UKFTT 78 (2010) B & J Shopfitting Services v HMRC

Late filing penalty, Reasonable excuse - Taxpayer won

Case Summary:

The HMRC website had provided some information regarding penalties on the late filing of paper returns which the agent took to be about partnerships. HMRC admitted their website was misleading and yet said that was not a reasonable excuse. The First Tier Tribunal disagreed with HMRC. 

HMRC did not dispute that the agent did rely on their advice nor that it was misleading. But they took the view that a reasonable excuse can only be an exceptional event beyond the taxpayer’s control which prevented the return from being filed by the due date such as severe illness or bereavement. To quote their letter offering a review “our view is that a reasonable excuse will only apply when an exceptional event beyond your control has prevented you from sending your Return in on time”.

The First Tier Tribunal stated that they did not accept HMRC’s view of the law that a reasonable excuse is limited to an exceptional event beyond the taxpayer’s control. A taxpayer is also behaving as a reasonable person mindful of his tax liabilities when relying on advice given by HMRC. HMRC is the Government’s tax collector and it is reasonable to presume that their published guidance is a correct statement of the law. This is particularly the case where the same misleading advice was given by the helpline.

The First Tier Tribunal agreed that ignorance of the law is not by itself a reasonable excuse. As a matter of policy not knowing the law cannot be a reasonable excuse for not complying with it. If ignorance of the law were a reasonable excuse it would encourage taxpayers to ignore the law and penalise those who attempt but fail to fully comply with it. But here the agent was not relying on his ignorance of the law but on his mistaken reliance on HMRC’s misleading guidance on the law. In general, being misinformed about the law by another person will not be a reasonable excuse.

It was concluded that HMRC has responsibility for gathering the correct amount of tax and it must therefore be reasonable for a taxpayer to rely on HMRC’s guidance as a correct statement of the law. Further, it is actually HMRC who impose the penalty: HMRC must therefore ensure that they do not mislead taxpayers into mistaken actions which incur a penalty.