This Content Was Last Updated on February 9, 2017 by Jessica Garbett


Few taxpayers win reasonable excuse appeal cases. These examples buck the trend.

Reasonable excuse continues to be important; recent cases have shown many instances where the taxpayer has lost. However, it is possible to win, particularly where there has been an unforeseen event, as these examples demonstrate.

Example 1

Timothy Cooke appealed against a late payment penalty of £10,004 in respect of capital gains tax for the year ended 5 April 2012 paid late. The appellant filed his tax return for the year by 28 December 2012 and filed an amendment on 20 January 2013. The tax liability was £100,065.50 and this remained unpaid until 24 October 2013, together with a penalty payment.

In April 2011, Mr Cooke had sold shares in a company he worked for, realising £380,000 on which the capital gains tax was £100,065.50 payable on 31 January 2013. He had been in financial difficulties and used £70,000 of the proceeds to pay off his Individual Voluntary Arrangement and a further £30,000 to discharge a loan.

He was living with his wife and children in a property worth £125,000, on which there was a mortgage of £140,000. In May 2011, Mr and Mrs Cooke bought a new property using most of the balance of the proceeds of the share sale. Mr Cooke said that at the time he had proposed to raise a mortgage of £100,000 in order to pay the capital gains tax due by 31 January 2013.

Unfortunately Mr and Mrs Cooke separated in March 2012 and Mrs Cooke started divorce proceedings. Mr Cooke wished to sell the property in order to pay the tax, but was prevented from doing so as Mrs Cooke’s solicitor arranged for a matrimonial restriction preventing sale or mortgage of the property without his wife’s consent. The property was eventually sold on 24 October 2013 and Mr Cooke paid the tax on the same day.

The appellant claimed that he had a reasonable excuse for late payment because of insufficiency of funds caused by events outside his control and also that HMRC had told him that penalties would not be levied. HMRC denied this and claimed that Mr Cooke could have stayed at his previous address and paid the tax immediately, instead of moving and investing all the proceeds in the new house.

The Tribunal accepted that Mr Cooke could not have foreseen the breakdown of his marriage and this unforeseen event was outside his control. The appeal was allowed and the penalties discharged.

Example 2

E J Parkinson & Son Ltd appealed against a fixed penalty of £250 in respect of a failure to submit in time a monthly return for April 2013 under the Hydrocarbon Oil Regulations 2002.

The company usually submitted the monthly returns by post. The normal procedure was that a blank return would be sent to the company two weeks before the due date and it would be completed and sent by the 21st of the month. Written evidence of posting was never obtained. No return was received or sent for February and HMRC sent a warning letter. The return for March was received and the return for February was submitted in the same envelope as the return for April, which was sent shortly before the end of April. HMRC never received the envelope and the company sent duplicates, which were received in July 2013.

HMRC asserted that the company should have retained proof of posting but the Tribunal said that it was reasonable to expect that the return would have been received and allowed the appeal.

Example 3

Andrew Banks appealed against a penalty under Schedule 24 Finance Act 2007 for prompted careless inaccuracy in his tax return for the year ended 5 April 2011.

The appellant was set up with a self-assessment return for the year to 5 April 2011 as HMRC wished to establish his higher rate liability and whether his personal allowance would be restricted due to his income exceeding £100,000. He submitted his return on 21 January 2012. HMRC claimed that he submitted no income on his tax return and this was incorrect as he had income and benefits from Calibre One Ltd and Blackwood Recruitment LLP. The appellant’s self-assessment return showed tax due of £0.

HMRC opened an enquiry into the return and concluded it should show income from both sources. The increase in tax due was £3,421 caused by the reduction of the personal allowance to nil. Mr Banks paid the sum of £3,336.12 to include interest.

The appellant disagrees that a penalty is due, claiming that the income and tax deducted was entered on his tax return and that a system error failed to capture the amount. He claims that he made contemporaneous notes of a conversation with HMRC when he was told that system errors do happen. HMRC’s note differs and states that Mr Banks had not entered the sums because tax was deducted under PAYE and was therefore careless.

The appellant submitted that in penalty cases the burden of proof is on HMRC and no proof of carelessness had been submitted.

The Tribunal held that the burden of proof was on HMRC and the standard of proof is on a balance of probabilities. It was unlikely that the appellant would have completed a return with no earned income details and equally unlikely to envisage HMRC’s systems failing in such a rudimentary way. The appeal was allowed and the penalty discharged.

(article by ACCA)