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HMRC penalties: Taxpayer’s reasonabale reliance on actions of accountant as agent

In Stephen Taylor v Revenue & Customs Commissioners [2015] UKFTT 182 (TC) a taxpayer had a reasonable excuse for the late filing of his tax return where his agent had failed to submit the return in time even though he had provided her with his accounts within a reasonable time and he had no reason to suspect that she would not file his return in time.

Facts

This was an appeal by Mr Taylor against a fixed penalty of £100 for the late filing of his tax return for the year ending April 2013 which was due to be filed by 31 January 2014.

January is typically a frantic time of year for most practising accountants because of the pressure to file year-end tax returns by the deadline of 31 January in any given year.  In this case, Mr Taylor submitted his accounts to his agent, Catherine Newman on 18 January 2014.  Mrs Newman is a sole practitioner who works from home and has around 350 clients.  In January 2014, Mrs Newman’s father-in-law became ill and her usual childcare arrangements suffered causing her to be under unusual extra pressure.  Nevertheless by 31 January 2014, Mrs Newman believed she had completed all the tax returns for her clients and thought she had submitted them electronically to HMRC by the due deadline. On 6 February, she discovered that she had omitted to send Mr Taylor’s return.  She contacted HMRC immediately to explain the oversight but HMRC imposed the fixed penalty of £100 on Mr Taylor.

With Mrs Newman’s support, Mr Taylor challenged the penalty on the grounds that Mr Taylor had had a reasonable excuse for the failure to submit the return on time because in his opinion, he had taken reasonable care to avoid the failure as he had given Mrs Newman sufficient time to submit the return and she had not previously made a late submission of his tax return.

Decision

After levying pointed criticism at Mrs Newman for failing to tell Mr Taylor that she was facing more pressure than usual during January 2014 and for taking on new clients when under too much pressure, Judge King allowed Mr Taylor’s reasonable excuse claim and the penalty was cancelled.

Comment

This is another decision demonstrating that each case for reasonable excuse will be decided on its own facts.  Surprisingly, we understand it took three separate hearings for Mr Taylor’s reasonable excuse to be accepted.  At the first hearing it was found that Mr Taylor had not assumed sufficient responsibility to ensure his tax return had been submitted on time.  Initially, HMRC’s arguments were accepted that Mr Taylor would have been aware following receipt of Notice to File on 6 April 2013 of his obligation to file the return by 31 January 2014; that he had not chased Mrs Newman to check the return had been filed; and that he had not checked the status of the return on-line using HMRC’s website.  In fact, as may have influenced Judge King, though taxpayers may receive Notices to File early on in a given tax year, it is not always the case that they are in a position to comply with this immediately (often they are dependent on their employers for necessary information such as P60s or P11Ds etc).  Moreover, where a taxpayer appoints an agent (particularly one who has always proved to be reliable), we suggest that logically, the need for the taxpayer to register with HMRC’s Gateway is removed.  In this case, Mr Taylor did not have access to a computer but even if he had had access, because the Gateway system operates a day in arrears, the last date on which Mr Taylor could reliably have checked independently of Mrs Newman that his return had been filed was 31 January 2014 – had he done so then, this would not have picked up any returns submitted on that date.  Mr Taylor and Mrs Newman’s tenacity before HMRC paid off but the pointed criticism levied against her ought to give agents pause for thought when planning or dealing with the demands of the January period. Likewise, as far as the taxpayer is concerned, the case for reasonable excuse is likely to be strengthened if they can demonstrate a reasonable assumption of personal responsibility which fits their circumstances. 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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