This First Tier Tribunal (“FTT”) case examined the concept of ‘reasonable excuse’ in the context of application of penalties for late payment of tax due to errors.

Background

At the First Tier Tribunal, the case of David Steiner v HMRC heard that Mr Steiner, the taxpayer, had hired an accountant to prepare and file his tax return. Subsequently Mr Steiner changed accountants and on a review carried out by the new agent, realised that there had been errors in his previous tax return.

The errors were corrected by the new accountant and Mr Steiner made a further payment of tax to HMRC. However, HMRC applied a penalty for unpaid tax and Mr Steiner made a claim that the penalty should not arise because he had a reasonable excuse for the non-payment. In his opinion, he had followed his accountant’s advice and as soon as the error was discovered by the new agent, he corrected the matter.

Decision

The Court did not accept this as a reasonable excuse but importantly did not reject it in principle. Instead it cited a lack of evidence.

To establish a reasonable excuse, it is necessary to provide evidence of what instructions and information were given by the taxpayer to the accountant to establish whether complete and correct information was provided and also to establish whether the advice given by the accountant was sufficiently specialised that the taxpayer had no choice but to follow that advice.

Where a taxpayer relies on another person to do something, it is generally not accepted as reasonable excuse unless the taxpayer took reasonable care to avoid the failure.

In this case, only a general statement stating that the original accountants had made a mistake and that the new accountants had noticed it was provided. No detail of the mistake that was made was provided to satisfy the Court that the taxpayer behaved reasonable in relying on his accountant’s advice and therefore the Court held that such material was not adequate to establish a reasonable excuse for the late payment of tax.

The full judgment in this case is available from http://www.bailii.org/uk/cases/UKFTT/TC/2017/TC05650.html