question were occurring during the pandemic when staffing levels were low and that the person who took the order from Mr Patel was a temporary member of staff. However, we do not think that these mitigating factors are quite enough to see the Appellant home on this question.
[66] We have therefore concluded that the Appellant does not have a reasonable excuse for its act or failure and that a penalty is due. We have reached this conclusion with considerable regret. We think that the Appellant can justifiably consider itself to be extremely unfortunate but both Mr Phipps and Mr Baldock themselves recognised at the hearing that the Appellant had not taken all reasonable steps to avoid the circumstances which arose." (Kent Couriers Limited v. HMRC [2024] UKFTT 145 (TC), Judge Beare)
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Alleged invalidity of decision
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- Not reasonable to not pay APN because of believed substantive invalidity
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"[58]...The reasons Judge Jones gave for not making that determination are set out by the UT and for convenience I set them out here as follows:
"202. There is no need to conduct this exercise. Even if the appellant had a reasonable belief, subjectively, objectively or both, and based upon professional advice, that he was not liable to pay the understated partner tax liability, this could not form a reasonable excuse for the failure to pay the PPN within the payment period.
203. Applying the test in the Clean Car Company, a reasonable taxpayer in the appellant's position would make payment of the sum under the PPN within the payment period and make whatever challenges (whether statutory or extra statutory) to the underlying liability he or she chose to do in the mean-time. This would be the case, whatever his or her reasonable belief as to the merits of his substantive challenge. If such a challenge were successful then the appellant would receive a refund or repayment but this cannot reasonably excuse [not] making a payment [of] the sum due under the PPN that Parliament has required should be made in the interim.
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209. The appellant's reasoning, if accepted, would permit any taxpayer to circumvent the evident intention of Parliament as to who should hold the tax pending the final determination of the tax liability by allowing taxpayers to institute multiple proceedings in different fora. It would also result in the Tribunal entertaining collateral challenges to the underlying tax liability in penalty proceedings which cannot have been the Parliamentary intention. The statute requires that the taxpayer [pay the tax] in the interim while the underlying liability, if challenged, can be resolved. If the taxpayer is successful in their challenge to the liability they will receive the appropriate rebate from HMRC.
…
210. For same reasons explored above in relation to reasonable excuse, the Tribunal considers that HMRC's view that the appellant's circumstances did not constitute special circumstances was not flawed. …"
[59] I can see no error of law in that approach. To the contrary, I agree with it." (Beadle v. HMRC [2020] EWCA Civ 562, Simler LJ)
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- May be reasonable to not pay APN if obviously procedurally invalid
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"[84] Indeed, if the alleged ground of procedural invalidity requires detailed submissions by the parties on competing legal arguments, it is by definition not a gross or obvious error, and, as such, is considerably less likely to be objectively reasonable in this context." (Sheiling Properties Limited v. HMRC [2020] UKUT 175 (TCC), Trower J and Judge Thomas Scott)
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Insufficiency of funds
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"[20] Inability to pay is not a reasonable excuse (see section 59C(10)), but a tribunal can consider the underlying cause of the taxpayer's default, as was made clear in C&E Commissioners v Steptoe [1992] STC 757, where the Court of Appeal upheld the decision of the tribunal that persistent late payment by the trader's largest client, which caused the taxpayer to lack funds, was a reasonable excuse for late payment of VAT. Lord Donaldson MR said that the question was "whether the underlying cause constitutes a reasonable excuse", p 770 d. The taxpayer must therefore establish that the excuse put forward is the cause of, or real reason for, the non-payment of the tax." (Archer v. HMRC [2023] EWCA Civ 626, §18, Whipple, Simler, Falk LJJJ)
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- Event outside normal course of business required
"[79] Overall, we conclude that the proper approach to be applied is that set out in Perrin. When considering the question to be considered at the third stage of that approach (i.e. “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”) we consider that we must take into account that:
(1) a taxpayer who has collected funds representing VAT on behalf of HMRC in advance of the date for payment to HMRC will only rarely be able to establish that he has a reasonable excuse for using those funds for a purpose other than making payment to HMRC
(2) an event outside the normal course of the taxpayer’s business (but potentially falling short of an unforeseeable or inescapable event) may give rise to such a reasonable excuse
(3) such an event can only be considered to provide a reasonable excuse for so long as the exercise of reasonable foresight and due diligence and a proper regard for the fact that the tax would become due would not have avoided the insufficiency of funds
(4) where a taxpayer does not routinely collect funds representing VAT from customers prior to the date for payment to HMRC, the fact that the taxpayer has not adopted the cash accounting scheme is a factor to be given some weight in determining whether the taxpayer has exercised such reasonable foresight, due diligence and proper regard." (Bicester Property Interiors Limited v. HMRC [2023] UKFTT 13 (TC), Judge Frost)
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- Insufficient funds due to Covid making it reasonable to pay others in preference to HMRC
"[94] We consider that the COVID-19 pandemic was an unprecedented and unforeseeable event. The difficulties encountered as a result of the COVID-19 pandemic were particularly pronounced for a business such as that carried on by BPIL, which relied on staff being present in private homes for extended periods to carry out their work.
