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Reasonable excuse
Reasonable excuse
There is no statutory definition of reasonable excuse, which “is a matter to be considered in the light of all the circumstances of the particular case” (Rowland v HMRC [2006] STC (SCD) 536 at [19]). As Judge Medd QC said in The Clean Car Co Ltd (1991) BVC 568:
“One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do? Put in another way, which does not I think alter the sense of the question; was what the taxpayer did not an unreasonable thing for a trader of the sort I have envisaged, in the position that the taxpayer found himself, to do?”
In Christine Perrin v HMRC [2018] UKUT 0156 (TCC) at [81] the Upper Tribunal said that the correct approach is as follows:
“81. When considering a “reasonable excuse” defence, therefore, in our view the FTT can usefully approach matters in the following way:
(1) First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer’s own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts).
(2) Second, decide which of those facts are proven.
(1) Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, it should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the FTT, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”
(4) Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (unless, exceptionally, the failure was remedied before the reasonable excuse ceased). In doing so, the FTT should again decide the matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.”
The appellant submitted, essentially, that she took all reasonable steps to complete her returns on time as she considers is demonstrated by the evidence set out below. She said that:
She tried to complete her return for 2016/17 on time and online by herself but experienced problems. She made calls to HMRC in 2017 to ask for help. She has submitted a handwritten note made during a call to HMRC in 2017 to support this. She did what HMRC advised her to do but was still unable to file her return so commissioned an accountant to do it for her.
The accountant whom she appointed to file her returns had a problem with registration. He tried contacting HMRC by phone to resolve this in the summer of 2017, but his calls sat in a queue and were not answered by HMRC. The accountant informed her that he had tried everything to complete her return online but could not.
She made HMRC aware of the difficulties she/her accountant were having on a number of calls. She understands that if she employs an agent to complete and file her return it remains her responsibility to ensure that it is completed a filed on time. She did not ignore or do nothing about completing the returns. She made numerous calls to HMRC and incessant efforts to file the returns on time. The long delays in HMRC answering her calls or HMRC not being able to hear her when she could hear them or cutting her off was the reason why her returns were not filed on time.
The appellant also submitted that HMRC confirmed they received returns in May 2021 but did not let her know the returns were incorrectly completed until 11 January 2023 when she contacted them regarding a repayment for the 2021/22 tax year or that the time limit for sending in her 2016/17 return in late was 5 April 2021. If HMRC had informed her that the deadline for submitting her 2016/17 return late was 4 years and ran out on 5 April 2021 she would have made sure HMRC had received it within the timescale. She made a number of other points relating to her conversations with HMRC in 2021 and later. I note that action taken in the period from 18 February 2020 onwards is not relevant to the reasonable excuse issue as the penalties in dispute were no longer accruing after that date.
HMRC submit that the appellant has not demonstrated on the balance of probabilities that she took reasonable care to avoid the failure to file her 2016/17 and 2017/18 returns on or before their legislative filing deadline dates and even if the facts asserted by the appellant are true, they do not objectively constitute a reasonable excuse.
This appeal is not concerned with specialist or obscure areas of tax law. It is concerned with the ordinary everyday responsibilities of the appellant to ensure her tax returns were filed by their legislative due dates.
HMRC can choose to issue a notice to file a return (under s 8 TMA) to any customer. The business determines, usually based on risk, which customers they require returns from. This is known as the SA criteria. Anyone receiving a notice to file must file a return on time or face being charged penalties. HMRC are entitled to satisfy themselves that no tax is due in any tax year. The notice to file and late filing penalty notifications were all issued to the notified address at that time and effectively served following the provisions of s 115 TMA 1and s 7 of the Interpretation Act 1978. As set out above the appellant was sent numerous self-assessment statements in addition to the late filing penalty notifications. No correspondence has been returned undelivered.
The appellant was notified promptly that she had missed a deadline and had been charged a £100 penalty and was made aware of the additional penalties she would incur if she did not file her returns. As the appellant registered for self-assessment on 24 June 2014 and has filed returns previously, HMRC would expect the appellant to be familiar with the filing deadlines for her returns and the penalties for filing late. HMRC consider it unreasonable that if the appellant and agent were experiencing difficulties contacting HMRC by phone they would not have attempted to contact HMRC by post.
HMRC have no record of any correspondence having been received from the appellant or her agent during the period 11 September 2015 to 18 May 2021. The appellant was advised on the calls she made how to proceed but failed to take prompt action to bring her tax affairs up to date and was not constant in resolving the issues she had with regards to the filing of her returns throughout the period where no returns were filed.
During this time the appellant was a sole director of Regimol Limited and managed to file accounts for the company until it was dissolved in 2022. HMRC have provided transcripts of the calls made by the appellant to HMRC which demonstrate HMRC made every effort to understand and address the issues the appellant was having with the filing of her returns.
