TC09668 - [2025] UKFTT 01255 (TC)

As evidence of the issue and service of the penalty points and financial penalties, HMRC have provided copies of their electronic records together with specimen notices.

This is not particularly strong evidence of such issue or service. However, in light of the fact that the appellant has mounted no challenge to HMRC’s assertion that the appellant was sent and received valid Notices, I am prepared to accept it. I therefore find as a fact that HMRC did serve valid Notices on the appellant on or around the dates specified in their records and noted in the Schedule.

There is no statutory definition of “reasonable excuse” which, as HMRC rightly say on the basis of the decision in Rowland v HMRC (2006) STC (SCD) 536 at paragraph 18, is that it “… is a matter to be considered in the light of all the circumstances of the particular case”.

The test I adopt in determining whether the appellant has a reasonable excuse is that set out in the Clean Car Co Ltd v C&E Commissioners [1991] VATTR 234, in which Judge Medd QC said:

Firstly, although the appellant had clearly read the Statement of Reasons which made it explicit that there were 17 late filings (those were listed at paragraph 3) no appeal has been made in relation to the first three penalty points. HMRC had noted at paragraphs 35 to 47 that there were only appeals in respect of periods 09/23 to 09/24.

The argument that since the appellant started using the ANNA software, the trainee had thought that all of the VAT returns had been filed before the due date for filing is problematic because it is also argued that no return had ever been late before the appellant started using the ANNA software. As can be seen from the Schedule the three returns for periods 02/23 to 04/23 inclusive were all filed on 5 July 2023 and that was after three Penalty Notices had been received.

Beyond what is recorded at paragraph 19(3) above, I do not know when the appellant started using the ANNA software. However, on the balance of probabilities it would appear that the appellant changed software supplier in period 02/23 since all defaults are blamed on the use of ANNA software. The date of the change in the software is not material in itself but what is material is that a problem had been identified, at least by the trainee, by 5 July 2023 and nothing changed.

Firstly, the argument in the letter of 13 October 2025 (see paragraph 24 above) that the trainee took immediate action after receiving the penalty letters is in apparent conflict with the letter of 6 December 2024 (see paragraph 16 above) where it is indicated that the trainee did not disclose the Notices to the MD and had tried to figure it out herself.

Secondly, as far as the letter of 13 October 2025 is concerned, I point out that the ANNA software, albeit very highly rated, is merely a third party interface with HMRC and it was the appellant’s responsibility to ensure that the returns were actually filed. There appear to have been no internal systems in place to achieve that.

Thirdly, there were 17 consecutive failures in this instance. It is inherently unlikely that, what is described as a rare problem, the interface connection failed on all of those occasions.

Perhaps the trainee was muddled about what she should have done, but the question as to whether a genuine mistake can amount to a reasonable excuse has been considered in Garnmoss Limited t/a Parham Builders v HMRC [2012] UKFTT 315 (TC) where Judge Hellier said in the context of reasonable excuse for VAT default surcharges at paragraph 12:

“What is clear is that there was a muddle and a bona fide mistake was made. We all make mistakes. This was not a blameworthy one. But the Act does not provide shelter for mistakes, only for reasonable excuses. We cannot say that this confusion was a reasonable excuse.…”.

As I have indicated at paragraph 23 above reliance on another person to do anything cannot be a reasonable excuse unless the taxpayer took reasonable care to avoid the failure.

It is indeed unfortunate that the trainee did not tell the MD about the Penalty Notices until late 2024 but ultimately it is the MD’s responsibility to ensure that a trainee is adequately trained and supervised and that the VAT returns are filed timeously. At paragraph 6 in Ryan v HMRC [2012] UKUT 9 (TCC), Judge Bishopp, when looking at an argument that Mr Ryan was entitled to rely on his solicitor to have done something, said:

“On the other hand I have to agree with Mr Ryan that if he was represented in the transaction by a solicitor, he should be entitled to expect the solicitor not merely to advise him of his obligation to submit a return but to perform the obligation for him. But that is not the same as saying that he has a reasonable excuse, within the meaning of the legislation. The plain purpose of the legislation is to encourage the prompt submission of returns by imposing penalties on those who submit them late. The penalty is imposed on the person concerned, and not upon his solicitor or any other representative. The purpose of the legislation would be defeated if a penalty could be escaped by the expedient of placing the blame on a dilatory solicitor. If Mr Ryan believes he has been let down by his solicitor, his remedy is to take the matter up with the solicitor.”

HMRC referred to the decision of Macpherson of Cluny J in Profile Security Services Limited v Customs and Excise Commissioners [1996] STC 808 where, when looking at an argument about reliance on a trusted employee, said that:

“The company should have more control over its own servant than over an outside advisor".

Shortly put, reliance upon the trainee’s failure to tell the MD about the first three Late Submission Penalty Notices, the receipt of which should have averted the imposition of financial penalties, cannot amount to a reasonable excuse.

The fact that the appellant was in financial difficulties due to lack of sales cannot amount to a reasonable excuse. Indeed, objectively considered, that should have alerted the appellant to the fact that, during a period of 17 months, no VAT repayments were received. That alone should have alerted any business to the fact that there was a problem.

In a similar vein, the fact that the fees for filing the returns were not paid should have been an indication that the returns had not been filed.

Lastly, as far as insufficiency of funds is concerned, as I have indicated at paragraph 24 above, the Tribunal cannot take into account the appellant’s potential inability to pay the penalties, if they are upheld, or indeed any other consequence of the imposition of the penalties.

I have considered every argument that has been brought to my attention but I find that there are no special circumstances in this appeal.

I find that the penalty points and financial penalties were all timeously and validly issued and the appellant has not established that there was a reasonable excuse for the late filing and nor are there special circumstances.