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HMRC ‘reasonable excuse’ definition under fire
Posted by robertlovell in Tax on Tue, 26/07/2011 - 13:05
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Thousands of taxpayers may have been wrongly fined by HMRC after a run of court rulings reveal that HMRC’s definition of ‘reasonable excuse’ is contrary to the law.
According to McGrigors, HMRC has lost more than half a dozen cases in the last six months in which it has been criticised by the courts for wrongly fining taxpayers.
It believes the courts have made it clear that HMRC’s guidance on fines is at odds with the law, and that its definition of “reasonable excuse” should not be taken at face value.
The law says that taxpayers should not be fined if they have a reasonable excuse for late payment of tax or an overdue tax return. Legislation does not define the phrase, but this string of rulings makes it clear that HMRC’s official interpretation is too narrow.
Jason Collins, a partner at McGrigors, told AccountingWEB: “HMRC has, quite literally, become a law unto itself where fines are concerned. The courts have been saying it’s not just a question of what the Revenue thinks is a ‘reasonable excuse’, it’s actually what ‘reasonable excuse’ itself, means.
McGrigors believes that the rulings represent the tip of the iceberg as the majority of taxpayers do not appeal fines because they assume that HMRC issues fines strictly in accordance with the law.
“HMRC has always published guidance on which exceptional circumstances count and for some people considering the size of the penalty and the cost of fighting it - they just accept it and take it on the chin,” Collins said.
The law firm says that HMRC guidance should not be taken as the letter of the law by taxpayers. Collins added: “The way in which HMRC’s guidance is worded makes taxpayers think they would stand little chance in a tribunal. Taxpayers who feel they have been unfairly fined really should challenge HMRC.”
In one of the recent cases the tribunal ruled that having insufficient funds to pay tax could constitute ‘reasonable excuse’ – contrary to what is stated in HMRC’s official guidance.
Lack of funds is likely to be an excuse put forward by many taxpayers to justify late or non-payment of tax, particularly with the 31 July tax payment deadline looming.
Collins added that “If HMRC issues fines over-zealously, it will be akin to a credit card company charging penalties for non-payment and making the cardholder’s indebtedness even worse.”
He concluded that “HMRC should revise its guidance because at the moment taxpayers are being misled.
“Surely, litigating against diligent taxpayers who have endeavoured to comply with their obligations but have failed for a good reason, cannot be the best use of HMRC's resources.”
Recent tribunal cases
Failing to file returns on time
Humphreys v HMRC [2011] UKFTT 98
A taxpayer who posted his return four days before the deadline was fined when the return arrived late. The tribunal ruled that HMRC had been wrong to impose a penalty despite HMRC guidance stating that postal delays could only be considered ‘reasonable excuse’ in the most extreme circumstances
Online filing difficulties
N A Dudley Electrical Contractors v HMRC [2011] UKFTT 260
A taxpayer who had set out to file his return online expecting to be able to use HMRC's advertised online filing facility subsequently discovered that he required additional software (a fact not highlighted by the advertising campaign) and so filed a paper return and was late in the payment of the tax. The tribunal ruled that HMRC had been wrong to impose a penalty
Genuine mistake
Leachman v HMRC [2011] UKFTT 261
A taxpayer who was fined for failing to file a P35 under the mistaken belief that his accountant would do so had the fine overturned by the tribunal which ruled that a genuine mistake can constitute a ‘reasonable excuse’
Insufficiency of funds
Kincaid v HMRC [2011] UKFTT 225
The taxpayer was unable to pay tax on time because of cashflow difficulties – partly caused by HMRC changing the taxpayer’s status – under the Construction Industry Scheme. The tribunal sided with the taxpayer against HMRC’s written guidance resulting in fines being cancelled.
Posted by robertlovell in Tax on Tue, 26/07/2011 - 13:05
6Share
Thousands of taxpayers may have been wrongly fined by HMRC after a run of court rulings reveal that HMRC’s definition of ‘reasonable excuse’ is contrary to the law.
According to McGrigors, HMRC has lost more than half a dozen cases in the last six months in which it has been criticised by the courts for wrongly fining taxpayers.
It believes the courts have made it clear that HMRC’s guidance on fines is at odds with the law, and that its definition of “reasonable excuse” should not be taken at face value.
The law says that taxpayers should not be fined if they have a reasonable excuse for late payment of tax or an overdue tax return. Legislation does not define the phrase, but this string of rulings makes it clear that HMRC’s official interpretation is too narrow.
Jason Collins, a partner at McGrigors, told AccountingWEB: “HMRC has, quite literally, become a law unto itself where fines are concerned. The courts have been saying it’s not just a question of what the Revenue thinks is a ‘reasonable excuse’, it’s actually what ‘reasonable excuse’ itself, means.
McGrigors believes that the rulings represent the tip of the iceberg as the majority of taxpayers do not appeal fines because they assume that HMRC issues fines strictly in accordance with the law.
“HMRC has always published guidance on which exceptional circumstances count and for some people considering the size of the penalty and the cost of fighting it - they just accept it and take it on the chin,” Collins said.
The law firm says that HMRC guidance should not be taken as the letter of the law by taxpayers. Collins added: “The way in which HMRC’s guidance is worded makes taxpayers think they would stand little chance in a tribunal. Taxpayers who feel they have been unfairly fined really should challenge HMRC.”
In one of the recent cases the tribunal ruled that having insufficient funds to pay tax could constitute ‘reasonable excuse’ – contrary to what is stated in HMRC’s official guidance.
Lack of funds is likely to be an excuse put forward by many taxpayers to justify late or non-payment of tax, particularly with the 31 July tax payment deadline looming.
Collins added that “If HMRC issues fines over-zealously, it will be akin to a credit card company charging penalties for non-payment and making the cardholder’s indebtedness even worse.”
He concluded that “HMRC should revise its guidance because at the moment taxpayers are being misled.
“Surely, litigating against diligent taxpayers who have endeavoured to comply with their obligations but have failed for a good reason, cannot be the best use of HMRC's resources.”
Recent tribunal cases
Failing to file returns on time
Humphreys v HMRC [2011] UKFTT 98
A taxpayer who posted his return four days before the deadline was fined when the return arrived late. The tribunal ruled that HMRC had been wrong to impose a penalty despite HMRC guidance stating that postal delays could only be considered ‘reasonable excuse’ in the most extreme circumstances
Online filing difficulties
N A Dudley Electrical Contractors v HMRC [2011] UKFTT 260
A taxpayer who had set out to file his return online expecting to be able to use HMRC's advertised online filing facility subsequently discovered that he required additional software (a fact not highlighted by the advertising campaign) and so filed a paper return and was late in the payment of the tax. The tribunal ruled that HMRC had been wrong to impose a penalty
Genuine mistake
Leachman v HMRC [2011] UKFTT 261
A taxpayer who was fined for failing to file a P35 under the mistaken belief that his accountant would do so had the fine overturned by the tribunal which ruled that a genuine mistake can constitute a ‘reasonable excuse’
Insufficiency of funds
Kincaid v HMRC [2011] UKFTT 225
The taxpayer was unable to pay tax on time because of cashflow difficulties – partly caused by HMRC changing the taxpayer’s status – under the Construction Industry Scheme. The tribunal sided with the taxpayer against HMRC’s written guidance resulting in fines being cancelled.