The responsibility to submit a self-assessment return by the due date remains with the appellant regardless of whether she delegated that task to another person. Para 23(2)(b) of Schedule 55 specifically precludes reliance on a third party unless the appellant took reasonable care to avoid the failure. The appellant has not provided any evidence to show that she exercised any supervision or made any enquiries of her previous accountant to ensure her returns would be filed on or before their filing deadline dates nor has the appellant provided any evidence of her previous accountant’s assurance to her that the returns would be filed on time or that she employed and paid her previous accountant to file these particular returns. Entrusting the agent with responsibility to file the return does not absolve the appellant of responsibility to make any necessary checks that the submission has been made. In the absence of evidence to demonstrate that the appellant took reasonable steps to ensure that their agent actually filed the return, this does not amount to a reasonable excuse
HMRC’s records show the appellant appointed an agent to act for her on 25 May 2022 and that the 2021/2 self-assessment return was filed online on time on 14 January 2023. It is unreasonable that the appellant was able to put measures in place to ensure her 2021/22 return was filed on time but failed to do the same with regards to her 2016/17 and 2017/18 returns.
HMRC acknowledge that the Employment Supplementary pages filed by the appellant on 18 May 2021 were not sent back to her as incomplete and unsatisfactory as is HMRC’s standard procedure. HMRC apologise for this oversight. However, the 2016/17 and 2017/18 returns were both already more than 12 months late by 18 May 2021. This oversight therefore had no impact on the penalties charged as all penalties in respect of the late submission of the 2016/17 and 2017/18 returns had been charged on or before 18 February 2020.
The time limit to submit a late return to HMRC is four years after the end of the tax year in question. The fact that the appellant has stated that she was not informed of this is not relevant and has no impact on the late filing penalties charged for the late submission of the two returns.
There is some evidence that the appellant made a number of calls to HMRC, as recorded in transcripts of calls as follows:
A call was made to the Employer Helpline on the 13 June 2017. A note of this call was therefore made under the employer record for the appellant’s company, Regimol Ltd and not her personal self-assessment record. The appellant requested a User ID in the call and was given advice with regards to requesting a new password.
HMRC had no record of the appellant contacting them again until 21 July 2018, more than a year later. HMRC do not have a transcript of that call. There is also a record of calls made by the appellant on 25 October 2018 and on 13 December 2019 and in March and April 2021.
The transcript of the call which the appellant made to HMRC on 25 October 2018 records that (a) the appellant made the HMRC adviser aware her accountant was having difficulties completing her return on her behalf and that she had tried to resolve the problem, (b) she asked HMRC for an agent code, but the adviser said the adviser was unable to provide one as HMRC’s records did not have an authorised accountant registered as acting for the appellant (c) the appellant said she had been told the accountant/agent made this application on several occasions and he was telling her that HMRC would send something to her but nothing had come, (d) the appellant was advised by the adviser to ask the agent/accountant to make another 64-8 agent authorisation application so that HMRC could get his details on to the appellant’s account, (e) when advised that it would be best to submit a paper authorisation form as the appellant seemed to be saying it had been sent online but it had not come through, she said that she would contact the accountant by email right away, (f) she said she had received a penalty but did not think she should be penalised. The adviser said that procedure was to send in the 2016/17 outstanding tax return, once that tax return has been submitted, she could then appeal in writing against the late filing penalties, and HMRC would review them for her. She said her accountant would have to do that as she did not know how to. The adviser repeated that the 2016/17 tax return must be sent in first and the appellant replied that she would email the accountant then.
The transcript of the call the appellant made on 13 December 2019 records that the appellant asked for a user ID and password for the self-assessment system. She said that it had been a long time in which she was trying to give her self-assessment, her accountant usually does this for her, she just needed the information, she was not able to do her self-assessment, her accountant had been trying to do it, he had made several attempts and it was frustrating him and he was asking her now to get the information. It appears she was not able to obtain a new user ID as she did not pass the security questions.
The appellant made a further call to HMRC on 31 March 2021. The transcript records that (a) said she had made several attempts, and Martin Walker, the firm, had also made attempts and HMRC kept sending her penalty sentence so she needed to know the last contact, and the advice given, (b) the HMRC adviser responded that there was no agent or accountants registered for her, (c) the appellant said that her agent had put her on the phone on two different occasions, when he was trying to speak to HMRC but after a point he gave up and she gave up as well and she kept getting letters from HMRC. She wanted to know what records they have about her and to be able to challenge the service from them. She said that she was really exhausted from problems and getting these letters from HMRC, (d) the adviser told her there was no agent or accountant registered on her self-assessment. She seemed to dispute this and said there was evidence, and that is why she needed the records. The advisor advised her to write to HMRC. The appellant suggested she did not have the time and that she had spent about three hours of her time trying to speak to HMRC and waited for half an hour but there was no answer, she called again and was put on hold for more than 30 minutes and was then cut off. She said she was fed up, (e) the adviser said that she could see that the appellant had been told on an earlier call to submit the tax return, and appeal the penalty in writing. She said that she does not know how to do that, (f) the adviser sent her a new ID and advised on how to file a return online using that and said that if she had any difficulty to phone back the following morning. She phoned again in the afternoon and referred again to the receipt of several letters, that her accountant had been involved and made many calls and could not log in to her account, she kept getting letters for not filing and she had made many calls to HMRC. She was advised to print off paper returns and send them in the post.
