Filing a late return invites penalty? Not always. If you have a ‘reasonable’ excuse you may escape the penalty. HMRC website defines a ‘reasonable excuse’ as some unexpected or unusual event beyond your control and gives a few examples:
·a failure in the HMRC computer system
·your computer breaks down just before or during the preparation of your online return
·a serious illness has made you incapable of filing your tax return
·you registered for HMRC Online Services but didn’t get your activation code in time
The website also lists the following as NO excuses:
·found the online system too complicated to follow
·left everything to your accountant to do and they let you down
·forgot about the deadline
·did not try to re-submit your return on time once a problem with the IT system was put right
·registered for HMRC Online Services after the filing deadline
However, if HMRC don’t agree with what the taxpayer thinks is a reasonable excuse, s/he could appeal to the First-tier Tribunal. Here are some of the recent cases where the taxpayers have successfully challenged HMRC before the tribunal:
TC01706 – 04 January 2012
In this case the taxpayer filed the tax return for the year ended 05 April 2010 on 22 January 2011, well before the due date of 31 January 2011, with a self-assessed tax due of £12,517.25. The taxpayer didn’t pay the full tax by the due date and an amount of £9,510.10 remained outstanding till 24 February 2011 when the taxpayer’s agent sent a cheque by post to the HMRC. HMRC got the payment on 02 March 2011. As HMRC got the payment after 28 February 2011 (a surcharge on unpaid tax is triggered 28 days after the due date) they claimed 5% surcharge on the unpaid tax amounting to £475.50. The taxpayer argued before the tribunal that she had a reasonable excuse because the balancing payment was sent to HMRC by first class post on 24 February 2011, which should have been delivered to HMRC well before 28 February 2011. HMRC contended that the appellant did not have a reasonable excuse and that she had long experience of the self assessment system and was aware of her responsibilities to meet the due dates for payment. HMRC contended that the appellant had not allowed sufficient time for postal delays by posting the payment on the 24 February 2011, and it was not responsible for inefficiencies within the postal system. The tribunal found that the appellant exercised due diligence in instructing a professional agent to assist her and the the agent did despatch the payment at such time and in such manner that it was reasonable to expect that it would be received by HMRC within 28 days from the due date i.e 28 February 2011. The agent posted the payment by first class post on 24 February 2011 which was a Thursday. The Post Office aims to deliver first class post by the next working day which includes a Saturday. This meant that the agent had allowed three working days for delivery of the payment, Friday, Saturday and Monday. The tribunal noted that HMRC’s contention distorted the ordinary meaning of reasonable foresight that underpinned the concept of reasonable excuse. Reasonable foresight was not about anticipating every possible event. The tribunal found the agent to have exercised reasonable foresight by allowing three working days for delivery of the letter containing the payment. The Tribunal was satisfied that the facts did constitute a reasonable excuse within the meaning of section 59C(9)(a) of the Taxes Management Act 1970 and the appeal was allowed.
TC01636 – 07 Dec 2011
It is common knowledge that self-assessment tax returns in the case of individuals and partnerships need to be filed by 31 January if filed online and by 31 Oct if a paper return. In this case a partnership was required to file its tax return by 31 January 2011. It did not do the paper return by the end of October 2010 as it intended to file online by the later filing date. When it went to make its online filing it found that the HMRC website did not provide the necessary software to file it online for PARTNERSHIPS. This meant the taxpayer going into the commercial market and purchasing an HMRC accredited software. That was in sharp contrast to other taxpayers who are provided with a comprehensive online filing service on the HMRC website and do not need to go into the commercial market to buy specialised software to allow online filing to take place. The tribunal observed that the taxpayer in the instant case would have, by reason of its experience to date, chosen to file a paper return by the 31 October in each tax year rather than trying to rely upon HMRC’s deficient online filing facility. However, for the purposes of this appeal, the taxpayer did not know that it would be faced with an inability to file online, by reason of HMRC’s failure as identified above. So the appeal was allowed on the basis that HMRC’s failure was considered a reasonable excuse.
TC01634 (07/12/2011):
In this case HMRC’s failure to promptly notify and collect the dues from the tax payer was considered a reasonable excuse for not filing the return on time. The first P35 late filing notice was sent to the tax payer after four months.
TC01626 (06/12/2011):
This case was about penalties imposed by HMRC for late payment of PAYE and NIC dues. The taxpayer’s severe financial difficulties leading to insufficiency of funds, which was attributable to events outside his control, was considered a ‘reasonable excuse’.
TC01618 (02/12/2011):
Another case where, penalties were imposed on the taxpayer for late filing of the end of the year P35 return. The taxpayer logged onto the system in good time, and printed out a copy of what he thought the completed P35 and genuinely believed that he had filed the return. He hadn’t waited for the online submission message. But the taxpayer’s behaviour was that of someone who seriously intended to honour his tax liabilities, and, in genuinely believing that he did file the return, therefore, had a reasonable excuse for the late filing of the P35.
In several such cases the tribunal’s decision differed in spirit with that of HMRC as to what constitutes a reasonable excuse.