[...]
[96] We consider that the business was carried on with the level of foresight, diligence and proper regard that might be expected in the circumstances. We consider that the insufficiency of funds was unavoidable in the circumstances.
[97] We give some weight to HMRC’s submission that BPIL made positive choices to pay staff and suppliers in preference to HMRC. It is a distinctly unattractive argument for a taxpayer to assert that it is better for it to pay staff and customers first as this will keep the business going longer and provide an overall better result for the exchequer. The statutory regime does not permit a taxpayer to take matters into its own hands and speculate with funds otherwise due to the exchequer. Indeed, it may fairly be said that one of the underlying reasons for the surcharge regime is to provide a disincentive to choose to pay HMRC last.
[98] In the normal course of events, if a business chooses not to pay its VAT liabilities then it must accept the consequences of that choice and pay the surcharge that results. However, that principle must be tempered by the circumstances in which that choice is made. The evidence in this case indicates that the cash flow pressures were considerable, and brought about by factors outside BPIL’s control. In the case of two of the defaults there were insufficient funds in the company bank account to pay the VAT liability in full and in the case of the third default the company bank balance only exceeded the VAT due by around £2,000.
[99] Overall, we consider that the course of action pursued by BPIL was a reasonable one for it to take in the circumstances in which it found itself.
...
[105] As a result, notwithstanding the possibility that BPIL might have improved its situation by modifying its VAT accounting arrangements, we answer the question posed in Perrin - was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances? - in the affirmative. BPIL had a reasonable excuse. The issue with VAT accounting arrangements pushes the position towards the margins of reasonableness but overall we are satisfied that the significant interruptions due to COVID-19 render BPIL’s actions in seeking to keep the business going and make payments were objectively reasonable." (Bicester Property Interiors Limited v. HMRC [2023] UKFTT 13 (TC), Judge Frost)
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- Choosing to pay commercial debts in priority to VAT not a reasonable excuse
"[62] Ms Smith explained to us that she had been put in a difficult position in Mr Fitzgerald’s absence, in which she had had to decide how best to spend the money available to her. She said that she had chosen to pay the company’s staff rather than pay the VAT that was due, and expressed her view that this was the best decision she could have made from a commercial perspective. That may be the case, but this does not amount to a reasonable excuse that would require us to set aside the surcharge. As Nolan J (as he then was) said in Customs and Excise Comrs v Salevon Ltd [1989] STC 907:
“I would add however that in my view the cases in which a trader with insufficient funds to pay the tax can successfully invoke the defence of 'reasonable excuse' must be rare. That is because the scheme of collection which I have outlined involves at the outset the trader receiving (or at least being entitled to receive) from his customers the amount of tax which he must subsequently pay over to the commissioners. There is nothing in law to prevent him from mixing this money with the rest of the funds of his business and using it for normal business expenses (including the payment of input tax), and no doubt he has every commercial incentive to do so. The tax which he has collected represents, in substance, an interest-free loan from the commissioners. But by using it in his business he puts it at risk. If by doing so he loses it, and so cannot hand it over to the commissioners when the date of payment arrives, he will normally be hard put to invoke s 19(6)(b) [the statutory predecessor to VATA 1994, s 59(7)]. In other words, he will be hard put to it to persuade the commissioners or the tribunal that he had a reasonable excuse for venturing and thus losing money destined for the Exchequer of which he was the temporary custodian.”
