A number of recent First-tier Tribunal cases have found in favour of taxpayers in circumstances that greatly expand the definition of what constitutes a reasonable excuse compared with HMRC’s internal instructions.

It appears that HMRC continue to follow the “death, disease or disaster” principle despite the recent cases against them.

A further case was heard recently, in which the Tribunal noted that they were “concerned at the attitude” of HMRC.

The case in question was Hogg Joinery Ltd v HMRC.  HMRC warned the taxpayer that returns for 2010/11, 2011/12 and 2012/13 had not been received and were still outstanding with late-filing penalties totalling £2,400.  The 2012/13 return had been filed in September 2013 which should have been within the time limits.

The taxpayer claimed to have had many telephone conversations with HMRC in which they acknowledged that errors had arisen in their offices.  There were also concerns about how long it had taken HMRC to notice that the returns had apparently not been received.

HMRC claimed they had only received one phone call from the taxpayer regarding the matter, but the company were able to show 10 calls lasting a total of 142 minutes.  There were also further calls from personal numbers to HMRC.

The judge could not determine whether the problems with submitting returns had been with the taxpayer systems or HMRC’s, but noted the number of calls made by the taxpayer and therefore felt they had taken all reasonable steps to try to resolve the matter.

The taxpayer’s appeal was allowed.

The case shows the important of keeping records of phone calls and correspondence with HMRC as they could be useful evidence if something goes wrong.  It also again highlights the fact that penalties should be appealed where a genuine excuse exists.

The First-Tier Tribunal was asked to examine whether a significant change in business was in fact a cessation of one trade and the establishment of another. If so, the taxpayer would be able to claim Entrepreneurs’ relief against chargeable capital gains, in this case arising on the disposal of a property used in the original business.


Mr Rice (the ‘Appellant’), was a sole trader selling used sports cars under the name ‘Performance Cars’, from his premises on Fletton Avenue, Peterborough. The business was heavily dependent on passing traffic for trade, with the sales-garage conveniently located on one of the main roads heading into Peterborough. Unfortunately Mr Rice found that he was suffering from increasing vandalism and was forced to re-evaluate the business model.  He sold the premises on 29 April 2008.

However, Mr Rice claimed that the business at Fletton Avenue had ceased in May 2005, almost three years prior to the sale of the premises. Evidence from Peterborough City Council supported his claims and showed that his property had qualified for Empty Property Rates Relief from 1 September 2005.

Mr Rice resumed selling used cars, but this time from a field adjoining his home in a nearby village outside Peterborough.  He renamed the business ‘Four Acres Car Sales’ and had the intention of continuing where he had left off, however Peterborough Council would only grant him planning permission providing he did not display vehicles for sale to the general public. Mr Rice resolved this problem by advertising on the internet, whereby potential customers made an appointment prior to the viewing of a vehicle. Mr Rice also decided to concentrate on selling four-wheel drive vehicles and family cars as opposed to the expensive sports cars.

When the original premise on Fletton Avenue was sold, Mr Rice made a capital gain of £274,649 on which he claimed Entrepreneurs relief.

HMRC’s Case

HMRC opened an enquiry into the Entrepreneurs’ relief claim and argued that the business had ‘relocated to the grounds of (his) private residence from where trading continued more or less as before’ and denied that there had been a cessation of trade.

The Decision

The Fist-Tier Tribunal acknowledged that the trade no longer relied on passing traffic and that Mr Rice switched from selling sports cars to family cars. For these reasons they accepted the fact that very significant changes in the way in which business activities were conducted.

It was agreed that these changes constituted a cessation of trade, with the cessation taking place within the three year requisite period.

The taxpayer was therefore entitled to Entrepreneurs’ relief, and his appeal was allowed.

HMRC have announced that they intend to introduce a new powers making it easier for them to prosecute failure to declare untaxed offshore assets.

At present, HMRC need to prove that individuals who have undeclared offshore income has intent to evade tax, in order for a criminal conviction to be successful.

Under the proposed new plans, HMRC would only have to show that the income was taxable and undeclared.  A consultation will be published but the plans have not progressed this far yet.

These new proposals continue the recent trend to come down hard on offshore tax evasion and mean that anyone with undeclared offshore assets would be at risk of criminal prosecution.  Affected individuals may wish to consider using one of the numerous offshore disclosure facilities currently available, before it is too late.

Eaves and Co have assisted with numerous offshore disclosures and would be happy to help if you have concerns.