Should Have Known Better

‘Reasonable excuse’ appeal may have future repercussions

A recent First Tier Tax Tribunal decision may give taxpayers some future cause for concern when Making Tax Digital moves into gear.

Background

Andrew Halford filed his 2014 tax return online on 30th January 2015, a day before the deadline. Although he had a tax liability of nearly £1,445, Mr Halford claimed that having been notified by HMRC’s system that he had a liability for 2013/14, he logged back in again to check if the tax was due for immediate payment. However, he was presented with the message, ‘You have nothing to pay’ and took this to mean that the tax was ‘not immediately due’. He therefore logged out of the system and thought nothing more of it.

On 9th February 2015, HMRC sent Mr Halford a reminder letter regarding the outstanding tax which he paid on 9th March. As the payment was more than 30 days after the due date, ie 31st January 2015, HMRC charged a penalty of 5% of the tax, £72 plus interest.

Halford appealed the penalty but this was rejected by HMRC and he therefore requested that the Revenue review their decision. This however proved futile, leaving the taxpayer with only one alternative but to appeal to the tribunal.

The arguments

Mr Halford contended that the tax liability was paid late as a result of an ‘erroneous message’ from HMRC’s website and that he “made every reasonable effort” to check whether or not he needed to make payment and he did remit the tax “as soon as he received the notification that it was due”. As such, he believed that he had a reasonable excuse and that neither a penalty or interest should have been charged.

HMRC said that although the 2014 tax return was submitted on 30th January, it wasn’t processed until 3rd February 2015 and that is why when Mr Halford viewed the ‘nothing to pay’ message on their website, that information was correct at that time.

For there to be a reasonable excuse for late payment of tax there must be an unexpected or unusual event that is either unforeseeable or beyond the taxpayer’s control which prevents them from paying their taxes on time.

It was also pointed out by HMRC that the due dates for payment of tax liabilities are clearly set out on their website and that a prudent person would be aware of the date for payment of a Self-Assessment tax liability. Mr Halford had been filing tax returns since 2007 and was therefore fully aware of these deadlines.

Although not cited by Halford, HMRC did consider whether any special circumstances existed which would enable them to reduce the penalty but not knowing the due date for payment of tax does not constitute a special circumstance.

With regard to the interest, HMRC has no discretion to ignore or override this anyhow.

The tribunal agreed with HMRC and dismissed Mr Halford’s appeal.

Whilst this decision was the right one, it does raise more questions about the government’s Making Tax Digital project which will force taxpayers to fulfil all their tax obligations via HMRC’s online systems. This will involve businesses keeping track of their tax affairs digitally, and providing HMRC with quarterly updates. Will HMRC’s online warnings be watertight by then so as to prevent any misunderstandings? They have got a few years yet to sort that, so one would hope so.