[63] In our view, Hawksmoor had put itself in the position described by Nolan J in this passage. It received VAT from its customers, it used this money for its business expenses, and as a result it was unable to hand the VAT over to HMRC at the date of payment. In these circumstances, Hawksmoor has a very high bar to cross to persuade us that it had a reasonable excuse for the late payment, and it has not done so." (Hawksmoor Construction Ltd v. HMRC [2022] UKFTT 209 (TC), Judge Gauke)
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Mental health
- Mental health can be a reasonable excuse but evidence usually required
"[77] I do not doubt that mental health issues can, in appropriate cases, constitute a reasonable excuse. Without wishing to be prescriptive, there would in most cases need to be evidence that the mental health issue in question was such that the taxpayer cannot deal with his or her affairs to such an extent that the taxpayer cannot submit a return or perform the necessary preparation to submit a return.
[78] In the present case there is no medical evidence whatsoever. Mr Birkbeck did not seek to argue (as was mentioned in Mr Breen’s witness statement and in the correspondence sent by Newman Morris) that Mr Breen was suffering from PTSD and I consider that he was wise not to do so in the absence of any independent medical evidence.
...
[84] I have therefore concluded that Mr Breen was not prevented from filing the Return by some debilitating fear of making a mistake and I reject his evidence to the contrary." (Breen v. HMRC [2022] UKFTT 155 (TC), Judge Brannan)
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- Not submitting a return due to fear of making a mistake had no rational basis
"[87] In any event, I do not consider that in the circumstances Mr Breen’s conduct in failing to submit the Return was reasonable and therefore it did not constitute a reasonable excuse. Mr Breen had been in practice for many years as a solicitor at a senior level. Thereafter he was engaged in business. He was a professional man and experienced in business. He had previously been in the self-assessment tax return regime. He gave his evidence in a forceful and assertive manner – he was not a timid personality. I do not think it is reasonable for a taxpayer, in those circumstances, deliberately to refuse to submit a tax return. As I have indicated, I do not think that his fear of making a mistake had a rational basis – I do not think that his belief, if it was such, was reasonable. Therefore, I do not think that his failure to submit the Return in a timely manner was a reasonable course of action – it was not objectively reasonable." (Breen v. HMRC [2022] UKFTT 155 (TC), Judge Brannan)
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Other
- Filing a return early is a reasonable excuse
"[11] As the legislation is specific as to the requirement to file a return during the tax month, the early filing by Quayviews means that it did not make a return during each of the RTI periods under appeal and so is liable to a penalty unless they have a reasonable excuse for the failure (paragraph 23 of Schedule 55 of Finance Act 2009).
...
[15] The question in this case is therefore whether Quayviews’ actions, in filing the returns early because they did not know that this was not permitted by law, were reasonable. We find that they were." (Quayviews Limited v. HMRC [2022] UKFTT 190 (TC), Judge Fairpo)
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- Genuine belief that a direct debit was in place
"[39] Taking account of NPCL’s VAT payment history as well as the experience and knowledge of Mr Steward, we conclude that his belief that that NPCL had an effective Direct Debit in place was objectively reasonable and was a reasonable excuse for the payment of the VAT due for period 12/17 not being made on the due date.
[40] We also find that, once he became aware of the situation on 9 February 2017 (and the reasonable excuse ended), Mr Steward took steps to pay the VAT due without unreasonable delay on the same day." (Norfolk Premier Coachworks Limited v. HMRC [2019] UKFTT 287 (TC), Judge Sinfield)
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"[25] The Tribunal therefore accepts the Appellant’s argument that the unexpected unforeseen and unadvised cancellation of the Direct Debit Instruction is a reasonable excuse for their late payment." (Capital Coin Machine Co Ltd v. HMRC [2014] UKFTT 3 (TC), Judge Sheppard)
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Unless aware of problems
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"[36]...Having asked ourselves the question that we must, it was not in our judgment objectively reasonable for the taxpayer to omit to check whether there was a direct debit that would pay when it should have done, given what occurred with the previous non-payment. Again, what occurred is an illustration of what can happen when things are left to the last day of the five-week period given to make a return and a payment." (Spirit Motor Company Limited v. HMRC [2023] UKFTT 614 (TC), Judge Rudolf KC)
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