Understanding Reasonable Excuse in Tax Appeals

On 5 February 2023, HMRC issued a tax filing notice for the year 2021/22, setting the deadline for 16 May 2023. Before this notice, a taxpayer, unfamiliar with the process, reached out to HMRC’s digital support team for help. This was his first attempt at filing a tax return.
During an online chat, one HMRC adviser, named Kevin, told the taxpayer he wouldn’t face a penalty if he submitted his tax return by 28 February 2023. However, he was warned about penalties and interest on late payments. Another adviser, Steve, later advised that he had three months to file, as his self-assessment record was only created on 26 January 2023. Trusting this advice, the taxpayer submitted his tax return on 26 April 2023 and paid his tax in full.
Despite his efforts, HMRC issued a penalty for late tax payment, claiming the payment was due by 31 January 2023. The taxpayer appealed this penalty.
The First-tier Tribunal (FTT) reviewed the case. The judges found that the taxpayer had indeed paid his taxes on 26 April 2023 but acknowledged that the standard deadline was 31 January 2023. The tribunal then considered whether the taxpayer had a ‘reasonable excuse’ for his late payment.
The concept of “reasonable excuse” refers to situations where a taxpayer, despite exercising reasonable care, fails to meet their tax obligations due to circumstances beyond their control. The tribunal examined the taxpayer’s interactions with HMRC’s advisers.
It was clear that the taxpayer had actively sought guidance and had fully disclosed their circumstances to HMRC. His questions to Kevin and Steve demonstrated a genuine intention to comply with tax deadlines. The tribunal acknowledged that the taxpayer’s misunderstanding, which was based on the advice given by HMRC’s advisers, constituted a reasonable excuse.
The judges ruled that the taxpayer had acted in good faith and allowed his appeal, cancelling the late payment penalty. This case, Cohen v Revenue and Customs [2024] UKFTT 707 (TC), highlights the importance of clear communication from tax authorities and demonstrates that misunderstandings caused by incorrect or confusing information from HMRC can legally be considered a reasonable excuse in appeals against penalties.
This decision is significant for taxpayers as it highlights HMRC’s duty to provide accurate information. It also demonstrates that taxpayers who seek advice and follow it can protect themselves from penalties if the guidance they receive is later corrected.
For taxpayers, this case serves as a reminder to maintain detailed records of all communications with HMRC, especially when seeking clarification on filing deadlines and other obligations. In situations where conflicting information is given, these records can be essential for resolving disputes and avoiding unfair penalties.
Moreover, the outcome of this case reassures taxpayers that the tribunal system can offer a fair hearing and that the concept of ‘reasonable excuse’ is applied in a practical and just manner. Taxpayers facing similar issues can refer to this case for guidance on how to approach disputes with HMRC, particularly when they believe they have complied based on the information provided by the tax authority.