Tony Granger examines ‘reasonable excuse’ as a possible basis to mitigate penalties for not submitting tax returns on time.
The end of January signalled yet another frantic race against the clock for some taxpayers to get tax returns in on time. Failure to do so ends up in penalties – or does it?
Penalties for late self-assessment returns
An individual is faced with an initial £100 fixed penalty, which applies even if there is no tax to pay, (subject to there being a reasonable excuse); after three months, additional daily penalties of £10 per day, up to a maximum of £900; after six months, a further penalty of 5% of the tax due or £300, whichever is greater; and after 12 months, another 5% or £300 charge, whichever is greater.
There are also additional penalties for paying tax late, of 5% of the tax unpaid at 30 days; 6 months; and 12 months.
Reasonable excuse
There is no definition of what is ‘reasonable excuse’ in our tax legislation. One may appeal an HMRC penalty (usually for late payment of tax or late filing of tax returns) to the tax tribunal if the taxpayer had a reasonable excuse for not paying the tax or filing the return. The Tribunal looks at the facts and circumstances and makes a decision. As the test is subjective, there will always be variations in interpretation of what is reasonable or not.
HMRC guidance
HMRC guidance (http://www.hmrc.gov.uk/online/excuse-missed-deadline.htm) gives acceptable reasonable excuses for filing an online return late, such as: life-threatening illness (e.g. a heart attack that prevents you dealing with your tax affairs); the death of a partner shortly before a payment or tax return deadline; unexpected or unforeseeable postal delays; important documents lost, through theft, fire or flood, that can't be replaced in time; late receipt of your online activation code, user ID or password where you asked for them before the tax return deadline. Generally, it must have been an unexpected or unusual event beyond your control that prevented you from meeting the deadline. In that case, you must still send your return (or payment) as soon as you can. HMRC usually expects to receive it within 14 days of the problem ending.
HMRC will not usually accept you have a reasonable excuse if: you relied on another person to send your return and they didn't; you didn't receive a reminder for your tax return (or payment); you didn’t get your online activation code, user ID or password in time, but you didn't ask for them until after the tax return deadline.
Cases that have been successful
These include the following:
- Emotional distress (Sarah Corns v HMRC [TC01701], heard in November 2011) – Separation, husband’s alcoholism.
- Serious illness, cancer treatment (Joanna Woolf v Revenue & Customs [2014] UKFTT 024 (TC)) – Illness hindered the taxpayer’s ability to pay.
- Reason for impecuniosity – (Barron v Revenue & Customs [2011] UKFTT 482 (TC) (15 July 2011) – Unable to pay the tax due on time, but there was a valid reason for the taxpayer’s shortage of funds.
- Emergency for broken hip – (Tower Perkins Services and Products v HMRC [2011] UKFTT 481) – The taxpayer’s appeal was allowed in part.
- Genuine mistake – (Leachman v HMRC [2011] UKFTT 261) – The taxpayer and accountant each thought the other had filed the return.
- Online filing facility did not work – (Louise Fernandez v HMRC [2011] UKFTT 259) – The taxpayer was denied entry to HMRC’s online facility.
- Health – (Martin Stone v HMRC [2010] UKFTT 414) – The failure was compounded by HMRC’s failure to send the right forms.
Unsuccessful cases
These include the following:
- High blood pressure illness – (RFL Consultants v HMRC [2011] UKFTT 431) – The timing of the illness did not correspond to the timing of default.
- Return submitted on time, payment eight days late – (Grant Vehicle Repairs v HMRC [2011] UKFTT 420) – Someone else could have paid.
- Online system blamed for delay – (Toolbox.net v HMRC [2011] UKFTT 363) – It was improbable that HMRC’s system would not generate confirmation of the return.
- Other more exotic excuses that resulted in a penalty include: my pet goldfish died (self-employed builder); My wife won’t give me my mail (self-employed trader); My bad back means I can’t go upstairs, and that’s where my tax return is (a working taxi driver).
Practical Tip:
HMRC state in their guidance that you must at least have made an effort to file your tax return on time. Forgetting the deadline or relying on your accountant is just not good enough. Medical issues such as cancer can sway a tribunal in your favour, but the circumstances must be genuine.
