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.

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