Making your excuses by Antony Greenwood, Manager (Tax Investigations), Buzzacott

Is HMRC’s new manual on reasonable excuse a change in policy, or just another way for HMRC to deny your claim? Antony Greenwood explains all.

Five months ago, HMRC updated its manuals on reasonable excuse, with the most notable update being the introduction of a manual dedicated to the question of whether someone can have a reasonable excuse for being ignorant of the law (CH160600).

This has long been a bone of contention between taxpayers, their agents and HMRC. Historically, the question arose predominantly in relation to a failure to notify HMRC of chargeability to tax, or a failure to file a tax return on time.

HMRC would often accept claims for reasonable excuse relating to health and matters outside of the taxpayer’s control. However, where the taxpayer simply argued they were not aware of the compliance requirement, HMRC stood by the maxim ‘ignorance is no excuse’ and denied the appeal.

Reasonable excuse has become a far more crucial argument since the introduction of the Requirement to Correct legislation in relation to offshore matters. It is the only acceptable defence against draconian penalties and so advisers should be making more claims for reasonable excuse than ever before.

The requirement to correct and failure to correct penalties

By way of a refresher, since 30 September 2018 anyone who had not registered to make a disclosure of tax irregularities relating to offshore matters faces ‘enhanced’ penalties on unpaid tax arising from those irregularities for tax years including, and prior to, 2015/16, unless they have a reasonable excuse for failing to do so.

The minimum penalty for a failure to correct is 100% of the unpaid tax, and HMRC ‘demands’ (despite having no legislative basis for that demand) a 150% penalty in any case where it considers the disclosure to have been ‘prompted’. That is, made in the expectation that HMRC is about to discover the error. As such, there is often far more to be gained from pursuing a reasonable excuse claim in cases involving a failure to correct than for ‘ordinary’ failures to notify or late filing.

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