We have commented on a number of court cases in the past dealing with the interpretation of “reasonable excuse” in the context of penalties. It has been shown on a number of occasions that HMRC’s restrictive approach to the definition of reasonable excuse has gone further than the legislation ever intended, with no backing in case law.
Some examples of a reasonable excuse have included;
- inability to pay (T James V HMRC (TC2527), Dudman Group Ltd v HMRC (TC1608))
- failure of HMRC to provide online filing facilities (Paul & Annette Galbraith t/a Galbraith Ceramics (TC2639))
- “special circumstances” which included redundancy (C Horne v HMRC (TC2592))
- HMRC communication failure (M Styles v HMRC (TC2599))
The cases where the inability to pay has successfully been claimed as a reasonable excuse is particularly interest bearing in mind the legislation specifies that lack of funds is not a reasonable excuse. The tribunal appears to have taken the view that whilst lack of funds in itself is not a reasonable excuse, the circumstances that led to this can amount to a reasonable excuse.
With all this case law going against HMRC’s previous stance on reasonable excuse, have they changed their manuals and training of staff to reflect this?
Certainly, the tribunal decisions still filtering through from the courts suggest that HMRC have not changed their policy and we have seen further demonstration of this in recent discussions with HMRC. A member of HMRC’s complaints department stated that as far as he was concerned, reasonable excuse meant, “death, disease or disaster” and refused to comment on recent tribunal decisions.
HMRC did, however, update their guidance, “SAM10090 – Appeals, postponements and reviews: appeals: reasonable excuse” , on 13 March 2013. The guidance is not as restrictive as the approach actually taken by HMRC in practice (“death, disease or disaster”), as they acknowledge that postal delays, loss of records, certain online filing issues and banking errors can constitute a reasonable excuse.
However, it still states that lack of online filing facility, shortage of funds and work pressures should never be accepted as reasonable excuses, despite the fact that cases have suggested that there are situations where these could count as a reasonable excuse.
For advisors and agents then, it is worth being aware of these developments and challenging penalties where a genuine excuse exists. It is, however, disappointing that HMRC refuse to operate within the law and is particularly worrying where unrepresented taxpayers can be bullied into unfair penalties. Perhaps, if the profession continues to appeal these penalties and win at tribunal, HMRC may be forced to finally change their ways.