Introduction

The case of Perrin v. Revenue & Customs ([2014] UKFTT 488 (TC)) addresses the complexities surrounding HM Revenue & Customs (HMRC) penalties for late filing and late payment of Self-Assessment (SA) tax returns. Christine Perrin, the appellant, faced multiple penalties over two tax years due to alleged late submissions and payments. The core issues revolved around whether Ms. Perrin had a "reasonable excuse" for her late filings and payments, and how the Tribunal should interpret and apply this concept.

Summary of the Judgment

The First-tier Tribunal (Tax Chamber) upheld most of HMRC's penalties against Ms. Perrin for late filing and payment of her SA tax returns for the years 2010-11 and 2011-12. The Tribunal deferred a decision on daily penalties pending the outcome of the Upper Tribunal's decision in R&C Commrs v Keith Donaldson (Donaldson).

Key findings include:

• Ms. Perrin did not provide a sufficient reasonable excuse for late filing and payment of her 2010-11 return.
• Her belief that her taxes would be collected via PAYE was deemed honest yet unreasonable, failing the objective test for a reasonable excuse.
• HMRC's failure to consider special circumstances before levying penalties was identified as flawed, but no relief was granted as there were no special circumstances.

Analysis

Precedents Cited

The Tribunal extensively analyzed previous cases to interpret the "reasonable excuse" provision:

• Coales v R&C Commrs [2012] UKFTT: Established that "reasonable excuse" is an objective test considering the taxpayer's actual circumstances.
• The Clean Car Co Ltd v C&E Comrs [1991] VATTR: Affirmed that a genuine belief alone does not constitute a reasonable excuse.
• Chichester v R&C Commrs [2012] UKFTT and Gray v R&C Commrs [2014] UKFTT: These tribunals advocated for a more subjective approach, which the Perrin Tribunal rejected.
• R v Unah [2011] EWCA Crim 1837: Highlighted that in criminal cases, reasonable excuse involves more than mere honest belief, emphasizing objective reasonableness.

Legal Reasoning

The Tribunal focused on interpreting the "reasonable excuse" as an objective test. Drawing from Coales and The Clean Car Co Ltd, it rejected purely subjective interpretations where honest belief without objective reasonableness suffices.

Key points in legal reasoning include:

• Objective Test: The Tribunal must assess whether the taxpayer's actions were reasonable under the circumstances, akin to what a prudent person would do.
• Combination of Mistakes: Ms. Perrin’s successive honest beliefs did not cumulatively provide a reasonable excuse.
• Remedy Without Delay: Even if a reasonable excuse exists temporarily, the taxpayer must remedy the default without unreasonable delay once the excuse ceases.
• Special Circumstances: HMRC failed to consider special circumstances before issuing penalties, but no such circumstances were present in Ms. Perrin's case.

Impact

This decision reinforces the objective nature of the "reasonable excuse" standard in tax penalty cases. It clarifies that:

• Genuine but unreasonable beliefs do not exempt taxpayers from penalties.
• Taxpayers must act promptly to rectify any mistakes once awareness of the error is achieved.
• Tribunals will adhere to established precedents, dismissing subjective interpretations that lack objective reasonableness.
• HMRC must rigorously assess special circumstances before levying penalties, ensuring fair treatment.

Complex Concepts Simplified

Reasonable Excuse

A "reasonable excuse" for failing to file or pay taxes on time is not merely an honest belief or misunderstanding. It must be an objective reason that a prudent person in the taxpayer's position would consider valid under the circumstances.

Objective Test

The objective test assesses the taxpayer's actions based on what a reasonable person with similar knowledge and circumstances would do, rather than solely on the taxpayer's personal perspective.

Special Circumstances

These refer to exceptional, unusual, or abnormal situations that might warrant the reduction or cancellation of penalties. Examples include serious illness, natural disasters, or other significant disruptions beyond the taxpayer's control.

PAYE (Pay As You Earn)

A system where income tax is deducted directly from an employee's earnings by the employer and paid to HMRC on their behalf.

Self-Assessment (SA) Tax Return

A system HMRC uses to collect Income Tax. Taxpayers must declare their income and calculate their own tax liability annually.

Conclusion

The Perrin v. Revenue & Customs judgment is a pivotal decision in the realm of tax law, delineating the boundaries of what constitutes a reasonable excuse for tax-related defaults. By reinforcing the objective test and dismissing purely subjective interpretations, the Tribunal ensures consistency and fairness in the enforcement of tax obligations. Taxpayers must exercise due diligence and promptly rectify any errors to avoid sustained penalties. Moreover, HMRC is reminded of its duty to consider special circumstances judiciously before imposing penalties.

Overall, this case underscores the importance of understanding and complying with tax filing and payment deadlines, while also illustrating the rigorous standards applied when assessing reasonable excuses for non-compliance.