A recent case at the Upper Tribunal considered this question with regard to late payment penalties charged on self-assessment tax returns (B Edwards v CRC, Upper Tribunal (Tax and Chancery Chamber).

The taxpayer incurred  penalties in relation to his 2010-11, 2012-13 and 2013-14 self-assessment tax returns of £3,880 despite there being no tax due.

The taxpayer had already been unsuccessful at the First-Tier Tribunal and so appealed to the Upper Tribunal on the grounds that the notices to file returns had not been issued correctly and with the argument that the penalties were disproportionate to the tax due.

The taxpayer’s appeal was dismissed again.  The Upper Tribunal found that there had been no error in law in the First-Tier Tribunal’s decision regarding the notices to file returns.

On the issue of proportionality, they found that in terms of the European Convention on Human Rights, the penalties were ‘harsh’ but not ‘plainly unfair’ and was therefore not a relevant ‘special circumstance’ which HMRC should have taken into account.

The moral of the story is therefore to file tax returns on time – even where there is no tax to pay!  It is a requirement to file a return where a notice to file has been issued.  Eaves and Co would be very happy to assist if you have a tax return that needs filing.

Good news for taxpayers (well a bit!).  Times are hard and paying tax an unfortunate if important and compulsory imposition.  Business being business, sometimes it proves difficult to pay on time.  Late payment now results in surcharge penalties unless there is a ‘reasonable excuse’.

The concept of ‘reasonable excuse’ is one which is evolving.  Sometimes it seems HMRC treat all claims like the ones they have heard about ‘my dog ate my tax return’ or ‘my Mam threw the HMRC cheque on the fire’, but thankfully HMRC cynicism can be overcome by a good case well presented (at least on appeal).

In the recent case of T James, the taxpayer persuaded the Tax Tribunal that he had a ‘reasonable excuse’ because he chose (out of limited resources) to provide his corporate business with funds to pay their PAYE, VAT and corporation tax, rather than keep up with his previously agreed ‘time to pay’ arrangements on his personal account with HMRC.

Whilst saying the taxpayer would have been well advised to explain the position to HMRC in advance of making the decision, the Tribunal helpfully found that although a mere inability to pay tax was not an excuse in itself the reasons why a person is unable to pay can constitute a reasonable excuse.

In this case the Tribunal took into account the business pressures and the fact that maintaining the businesses as going concerns increased employment and the overall tax take.

It was not so much a failure to pay tax altogether, more a choice to focus on the business taxes first.

In the recent case of Franco Vargo UK Limited, the company appealed against a penalty of around £4,500 for the late payment of PAYE for numerous months in the tax year 2011/12.


The appellant company had its head office in Italy. The UK branch of the company was in financial difficulty and was receiving funds from the head office. The appellant’s accountants paid the salaries and informed the company of how much PAYE was payable.

A letter was sent to the accountants saying that PAYE was due for payment, but the appellant was not aware of a PAYE liability being outstanding. Even if they had known they were not in a position to pay the liability until they received funds from Italy.

HMRC had records showing that the appellant had been contacted on several occasions and that messages had been left on an answer phone on one occasion.

Appellant’s case

Mr Earle, a director of the appellant stated that it had not been realised that a problem existed and that the problem had been left too long without any action being taken.

He informed the tribunal that the appellant had no answer phone so it would have been hard for HM Revenue & Customs to have left a message as suggested was the case. He also stated that due to its nature, the business always had someone available to answer its telephone and, as such, any attempts to contact the appellant would have been successful.

Mr Earle claimed that the amount of the penalty was disproportionate and that there was a duty of care on HMRC’s part to inform the appellant.

HMRC’s case

Mrs Orimoloye stated that HMRC had spoken to Mr Newman, the accounts manager, and that no mitigation of the penalties was possible as they had complied with the legislation.

She suggested that the appellant’s accountants should have informed the appellant of the penalty regime and that there had been history of late payments in prior years and that the appeal should be dismissed.


The tribunal found that the penalty was not disproportionate as it was imposed correctly under the legislation.

They also found that Mr Newman, the accounts manager had spoken to HMRC and that the appellant’s accountants should have notified the appellant of a liability being due. However, the tribunal were somewhat concerned that HMRC claimed to have left an answer phone message when the appellant did not possess an answer phone.

The appeal was allowed in part and the penalty in respect to the first 2 of the 11 months outstanding was cancelled as it was accepted that the appellant had no option but to wait for funds from Italy.

The following 9 months penalties were upheld on the grounds that the accounts manager had spoken to HMRC and should have taken steps to understand the situation.