More adverse “reasonable excuse” decisionsMonday, August 29th, 2011
The First-tier Tax Tribunal continues to hear appeals against penalty notices for late filing of P35s – with mixed application of the “reasonable excuse” rule.
In the case Barron v Revenue & Customs, Miss Barron appealed against a penalty of £54.07 for late payment of tax. HMRC argued that “not having any money to pay is not a reasonable excuse”. The judge agreed but ruled that the reason for not having the money should have been considered. Miss Barron had incurred considerable expense at the time in repairing a badly damaged rental property and, in the circumstances, this was a reasonable excuse.
In the cases Lifesmart Ltd v Revenue & Customs and Writtle College Services Ltd v Revenue & Customs, the employers believed that their P35 returns had been filed online following receipt of the standard email. They had, apparently, been filed as “test”, not as “live” submissions, although the confirmation emails did not indicate that they were “test” submissions. The judge accepted that the employers had a “reasonable excuse”. In the first case, however, as the employer had not re-filed the P35 immediately on receiving the penalty notice and, as a result, the reasonable excuse did not continue throughout the period of default as required by the legislation, the appeal was denied. In the second case, the appeal was allowed and the penalty set aside.
In the case Pontyberem Rugby Football Club v Revenue & Customs, the employer’s treasurer had no computer experience and, in order to file the P35 for 2009/10 online, followed HMRC’s guidance and obtained the help of a third party. There was a delay while the necessary user ID was obtained, the return was completed and printed out but, apparently, the treasurer failed to press the “submit” button. The Tribunal judge rejected HMRC’s claim that a “reasonable excuse” had to be an “exceptional event” and decided that, in the circumstances of the case, the employer had acted in the way someone who “seriously intends to honour their tax liabilities and obligations would act”. The appeal was allowed.
In the case Tower Perkins Products And Services Ltd v Revenue & Customs, the employer used a firm of accountants to file the P35 for 2008/09. The employer believed that the return had been filed but, in fact, the accountant had been taken into hospital in an emergency. He failed to file the return when he came back to work three months later. HMRC argued that “reliance on an agent or third party is not a reasonable excuse”. The Tribunal judge rejected that argument, accepting the employer’s belief that the return had been filed as a valid reasonable excuse, at least up to the point that the accountant returned to work, when the filing should have taken place. The appeal, therefore, was allowed in part and the penalty was reduced in proportion to the period that the “reasonable excuse” was relevant.
In the cases Rushworths Furniture Ltd v Revenue & Customs and Walton Kiddiwinks Private Day Nursery v Revenue & Customs, the Tribunal judge repeated the judicial arguments and the critical comments he had presented in the earlier HMD Response International v Revenue & Customs decision. He also commented that, in the absence of any HMRC proof to the contrary, “where a person honestly and genuinely believes that successful online filing has taken place, that amounts to a reasonable excuse”. Both appeals were allowed and the findings in the Rushworths Furniture case make interesting reading:
(1) HMRC has not proved the alleged default.
(2) Even if the alleged default had been proved, the appellant has established a reasonable excuse for the entire period of the default given that it honestly and genuinely believed that the filing had taken place on the 28 April 2010.
(3) Even if there had been no reasonable excuse, the penalty would have been reduced from £500 to £100 given that HMRC deliberately desisted from sending out a penalty notice until September 2010, by which time it could demand a total penalty of £500 and in fact did so.
(4) This appeal must be allowed in full. The £500 penalty is set aside.
Although these decisions continue to confirm that HMRC’s view of what constitutes a “reasonable excuse” cannot stand, there are more appeals on this ground being rejected by the First-tier Tribunal than being allowed and, in the author’s view, rightly so in view of the circumstances of the particular cases. In fact, the judge who has taken the lead in overturning HMRC’s penalty notices, Geraint Jones QC, has also properly rejected some “reasonable excuses”, e.g. in Peacock Developments Ltd v Revenue & Customs.
However, there are also some contradictory decisions, suggesting that the Tribunal judges are inconsistent in their assessments. One example is in O’Connell v Revenue & Customs, where the employer claims to have been given an additional four-week period to make a late payment, quoting the name of the advisor and date of the phone call, but HMRC produced no evidence to refute the claim. Other Tribunals have made it clear that the burden of proof lies with HMRC, not with the appellant.