Penalties from HMRC and reasonable excuses

For a long time, HMRC have tak­en the view that where the law allows a “rea­son­able excuse” for the late fil­ing of a return — be that a self-assess­ment per­son­al tax return, Cor­po­ra­tion Tax return, VAT return or PAYE return — the rea­son­able excuse must relate to an event or sit­u­a­tion that was excep­tion­al and unfore­see­able. Ordi­nary fail­ings or mis­un­der­stand­ings were not enough.

We are def­i­nite­ly see­ing, how­ev­er, a change in atti­tude from at least one Tri­bunal judge. In Col­in Humphreys v Rev­enue & Cus­toms [2011] UKFTT 98 (TC), the tri­bunal said (at para. 8):

HMRC con­tends that if the appel­lant is to estab­lish that he has a “rea­son­able excuse” for the late pay­ment he must show that excep­tion­al cir­cum­stances exist. That is not the test stip­u­lat­ed by the leg­is­la­ture. The words “rea­son­able excuse” are ordi­nary Eng­lish words to be giv­en their prop­er every­day mean­ing. There is no jus­ti­fi­ca­tion for the gloss that HMRC seeks to put on those words.

I notice that one of the Tri­bunal judges in that case has gone some­what far­ther then before: In Ballysil­lan Com­mu­ni­ty Forum v Rev­enue & Cus­toms [2011] UKFTT 257 (TC) the tri­bunal said (at para. 3):

I have to bear in mind that this is a case in which a penal­ty has been levied. In those cir­cum­stances the deci­sion of the Euro­pean Court of Human Rights in Jusil­la v Fin­land (73053/01) ECtHR (Grand Cham­ber) is high­ly mate­r­i­al. The Court decid­ed that a penal­ty or sup­ple­ment charged by the rev­enue author­i­ties of a mem­ber coun­try is in the nature of a crim­i­nal penal­ty and thus any pro­ceed­ings in respect of it attract the pro­vi­sions of arti­cle 6 ECHR (right to a fair tri­al). Thus, in my judge­ment, it is for HMRC to sat­is­fy me to the crim­i­nal stan­dard, so that I can be sure, that the required fil­ing did not take place.

So, we have a two-pronged attack here on HMRC’s insis­tence that an excuse must be excep­tion­al: first­ly, an ordi­nary read­ing of the enact­ing leg­is­la­tion (Sched­ule 55 of the Finance Act 2009) must be under­tak­en as the words “rea­son­able excuse” are not used with a spe­cif­ic def­i­n­i­tion. And since the Euro­pean Court of Human Rights have held that a penal­ty to make a return is essen­tial­ly crim­i­nal in nature, it requires a crim­i­nal lev­el of proof.

I wouldn’t be sur­prised if we see a first-stage tri­bunal deter­mi­na­tion based on one or the oth­er of these points appealed. I per­son­al­ly am hap­py with the rul­ing based on the def­i­n­i­tion of “rea­son­able excuse” — the phrase is clear, and I do not believe it to be ambigu­ous. Look, for exam­ple, at “rea­son­able doubt” — a phrase that has been clear­ly under­stood in crim­i­nal cas­es for a very long time.

I’m not so sure though about the Jusil­la point. It seems to me to be a fair­ly inter­pre­tive read­ing of the case. One point, though, does jump out at me: the Grand Cham­ber (at paras 32–34) con­cern them­selves with the pro­por­tion­al­i­ty of the penal­ty. They have no prob­lems with 10% (with a cap at some lev­el), they do seem to have a prob­lem with a fixed sum that is not in pro­por­tion to the tax owed.

It may be, ulti­mate­ly, that “rea­son­able excuse” gets a legal rede­f­i­n­i­tion, either judge-made or in statute, but fixed penal­ties get changed into per­cent­age penal­ties. This may be of some advan­tage to the indi­vid­ual or small busi­ness: it may reduce the penal­ties on small errors. That seems fair to me.

One thought on “Penalties from HMRC and reasonable excuses”

  1. Rea­son­able = nec­es­sary and pro­por­tion­ate, at least in the terms I deal with it (self defense, use of force such as phys­i­cal restraint, that sort of thing). As long as any rede­f­i­n­i­tion of the word in this case doesn’t cause prob­lems else­where in the legal sys­tem, then hope­ful­ly it won’t be a prob­lem.

Leave a Reply

Your e-mail address will not be published. Required fields are marked *