Introduction

Hart v Revenue and Customs ([2018] UKFTT 207 (TC)) is a pivotal judicial decision adjudicated by the First-tier Tribunal (Tax) in the United Kingdom on April 13, 2018. The case centers around Mr. Raymond Hart, an Australian resident, who appealed against penalties imposed for the late submission of a Non-Resident Capital Gains Tax (NRCGT) return pertaining to the sale of his property in Ascot, Berkshire. The crux of the appeal was whether Mr. Hart had a reasonable excuse for the delayed filing, specifically focusing on his alleged ignorance of the law and reliance on tax advisors.

Summary of the Judgment

Mr. Hart sold a property in the UK on August 28, 2015, and was obligated under the Finance Act 2015 to file an NRCGT return within 30 days of the disposal. However, the return was filed 418 days late, resulting in penalties totaling £700. Mr. Hart contended that the late filing was due to reasonable excuses: his ignorance of the new filing requirement and the failure of his tax advisors to inform him of the need to submit the NRCGT return.

The Tribunal initially upheld the penalties after a review. However, upon appeal, the First-tier Tribunal reconsidered the circumstances. The Tribunal delved into whether ignorance of the law could be considered a reasonable excuse and examined the extent to which reliance on professional advisers might mitigate responsibility for compliance failures.

Ultimately, the Tribunal allowed Mr. Hart's appeal, ruling that his reliance on competent tax advisers constituted a reasonable excuse for the late filing. The decision underscored the importance of the taxpayer-adviser relationship and established that reliance on professional advice can, under certain conditions, exempt a taxpayer from penalties for non-compliance.

Analysis

Precedents Cited

The judgment extensively referenced prior cases to shape the Tribunal’s understanding of "reasonable excuse." Notably:

• The Clean Car Company Limited v C & E Commissioners [1991] VATTR 239: This case provided foundational insights into the objective nature of a reasonable excuse, assessing whether a responsible taxpayer could similarly be excused under comparable circumstances.
• McGreevy v HMRC [2017] UKFTT 690 (TC) and Saunders v HMRC [2017] UKFTT 765 (TC): These Tribunal decisions previously held that a non-resident's lack of awareness regarding the need to file an NRCGT return could be seen as a reasonable excuse.
• Welland v HMRC [2017] UKFTT 870 (TC) and Hesketh v HMRC [2017] UKFTT 871 (TC): Contrary to McGreevy and Saunders, these decisions rejected the notion that ignorance of the law alone can constitute a reasonable excuse.
• Central Asbestos Co Ltd v Dodd [1973] AC 518 and other civil cases: These cases reinforced the principle that "ignorance of the law is no excuse" across various legal contexts, not limited to criminal law.

Importantly, the Tribunal in Hart v Revenue and Customs chose to follow the reasoning in Welland and Hesketh over McGreevy and Saunders, aligning with judicial trends that limit the applicability of ignorance as a valid excuse.

Legal Reasoning

The Tribunal's legal reasoning hinged on interpreting the provisions of the Finance Act 2015 and Schedule 55 of the Finance Act 2009, specifically concerning penalties for late NRCGT return submissions.

- **Reasonable Excuse Test:** The Tribunal applied an objective standard, assessing whether a reasonable taxpayer in Mr. Hart's position would have acted similarly under the circumstances. Mere ignorance of the law was insufficient unless coupled with factors like reliance on professional advisers.

- **Ignorance of the Law:** While generally, ignorance does not excuse non-compliance, the Tribunal acknowledged limited exceptions in complex or ambiguous legal scenarios. However, in this case, the NRCGT filing requirement was deemed straightforward and publicly accessible, thus not qualifying for such exceptions.

- **Reliance on Professional Advisers:** The pivotal aspect of the decision was recognizing that Mr. Hart had taken reasonable steps to comply by informing his tax adviser of the property sale. The failure of the adviser to notify him of the NRCGT filing requirement constituted a reasonable excuse for the delay.

Consequently, the Tribunal concluded that Mr. Hart should not be penalized for the late filing, as his reliance on competent professional advice met the criteria for a reasonable excuse under the relevant legal provisions.

Impact

This judgment has significant implications for both taxpayers and tax professionals:

• Taxpayers: Reinforces the importance of engaging competent tax advisers and maintaining proactive communication regarding tax obligations. It underscores that reasonable reliance on professionals can protect against penalties for inadvertent non-compliance.
• Tax Advisers: Highlights the critical role of tax professionals in informing and guiding clients about filing requirements. A failure to adequately advise can shield clients from penalties but may expose advisers to professional liability.
• Tribunals and Courts: Establishes a nuanced approach to evaluating reasonable excuses, balancing strict compliance with practical reliance on professional advice. Future cases may lean on this precedent to assess the interplay between taxpayer actions and adviser responsibilities.

Furthermore, the decision subtly addresses the accessibility of tax laws, emphasizing that while the tax code's complexity can sometimes justify exceptions, clarity and accessibility remain paramount.

Complex Concepts Simplified

Non-Resident Capital Gains Tax (NRCGT)

NRCGT refers to the tax levied on capital gains arising from the disposal of UK property by individuals who are not residents in the UK for tax purposes. Under the Finance Act 2015, non-residents are required to file an NRCGT return within 30 days of selling a UK property to report any gains.

Reasonable Excuse

A "reasonable excuse" is a legal defense that taxpayers can use to avoid penalties for failing to comply with tax obligations if they can demonstrate that their failure was due to circumstances beyond their control or reliance on professional advice. It is assessed against an objective standard, considering what a prudent taxpayer would have done under similar circumstances.

Penalties Under Schedule 55 Finance Act 2009

Schedule 55 outlines the penalties for various tax compliance failures, including late filing of returns. Specifically:

• Paragraph 3: £100 penalty for late filing.
• Paragraph 5: £300 penalty for returns over six months late.
• Paragraph 6: £300 penalty for returns over twelve months late.

These penalties aim to encourage timely compliance, with provisions allowing for relief under certain conditions, such as demonstrating a reasonable excuse.

Reliance on Third Parties

This concept refers to taxpayers depending on professionals like solicitors or accountants to fulfill tax obligations. Under Schedule 55, reliance on a third party can be a reasonable excuse for non-compliance if the taxpayer took reasonable steps to avoid the failure, such as informing advisers of relevant transactions.

Conclusion

The Hart v Revenue and Customs judgment sets a significant precedent in UK tax law by delineating the boundaries of what constitutes a reasonable excuse for late NRCGT return filings. By recognizing that reliance on competent tax advisers can mitigate penalties, the Tribunal emphasizes the symbiotic relationship between taxpayers and professionals. This decision not only provides relief for taxpayers who diligently seek professional guidance but also underscores the accountability of tax advisers in ensuring compliance with evolving tax obligations.

Furthermore, the judgment reinforces the principle that while ignorance of the law is generally not an excuse for non-compliance, exceptions exist in contexts where taxpayers have taken reasonable steps to comply but were let down by trusted advisers. This balanced approach fosters a fair compliance ecosystem, encouraging both proactive taxpayer behavior and responsible professional conduct.

Overall, this decision enhances the understanding of reasonable excuses within tax compliance, offering clarity and guidance for future cases and shaping the dynamics between taxpayers, tax professionals, and tax authorities.