Court of Appeal confirms no reasonable excuse for non-payment of tax

16 August 2023

In William Archer v HMRC [2023] EWCA Civ 626, the Court of Appeal (CoA) held that a taxpayer did not have a reasonable excuse for not paying tax after his case was dismissed by the CoA, notwithstanding that permission to appeal was sought.


HMRC opened enquiries into Mr Archer's tax returns for tax years 2001/02 and 2002/03. The enquiries concerned the use of two tax avoidance schemes which Mr Archer had implemented. In separate cases in 2009, the CoA held that both schemes were ineffective.

On 30 October 2015 and 15 January 2016, HMRC issued Follower Notices (FNs) and Accelerated Payment Notices (APNs) to Mr Archer in respect of the tax years under enquiry. Statutory representations were made by Mr Archer in response to the notices. HMRC issued closure notices in relation to the enquiries on 3 February 2016, which disallowed the losses which had been claimed by Mr Archer in relation to the two schemes.

Mr Archer challenged the closure notices on the basis that they did not:

expressly state the amount of tax due;
provide a date for payment; or
create a payment obligation.

In the absence of a formal appeal, HMRC confirmed it would commence bankruptcy proceedings if the debt of £22,541,746.48 was not paid within seven working days. 

Mr Archer commenced judicial review proceedings in the High Court in relation to HMRC's decision to commence bankruptcy proceedings against him and applied for interim relief to restrain HMRC from issuing or serving a statutory demand, or commencing bankruptcy proceedings, until further order. The interim relief was granted but the order was silent on HMRC's ability to impose penalties for non-payment of the APNs.

In February 2017, the judicial review proceedings concluded and the High Court held that the closure notices were in fact defective but that this issue should have been appealed to the First-tier Tribunal (FTT) rather than challenged by way of judicial review proceedings, because the FTT would have had the power to correct the defect. 

Mr Archer unsuccessfully appealed to the CoA. The CoA reaffirmed that the closure notices were defective but held that the defect could be cured by section 114(1), Taxes Management Act 1970 (TMA), because the defect was "a matter of form rather than substance on the particular facts of this case".

Mr Archer was refused permission to appeal to the Supreme Court.

Surcharge Notice Appeals

HMRC issued surcharge notices to Mr Archer on 10 May 2016 and 8 February 2019, totalling £1,403,181.78, plus interest. Mr Archer appealed against these notices on the basis that he had a reasonable excuse for non-payment under section 59C(9), TMA. The parties agreed to stand over consideration of these appeals until the conclusion of the judicial review proceedings.

Once the judicial review proceedings concluded, the appeal against the surcharge notices was heard. Mr Archer argued that he reasonably believed that no payment was due under the closure notices because they were defective but also that the existence of the judicial review proceedings and the order for interim relief was a reasonable excuse for non-payment. 

The FTT dismissed the appeal on the basis that, among other things, Mr Archer "had not provided sufficient evidence to show that non-payment was a reasonable action for him to take". On appeal, the Upper Tribunal (UT) agreed and also held that it was necessary for a taxpayer to provide evidence of their subjective belief regarding their reason for non-payment and, in the absence of this, the appeal should be dismissed. 

Mr Archer appealed the UT's decision to the CoA.

CoA judgment

The appeal was dismissed.

Although the appeal was dismissed, the CoA was of the view that the UT erred in finding that evidence of subjective belief, in the form of a witness statement from Mr Archer, was necessary to establish a reasonable excuse for non-payment of tax. Rather, the FTT and the UT could have relied on external evidence of Mr Archer's belief. Specifically, the UT could have relied on the existence of the judicial review proceedings as evidence of Mr Archer's subjective belief that the closure notices were bad in law. It was not necessary for him to file a witness statement to make good that assertion.   

The CoA also agreed with Mr Archer that paying the amounts due in respect of the surcharge notices in advance of determination of the judicial review proceedings would have been detrimental because the High Court may have refused to hear the claim on the basis it was academic.

The CoA concluded that, from the service of the closure notices to the dismissal of the judicial review proceedings in February 2017, Mr Archer did have a reasonable excuse for non-payment. However, once those proceedings ceased, further evidence would have been necessary to substantiate Mr Archer's continuing belief that payment was not due. On balance, Mr Archer did not have a reasonable excuse throughout the period of default and his appeal was dismissed.


The key takeaway from this judgment is that the courts will consider "external [i.e. objective] evidence" of a taxpayer's subjective belief, when deciding whether a taxpayer has a reasonable excuse for non-payment. In this case, although Mr Archer was ultimately unsuccessful in establishing the presence of a reasonable excuse throughout the relevant period of default, the CofA accepted that the existence of judicial review proceedings relating to the subject matter of the payments due constituted a reasonable excuse for non-payment up to the point those proceedings came to an end. It is perhaps harsh on Mr Archer that a reasonable excuse which subsisted for such a long period of time was not considered to have remained in existence during the final, short period, when permission to appeal to the Supreme Court was still pending. 

The judgment can be viewed here.

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