SA Penalties – ‘Reasonable Excuse’ Sarah Cornes v HMRCSaturday, February 25th, 2012
Taxpayers can appeal against HMRC’s penalties and fines regimes if they can demonstrate that they had a ‘reasonable excuse’ which caused the failure to pay or the failure to file on time.
This term is not defined in legislation, however, in November 2011, distress was added to the growing list of reasonable excuses that have been given to us courtesy of a string of case law rulings.
Mrs Cornes did not pay her 2009/10 liability by 31 January 2011. HMRC imposed a penalty under Section 59C of the Taxes Management Act 1970, claiming:
- Mrs Cornes had not paid her tax liability for 2009/10 by 31 January 2011 nor had she entered into the Time to Pay (TTP) arrangement by the trigger date of 28 February 2011
- She did make contact on 23 February, however, an arrangement was not entered into at that time and she was advised HMRC would contact her at a later date
- On 29 March, HMRC tried to contact her but she was unavailable. They sent a letter asking her to contact them within 7 days. She made contact on 23 May and a TTP arrangement commenced 02 June
- HMRC’s main argument was that contact was not until 23 May following their letter dated 29 March asking her to make contact within 7 days
Mrs Cornes appealed against the fine on 17 July 2011 and the case was referred to the First Tier Tribunal for a ruling. The grounds for her appeal were:
- She was a salaried partner at a small firm of solicitors but had been forced to take a 50% pay reduction as a result of the recession
- Her husband had lost his job three times in the previous three years and had suffered near nervous breakdowns on many occasions
- They had debts in the region of £85,000, currently being repaid through a Debt Management Plan
- The husband was an alcoholic which, combined with the money pressures, led to them separating on 20 April 2011. Whilst Mrs Cornes made every effort to deal with the separation, the children, a job and the debts, she was unable to manage the paperwork that was building up
In their Statement of Case dated 14 September 2011, HMRC did not contest the facts presented by Mrs Cornes, however did not consider that hardship or distress were factors that they should take into account. Any consideration of these would have been made by the TTP unit. HMRC did not offer any explanation as to why a TTP arrangement was not agreed when Mrs Cornes called them on 23 February.
In the ruling from the tribunal judge (J Blewitt), a number of points were raised:
- HMRC’s trigger date was one month after 31 January being the time that they expected Mrs Cornes to have entered into a TTP arrangement and, therefore avoided a penalty.
- They did not contact Mrs Cornes within the same one month period following her call on 23 February. Contact was not made until 29 March
- However, in his opinion, Mrs Cornes did make all reasonable attempts to arrange a TTP arrangement and she could not be held accountable for HMRC’s delays in contacting her
- Mrs Cornes was undergoing ‘numerous’ and ‘unforeseeable’ difficulties as a result of her separation and issues arising from it and her circumstances
Therefore, Mrs Cornes’ appeal was allowed as she had a reasonable excuse for the period between 29 March (letter from HMRC) and 23 May (her contact with HMRC)
Many people will say that common sense won the day in this case. Given that we are looking at common sense, it is a worry that the case got as far as the First Tier Tribunal and was not resolved at HMRC. I am sure that this just added to Mrs Cornes’ distress.