In April 2021, the appellant again contacted HMRC by telephone. The transcript of this call records that (a) HMRC advised her to complete the returns for 2016/17 and 2017/18 on paper which she did, (b) she referred again to her accountant connecting her to his calls and that he made several contacts with HMRC with the difficulties of him not being able to file her self-assessment. She said she had made calls, and spoke to different people who would tell her what to do to be able to file, she tried everything, at a point she gave up, (c) she noted that she had explained all these things yesterday and she had been getting the penalty letters, and after a while, she and the accountant gave up because nothing was really working. For example, yesterday she spent about 4 hours trying to speak to HMRC to find a way of resolving this. She said she was looking for practical support for her to be able to progress this self-assessment issues. She was advised she needed to file returns for the two years, if it was not possible online she could provide paper returns and that she could appeal against the penalties and she was given details of the process for doing so.
The appellant noted that there is no transcript of the call which HMRC’s records show she made on 1 July 2018 or for calls she states she made in 2017 (of unspecified dates) and 2023 (of a number of specified dates). I accept that there may have been other attempted calls in 2017 and the appellant’s evidence of the difficulties of making contact with HMRC by phone. I note, however, that she appears to accept that there was no calls to HMRC 2018, 2019, 2020 and 2021 other than those set out above.
HMRC’s records show that the appellant’s previous agent was removed from her record on 20 May 2017 and that her present agent was not appointed to act for her until 22 May 2022. The appellant said that after filing her 2016/17 and 2017/18 returns on paper in April 2021 she did not have the need to appoint an agent. She only appointed her current accountant to act for her due to a change of circumstances which required her to file a return for the 2021/22 tax year. She said that return was filed on time and HMRC’s records can evidence this. HMRC’ submissions on this point are set out above.
As the returns were not submitted within the applicable time limits, the appellant is liable to the penalties unless she had a reasonable excuse for the initial and the on-going delay in submitting the returns.
As set out in full above, there is no statutory definition of what constitutes a reasonable excuse (other than as regards the specific provisions of para 23). On the basis of the wording and the approach taken in other cases in this tribunal and in the Upper Tribunal (as set out above), in summary I understand the term to require consideration of what can reasonably be expected of a prudent person exercising reasonable foresight and due diligence as regards his or her self-assessment obligations in the light of all the circumstances of the taxpayer’s particular case.
It is an essential part of a self-assessment system that there is an obligation on a taxpayer himself or herself correctly to include all taxable income in a tax return and account for the tax due on it and to do so by the relevant deadline. My view is that the hypothetical reasonable and prudent taxpayer can be attributed with an awareness of this obligation and with the need to be mindful to take reasonable steps to fulfil that obligation. A reasonable and prudent taxpayer would, therefore, take all reasonable steps to ensure he/she is aware of the date by which a return must be filed and that the return is filed by that time.
Overall I do not consider that the appellant had a reasonable excuse for the failure to submit her tax returns for the 2016/17 and 2017/18 tax years by the required deadlines. I note that (a) the appellant was given notice of the requirement for her to submit tax returns for the tax years 2016/17 and 2017/18, and (b) she was aware of the need to file her self-assessment tax returns by the relevant deadline as she had previously submitted returns. I accept that the appellant attempted to submit her return for 2016/17 at some point in 2017, she found the online procedure difficult, and, having failed to file the return online, contacted an accountant with a view to him acting for her. However, in my view, the appellant then failed to take reasonable action to submit that return and the return for 2017/18. There is no evidence that the appellant made telephone calls to HMRC in 2018 other than the call of July 2018 and that of 25 October 2018. These calls were made months after the deadline for submitting the 2016/17 return but before the deadline for submitting the 2017/18 return. On the October call the appellant was clearly advised what action she/her accountant needed to take, namely, to submit a paper form authorising her accountant to act for her so that he could submit a return for 2016/17 for her. Whilst the call related to the return for 2016/17 it would be readily apparent to a reasonable taxpayer that this action was also required so that the accountant could submit a return for the 2017/18 tax year, the deadline for which was imminent. The transcript of the next call the appellant made, over a year later, on 13 December 2019 records that the appellant again said that her accountant had been trying to deal with the outstanding tax returns but was getting frustrated. However, there is no record that the appellant had asked the accountant to submit a paper authorisation form or precisely what his issues were with the procedure. The record of the later calls in 2021 also shed no material light on this. The transcripts record the appellant again stating that the accountant had been having trouble with contacting HMRC by phone. However, there is no explanation as to why no paper authorisation form was submitted or why if the issue was with the online procedure and/or telephone contact the accountant/the appellant did not write to HMRC. Moreover, the appellant has not provided any other information on what discussions she had with the accountant, in particular, as regards the need for him to be authorised to act for her, or whether she provided him with the information needed to prepare her returns.