Business News
Tired of HMRC’s 'Reasonable Excuses'?
The courts have found that the guidance being dished out on fines should not be taken as gospel and that it is at odds with the law. These findings have been published following the thousands of taxpayers that may have been incorrectly fined by the HMRC and the near half dozen cases in the last 6 months that have been lost by HMRC for doing so.
The term being heavily criticised among the courts is that of ‘reasonable excuse’, which they believe, is not clearly defined in the legislation and so leaves taxpayers open to narrow and blinkered reviews and penalties incurred.
One solicitor has said “HMRC has, quite literally, become a law unto itself where fines are concerned. The courts have been saying it’s not just a question of what the Revenue thinks is a ‘reasonable excuse’, it’s actually what ‘reasonable excuse’ itself, means.”
In addition to this, the solicitors firm has concerns and believes that this is only the beginning of a much wider issue, and one that is yet to come to light as taxpayers are not contesting a legislation they believe is sitting within accordance of the law. The solicitor continued to say:
“HMRC has always published guidance on which exceptional circumstances count and for some people considering the size of the penalty and the cost of fighting it - they just accept it and take it on the chin.”
Comments and caution has also come from law firms, with one advising that the HMRC guidance should be taken with a professional pinch of salt and not as the last letter of the law, and should be reviewed case by case. A spokesman for the law firm added, “The way in which HMRC’s guidance is worded makes taxpayers think they would stand little chance in a tribunal. Taxpayers who feel they have been unfairly fined really should challenge HMRC.”
The law firm continued on to say “If HMRC issues fines over-zealously, it will be akin to a credit card company charging penalties for non-payment and making the cardholder’s indebtedness even worse.”
This was following a recent case where the tribunal found the ‘reasonable excuse’ to be lack of funds which is contradictory to the guidance offered by HMRC and with the 31 July tax payment date on its way, and a likely excuse for many in the future, “HMRC should revise its guidance because at the moment taxpayers are being misled. Surely, litigating against diligent taxpayers who have endeavored to comply with their obligations but have failed for a good reason, cannot be the best use of HMRC's resources.”
See below a range of recent cases whereby taxpayers have fallen foul of the misinterpretation form the guidance.
Failing to file returns on time
Humphreys v HMRC [2011] UKFTT 98 [1]
Taxpayer mailed return 4 days before deadline, fined when didn’t arrive in time.
The courts held that HMRC were wrong to impose a penalty on this postal delay, contradicting ‘reasonable excuse’ guidance that stated this could only be used in extreme cases.
Online filing difficulties
N A Dudley Electrical Contractors v HMRC [2011] UKFTT 260 [2]
Taxpayer who did not have the additional software required to carry out tax return online, which is not advertised as part of the facility returned a paper return late due to setbacks online.
Tribunal ruled HMRC were wrong to impose a penalty.
Genuine mistake
Leachman v HMRC [2011] UKFTT 261 [3]
Taxpayer who believed his accountant would file the P35 on his behalf.
Courts ruled that this was a genuine mistake and would constitute as a ‘reasonable excuse’.
Insufficiency of funds
Kincaid v HMRC [2011] UKFTT 225 [4]
Taxpayer defaulted on payment due to cash flow difficulties due in part to HMRC changing their tax status on the Construction Industry Scheme.
Courts ruled in favour of the taxpayer against HMRC’s conflicting and confusing guidance and so cleared the fines.
