Tax return filing season is well and truly here. Unfortunately, many individuals within self-assessment will submit their return after the filing deadline (i.e., normally 31 January after the end of the tax year) and face a penalty from HM Revenue and Customs (HMRC).
However, there is an exception from late filing penalties if the taxpayer has a ‘reasonable excuse’ for the offence (FA 2009, Sch 55, para 23). The penalty provisions do not define what constitutes a ‘reasonable excuse’, but state two circumstances in which a reasonable excuse does not exist:
- An insufficiency of funds, unless attributable to events outside the person’s control;
- Where a person (‘P’) relies on another person, there is no reasonable excuse unless P took reasonable care to avoid the failure.
If a reasonable excuse existed but has ceased, the person is treated as continuing to have the excuse if the late return is filed without unreasonable delay after the excuse ended.
The person must satisfy HMRC (or the tribunal, on appeal) that there is a reasonable excuse for the failure. The lack of a statutory definition of ‘reasonable excuse’ has resulted in numerous appeals over the years.
HMRC has previously published ‘terrible excuses’ used in unsuccessful appeals against late filing penalties for missing the 31 January tax return deadline. These include:
- “My mother-in-law is a witch and put a curse on me”
- “I’m too short to reach the post box”
- “My boiler had broken and my fingers were too cold to type”.
The ‘reasonable excuse’ exception from penalties is clearly more difficult than some taxpayers think!
A Four-Step Approach
Perrin v Revenue and Customs  UKUT 156 (TC) concerned a late filing penalty. The Upper Tribunal (UT) suggested a four-step approach for the First-tier Tribunal (FTT) when considering whether there is a ‘reasonable excuse’ defence, broadly involving:
(1) Establishing what facts the taxpayer asserts give rise to a reasonable excuse.
(2) Deciding which of those facts are proven.
(3) Deciding 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. The UT commented that it might assist the FTT to ask itself: “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”.
(4) Having decided when any reasonable excuse ceased, deciding (once again objectively, based on the circumstances, etc.) whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased).
The UT in Perrin also stated: “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”.
There is detailed guidance in HMRC’s Compliance Handbook manual on reasonable excuse (at CH160100 and following), which includes a ‘reasonable person’ test based on a different case (The Clean Car Company (LON/90/138X)). However, keep in mind that HMRC’s guidance does not carry the force of law.
The above article was first published in Tax Insider (December 2020) (www.taxinsider.co.uk).