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Last updated: 16 Mar 2021
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Can ignorance be a reasonable excuse?

All of HMRC’s penalties include a right of appeal – customers have a right to have the decision to charge a penalty reviewed by HMRC, or to appeal to the independent Tribunal.

There is no statutory definition of ‘reasonable excuse’. The legal principles of reasonable excuse are not restricted to tax law, and HMRC considers all claims in line with its interpretation of prevailing case law and the approach of tribunals. A reasonable excuse must be considered in light of all of the circumstances of each case, including the experience, knowledge and other attributes of the person.

You must ask whether what the person did, or failed to do, was objectively reasonable in the circumstances. If a person has a reasonable excuse, they must remedy the failure without unreasonable delay when the excuse ends.

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Mark Taylor

+44 (0)20 7710 3389
taylorm@buzzacott.co.uk

There is no statutory definition of ‘reasonable excuse’. The legal principles of reasonable excuse are not restricted to tax law, and HMRC considers all claims in line with its interpretation of prevailing case law and the approach of tribunals. A reasonable excuse must be considered in light of all of the circumstances of each case, including the experience, knowledge and other attributes of the person.

You must ask whether what the person did, or failed to do, was objectively reasonable in the circumstances. If a person has a reasonable excuse, they must remedy the failure without unreasonable delay when the excuse ends.

So can ignorance be a reasonable excuse?

So can ignorance be a reasonable excuse?

The recent tax case of Leigh Jacques v HMRC [2020] UKFTT 311 (TC) considered whether ignorance can indeed be accepted as a reasonable excuse. While only an appeal of a Sch 41 Failure to Notify penalty of £250 in relation to High Income Child Benefit Charge (HICBC), the case was decided in the appellant’s favour, and should be noted by HMRC. In my view, it presents a very well explained decision by Justice Nigel Popplewell (JNP).

A summary of the notable points are:

  • JNP held it was objectively reasonable for the appellant in the circumstances of this case to have been ignorant of the requirement to complete a self-assessment tax return in light of his liability to the HICBC.
  • It was not incumbent on the objectively reasonable taxpayer, without notice of a change in tax law, to go rummaging through all of HMRC’s information on the off chance that there might be something that is hidden away in it which is relevant to his tax position - para 28.
  • JNP states HMRC has been disingenuous in its use of other tax cases when presenting. When using Nicholson V Morris [1976] STC 269 as a reasonable excuse case as well as the Perrin case [2018] UKUT 363 (TCC), HMRC selected extracts that did not portray the actual reasoning behind those cases to bolster their arguments without reflecting how decisions were reached in those cases.

In summary, ignorance of the law can constitute a reasonable excuse. This is also demonstrated in other cases for example what para 82 said in Perrin and the decision in the Clean Car Co [1991] VATTR 234.

I believe this recent case will assist practitioners in defending penalties where the taxpayer was unaware of a statutory requirement. For example, we’ve seen unprecedented use by HMRC of Schedule 18 of Finance (No. 2) Act 2017 Failure to Correct penalties, where HMRC officers have steadfastly maintained it’s not an excuse to be ignorant of the 30 September 2018 Requirement to Correct deadline. Buzzacott is currently challenging HMRC’s position on this with HMRC’s safeguards committee.

How we can help

How we can help

Buzzacott has built a reputation for defending clients against HMRC penalty action, either through HMRC withdrawing penalty action or varying the amount of penalty in the clients’ favour. Our expert knowledge of HMRC’s policy and procedures mean that our clients receive expert penalty mitigation advice and thus regularly avoid unnecessary penalties.

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