The taxpayer claimed no penalty should be charged as they had a “Reasonable Excuse” for late filing of a P35. The First Tier Tribunal judge found in the taxpayers favour and admonished the taxman in no uncertain terms: telling HMRC it must also follow the principle of “plain dealing”.
N A Dudley Electrical Contractors Ltd (TC01124) had not sent the P35 in because HMRC had not sent them one. HMRC said he should have known he needed to file one.
HMRC’s standard line is that a “reasonable excuse” must be some “exceptional” circumstance. The Tax Tribunal judge said: “that, as a matter of law, is wrong. Parliament has provided that the penalty will not be due if an appellant can show that it has a “reasonable excuse”. If Parliament had intended to say that the penalty would not be due only in exceptional circumstances, it would have said so in those terms. The phrase “reasonable excuse” uses ordinary English words in everyday usage which must be given their plain and ordinary meaning.”
He also said that in cases where penalties are levied the European Court of Human Rights’ “Jusilla” principle applies. The penalty has the character of a criminal charge so the taxpayer has the right to a fair trial. The onus to prove an offence is therefore on HMRC.
The judge also criticised HMRC for issuing a 2nd penalty. They had been late in notifying the taxpayer of the 1st penalty. So the 2nd penalty started accruing, unbeknownst to the taxpayer. The judge said: “That is not plain dealing”. Even though there is no obligation upon HMRC to issue a reminder it still should have sent one well before any second penalty period began “as a matter of common fairness and justice”, HMRC’s failure to tell the taxpayer that more penalties were accruing “would offend the common law principle of fairness and most right thinking members of the public would find it repugnant, especially on the part of a public body.”
It is very disappointing to note that despite a string of decisions against them on the question of Reasonable Excuse, the HMRC manuals still list a whole series of circumstances they do not consider reasonable: even though the Tribunal does. This is a striking example of how the Tribunal can be a valuable shield for the taxpayers against unfair and downright unlawful charges by HMRC.
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