TC09578 - [2025] UKFTT 00856 (TC)

We applied the test as set out in “Perrin.”

The Appellant contends that: she was mistaken about the need to declare her rental income after having read the letter addressed to her husband and because she was giving her share of the income to him; that she was advised in 2019 that she did not need to complete returns going forwards; that she was advised in 2024 that no interest or penalties would be levied following the late payments, and; that she was unable to make payments until HMRC calculated her tax and she contacted HMRC to find out how to make payment.

We accept that the Appellant was genuinely mistaken when she thought that there was no tax due on her rental income. For the reasons set out above, we further find that the Appellant was in fact advised in 2019 that she did not need to complete Self-Assessment Tax Returns, however, we also find that this advice was predicated upon the failure by the Appellant to state that she was in receipt of rental income. We also find, for the reasons set out above, that the Appellant was not told, in 2024, that interest and penalties would not be levied. We find that the Appellant considered that she was unable to pay until she received the calculation of tax and that she did not know how to make payment until she spoke to the Debt management Team.

We consider that the Appellant’s mistaken belief that she did not need to declare her share of the rental income, in combination with an attempt to enquire as to the correctness of her assumption, amounts to a reasonable excuse.

In the Appellant’s letter dated 29 November 2017 the Appellant set out the position with respect to the rental income and asked what else she needed to do to make sure her 2016/17 return was accepted. The letter was not as clear as it might have been as to whether she was personally in receipt of rental income because it variously stated that: she had no income; that the property was let jointly, and; that it was agreed her ex-husband would have all the income. However, the letter also ended with a request for advice. No response was received.

We consider that, having attempted to set out the position in respect of the rental income, having asked for advice in respect of the 2016/17 return, and having received no response, it was objectively reasonable for the Appellant to conclude that the Respondents did not consider that she ought to have declared the rental income in her 2017/17 return and therefore that she did not need to declare it going forwards.

The Respondent contends in its Statement of Reasons, paragraph 104, that if the Appellant was uncertain about her tax position or the entries needed, she should have sought advice from the Respondents or a tax professional. For the reasons set out above, we find that the Appellant did just that, by way of the letter dated 29 November 2017.

We therefore also find that it was objectively reasonable for her to state to the Respondent’s adviser in 2019 that there was no change in circumstances, which prompted the adviser to state that she no longer needed to complete Self-Assessment tax returns. As far as she was concerned, the circumstances had not changed.

We do not find that it was reasonable for the Appellant to have placed any weight on the letter addressed to her husband dated 17 March 2017, not least because it stated that his rental income was still liable to tax. However, having found that the Appellant did not consider the rental income to be hers, it was objectively reasonable for her to think that that part of the letter did not apply to her.

After being informed of her mistaken belief during the conversation with the Respondent’s adviser dated 27 March 2024, the Appellant completed returns from 2020/21 onwards and filed them. She did not make payment immediately as she did not know how much to pay, instead waiting until she received a calculation from HMRC.

We find that it was objectively reasonable for the Appellant to wait to receive her tax calculation from the Respondent before making payment. When the Appellant spoke on the phone to the Respondent in 2024, she was not advised that she would risk late payment penalties if, upon filing her returns, she did not estimate and pay the tax as soon as possible rather than waiting for a calculation. It was reasonable, in our view, for the Appellant to consider that if the Respondents (who had failed to respond to her letter dated 29 November 2017) considered that she should now estimate her tax and make payment as soon as possible, they would have told her that when they had the opportunity.

We do not find that the delay in making payment due to the Appellant’s lack of knowledge about how to do it, was reasonable, and we find that the reasonable excuse ended once she had received her tax calculation. We accept that the information about making payments is readily available online. However, the 30-day penalty date for the tax year ended 5 April 2023 was 2 March 2024, and the 6-month late payment penalty became due five months later, which was before the Appellant received her tax calculation. All the penalties were therefore raised during the period of reasonable excuse.

We therefore allow the appeal and quash the penalties.

If we had not found that the Appellant had a reasonable excuse, we would have found that the Respondent’s failure to respond to the letter dated 29 November 2017 amounted to a special circumstance to reduce the penalty to zero.

Finally, we note that the Appellant’s oral evidence to the Tribunal was that she had ultimately declared all the income from the property as her own (that is, both her share and her ex-husband’s share), which may have resulted in an overpayment of tax. We make no findings on this point as it is outside the scope of this appeal, however it may be that the Respondents wish to follow this up with the Appellant.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.