On 27 September 2010 a charity organisation was issued with a £400 late filing penalty in reference to its PAYE P35 for 2009/10 which was due on the 19 May 2010.

However the penalty charge was issued when the return was 5 months late and the taxpayer was not notified at any time before.

The taxpayer’s accountant requested a review of the penalty as he believed he had filed the P35 online on 16 May 2010.

The tribunal stated that it was not legally correct to state that, once an assessment or charge had been raised by HMRC, the onus is on the taxpayer to prove it is incorrect.

Consequently, it was for HMRC to prove – on the balance of probabilities – that the P35 had not been filed by 19 May 2010 and a penalty was due.

The tribunal went on to state that TMA 1970 s118 did not define reasonable excuse in a way that required exceptional circumstances and it should therefore be given its ordinary meaning.

The accountant honestly believed he had submitted the return on time.  The tribunal found him to be an honest and candid witness and counsel for HMRC were forced to agree that this might amount to reasonable excuse even though it was not exceptional.

The tribunal also stated there was no logical reason for the delay in sending out the penalty notices for four months.

The tribunal upheld the appeal against the penalty in full, adding that HMRC had ‘neither acted fairly nor in good conscience’.

 This case has a wide-ranging impact on excuses for late filing of returns.

The tribunal ruling goes directly against HMRC’s longstanding view and published guidance that reasonable excuse equates to exceptional circumstances outside the taxpayer’s control.

The tribunal’s view was that reasonable excuse should be given its ordinary meaning.

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