HM Revenue and Customs has been ruled against in a self-assessment tax payer’s first tier tax tribunal, in the ongoing ‘reasonable excuse’ debate.

Judge Geraint Jones QC has ruled in favour of taxpayer Kathleen Lomas at a first tier tax tribunal for the £100 late filing tax penalty she received for a paper self-assessment tax return that was filed before the 31st January deadline.

After receiving a notice to complete a tax return in January 2011 from HMRC, along with a paper self-assessment tax return form, Lomas completed and returned the given paper tax return form before the 31st January 2011 deadline.

What HMRC had failed to inform Lomas is that paper returns had to be filed by the 31st of October the year before. And despite including a paper tax return form with the letter of notification, HMRC failed to highlight that Lomas would need to file her tax return online and that the 31st of January self-assessment tax return deadline is for electronic copies only.

First Tier Tax Tribunal rules against HMRCLomas decided to fight HMRC’s decision at the first tier tax tribunal under the terms of ‘reasonable excuse’.

At the first tier tax tribunal, Judge Geraint Jones QC, said:

“The fact that HMRC did not return the paper tax return and insist that the appellant must file online leads me inexorably to the conclusion that it did, by its conduct, waive the requirement for the paper return to be filed by October 31, 2010, or for the appellant to file online by January 31.

“She lost the opportunity to file online within time and thus avoid any penalty. It is not good for HMRC to act in such an unconscionable manner. It should, as a matter of good conscience and proper administration, it being a public body that should abide by the highest standards of good administration and fairness, have promptly informed the appellant. It did not do so.

“HMRC argues that the appellant failed to submit her paper tax return by the due date and that penalties are imposed to promote the efficient operation of the tax system, with the responsibility to submit being placed squarely on the shoulders of the taxpayer. That proposition might be acceptable in circumstances where, by its conduct HMRC has not misled the taxpayer or lulled her into believing that she has fulfilled obligations.

“To ignore the latter aspect of this case would be manifestly unjust. Appeal allowed. The appellant having paid the penalty of £100 already, same must be returned to her, with interest.”

It is estimated that around 630,000 taxpayers failed to file their tax returns by the 31 January deadline this year. All of which received an £100 initial tax penalty for failing to submit their self-assessment tax return on time; followed by daily tax penalties amounting £10 per day (to a maximum of £900) since 1 May; for those who continue to fail to file their self-assessment tax return by the 31 July, another HMRC tax penalty of £300 or 5% of the tax due, whichever is greater, will also be issued.

Here’s hoping that Lomas’s recent first tier tax tribunal ruling doesn’t give false hope of ‘reasonable excuse’ to those taxpayers who are yet to submit their self-assessment returns.

Would you like to take a decision from HMRC to the First Tier Tax Tribunal? We can help!

KinsellaTax staff consist of ex-Custom and Excise Officers and ex-HM Inspector of Taxes fully versed in all types of HMRC investigations.

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