Introduction

Christine Perrin appealed against the decision of the First-tier Tribunal (FTT) which dismissed her appeal against daily penalties of £900 for the late filing of her self-assessment tax returns for the years 2010-11 and 2011-12. The key issue at the heart of the case was whether Perrin had a reasonable excuse for her failure to file her tax returns on time. The Upper Tribunal (Tax and Chancery Chamber) was tasked with reviewing whether the FTT correctly applied the legal standards pertaining to "reasonable excuse" for late tax filings.

Summary of the Judgment

The Upper Tribunal dismissed Perrin's appeal, upholding the FTT's decision to impose penalties. The FTT had initially acknowledged that Perrin had a reasonable excuse for failing to file her 2010-11 tax return on time due to an honest belief that her submission was complete. However, this excuse ceased when HMRC informed her that her submission was incomplete. Perrin did not rectify the mistake until two months later, which constituted an unreasonable delay. The Upper Tribunal affirmed that the FTT correctly applied the standard that a reasonable excuse must be both genuine and objectively reasonable, considering the taxpayer's circumstances.

Analysis

Precedents Cited

The judgment extensively analyzed several precedents to establish the legal standards for "reasonable excuse." Key cases included:

• The Clean Car Co Ltd v C&E Comrs [1991] VATTR 234 - Established that an honest belief alone is insufficient for a reasonable excuse; an objective test of reasonableness must also be applied.
• Coales v R&C Commrs [2012] UKFTT - Reinforced the necessity of objective reasonableness in evaluating reasonable excuses.
• Donaldson v HMRC [2016] EWCA Civ 761 - Influenced the FTT's approach by emphasizing that reasonable excuses must be objectively reasonable.
• R v Unah [2010] EWCA Crim 1837 - Although a criminal case, it was interpreted to support the necessity of objective reasonableness in reasonable excuse defenses.

The Upper Tribunal critically examined how these precedents were applied, particularly challenging the FTT's reliance on Unah and arguing that it should not support the notion that an honest belief alone suffices as a reasonable excuse without objective assessment.

Legal Reasoning

The court emphasized that the concept of a "reasonable excuse" inherently involves an objective assessment. This means that while the excuse must be genuine, it must also pass the test of reasonableness from an external perspective, considering the taxpayer's specific circumstances and attributes. The FTT correctly applied this standard by determining that Perrin's initial excuse was valid but ceased when she failed to rectify her filing promptly after being informed of the error.

The Upper Tribunal underscored that subjective beliefs of the taxpayer are only part of the equation. The objective standard ensures that excuses are not merely personal or idiosyncratic but are reasonable within the broader legal and societal context. This bifurcated approach safeguards against unwarranted penalties while maintaining the integrity of tax compliance.

Impact

This judgment reinforces the necessity for taxpayers to not only have genuine reasons for non-compliance but also ensures that these reasons stand up to objective scrutiny. It sets a clear precedent that mere honest belief without objective reasonableness is insufficient to negate penalties for late tax filings. Future cases will likely reference this decision to clarify the dual requirement of genuineness and objectivity in reasonable excuse defenses.

Additionally, the judgment serves as a cautionary tale for taxpayers to act promptly upon notification of any discrepancies in their filings to avoid penalties. It may also prompt HMRC to enhance their communication protocols to prevent similar misunderstandings.

Complex Concepts Simplified

Reasonable Excuse

A "reasonable excuse" in tax law is a defense that taxpayers can use to avoid penalties for not complying with tax obligations on time. To successfully claim a reasonable excuse, the taxpayer must demonstrate that their failure was both genuine and, when considered objectively, reasonable given their specific circumstances.

Objective Reasonableness

This refers to assessing the taxpayer's excuse from an external viewpoint, independent of their personal feelings or beliefs. It involves evaluating whether an average, reasonable person in the taxpayer's situation could have made the same mistake or experienced the same difficulties.

Without Unreasonable Delay

This principle requires that once a reasonable excuse ceases to exist, the taxpayer must rectify their failure promptly. Delaying the remedy beyond what would be considered reasonable undermines the initial excuse and can nullify any penalty defenses.

Conclusion

The Upper Tribunal's decision in Perrin v HMRC clarifies the stringent standards applied to "reasonable excuse" defenses in tax law. By reinforcing that excuses must be both genuine and objectively reasonable, the judgment ensures that taxpayers are held accountable while allowing for fairness in exceptional circumstances. This case underscores the importance for taxpayers to not only believe sincerely in their reasons for non-compliance but also to ensure that these reasons align with societal standards of reasonableness. The judgment serves as a pivotal reference for future cases involving late tax filings and reasonable excuse defenses, shaping the landscape of tax compliance and enforcement.