Cotter, Discoveries and Reasonable Excuse

Further to previous posts, we are now aware that the Supreme Court heard HMRC’s appeal against the Court of Appeal verdict in HMRC v Cotter on 3 October 2013.  Whilst we await judgement, it seems a good time to review recent developments in terms of HMRC policy.
A recent First-Tier tribunal case on reasonable excuse found against the taxpayer, raising some interesting points on what constitutes ‘reasonable’.
The case, Rennie Smith & Co v HMRC, concerned filing of P35s and whether a reasonable excuse existed for the failure to file.
The appellants are a firm of Chartered Accountants in Scotland, but they failed to file their own P35 by the due date.  They appealed the penalty on the basis that they had logged on to the online filing system but had not filed due to an HMRC system ‘error’.  They argued that HMRC had acted unreasonably by delaying issuing a warning notice and penalty until 4 months after the deadline in addition to their confusion over whether the P35 had actually been filed.
The tribunal agreed with HMRC that the return was not submitted and that in the absence of records showing any technical faults, the error therefore lay with the taxpayer.
It is interesting that this was not found to be a reasonable excuse, however in other recent cases, it has been inferred that HMRC not monitoring their post is reasonable!  In the case of Smith v HMRC, HMRC were entitled to raise a discovery assessment outside of the enquiry window, despite the fact that the enquiry was only not opened in time due to the extended sick leave of the inspector, with no one apparently dealing with his post.
In light of Cotter and Smith, it is interesting to note the disparity between reasonable HMRC practice and the expectations placed on taxpayers.  We await the judgment on the Cotter appeal with interest and will provide an update once published.