“Reasonable excuse defence” by Les Howard, partner in vatadvice.org, a specialist VAT practice based in Cambridgeshire

Les Howard explains the vagaries and subtleties of the ‘reasonable excuse’ argument.

The single Tax Tribunal regime means that ‘reasonable excuse’ arguments can be inter-changeable between different taxes. This is very helpful for advisers helping their clients decide whether to pursue an appeal on this issue.

The Upper Tier decision in Christine Perrin provides a useful update of the position and seeks to provide a framework for future FTT and Upper Tier decisions. Its methodical approach means it has become a key decision for the Tribunal. The First Tier decision is at [2014] UKFTT 488; the Upper Tier is at [2018] UKUT 0156. Unless otherwise referenced, paragraph references are to the Upper Tier decision.

Basic facts and ground of appeal

The Perrin saga began on 2 January 2011 when Mrs Perrin tried to submit her Tax Return for 2009/10 online. She received a submission receipt but not a confirmatory email. After correspondence, HMRC withdrew the penalty for £2 in relation to the 2009/10 Tax Return.
Mrs Perrin’s 2010/11 Tax Return was also late, and her 2011/12 Tax Return was paid late.

Penalties included fixed and daily penalties, summarised in the FTT decision, paras 1-8. The appeal against daily penalties was delayed pending the Donaldson Court of Appeal decision ([2016] EWCA, Civ, 761).

The FTT decision is itself pretty detailed, being one of the very first appeals in relation to the then new late filing and late payment penalty regime.

As an aside, the FTT criticised HMRC that their bundle was deficient. It used Mrs Perrin’s own file of correspondence to supplement HMRC’s deficient paperwork!

Mrs Perrin argued that, since she had an honestly held belief that the tax returns had been submitted, a reasonable excuse was established. This issue was addressed by the FTT and I will return to it.

HMRC included in their submission that a reasonable excuse is ‘an unexpected or unusual event that is either unforeseeable or beyond a person’s control.’ This phrase is rarely seen now. It is wording found in the dissenting judgment in the Steptoe case, an early reasonable excuse decision ([1992] STC 757). It was disingenuous of HMRC to use that quote. (See paras 101-110 of the FTT decision, and para 83 of the Upper Tier decision.)

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