Reasonable excuse

24 July 2014

In the recent case Spink v HMRC[1] the First-tier Tribunal (Tax Chamber) ('FTT') allowed the taxpayer's appeal against the imposition of penalties by HMRC for late payment, as it was satisfied that the taxpayer concerned had a reasonable excuse for the late payment.


Ms Spink was the recipient of a first late payment penalty imposed under paragraph 3(2), Schedule 56, Finance Act 2009 ('FA 2009") and a second late payment penalty imposed under paragraph 3(3), Schedule 56, FA 2009[2].

Ms Spink's non-electronic return for 2011/12 was received by HMRC on 25 September 2012. Ms Spink had been the recipient of a state pension lump sum payment in the amount of £39,107.18. On her return Ms Spink recorded that tax had been deducted from this lump sum payment, as this is what she had been advised by the Department for Work and Pensions ('DWP'), the payer of the pension.

HMRC amended Ms Spink's return on 26 October 2012, and by 11 November 2012 had issued a revised self-assessment statement. It is not clear from the decision which power was relied upon by HMRC to amend the return. HMRC has the power to correct a return under section 9ZB TMA 1970, and has the power to amend a return during the currency of an enquiry under section 9C TMA 1970, in order to prevent a loss of tax. There is no mention in the decision of an enquiry having been opened, and so it is assumed that the power contained in section 9ZB was relied upon by HMRC, and that the correction was not rejected within 30 days by the taxpayer.[3]

Any tax liability in relation to the 2011/12 year was due to be paid by Ms Spink on or before 31 January 2013.[4]

Between 26 October 2012 and 28 March 2013, HMRC and Ms Spink exchanged correspondence regarding whether the lump sum was taxable, and if so, the quantum of the taxpayer's liability. She spoke to HMRC officers on a number of occasions by telephone. Ms Spink maintained that the lump sum was not taxable because she had been advised that it had already borne tax.

HMRC issued a first penalty assessment on or around 17 March 2013, which was appealed by Ms Spink on 19 March 2013.

On 2 May 2013, Ms Spink received a letter from HMRC requesting that the outstanding amount of tax owed be paid immediately in order to allow HMRC to fully review the appeal. The letter warned of further late payment penalties (at 6 and 12 months following the due date), and referred to interest charges. Ms Spink's appeal was rejected by HMRC on 5 July 2013.

On 14 August 2013, Ms Spink received a letter from HMRC confirming that (HMRC having initially raised the query at the start of April) the DWP had finally confirmed to HMRC that tax had not been deducted from the lump sum, notwithstanding their statement to Ms Spink that it had been paid to her net of tax. When Ms Spink called the DWP to query this she was advised that due to the length of time which had elapsed they no longer held the relevant documentation, and apart from a "note on file" the papers had been destroyed.

On confirmation from HMRC that the DWP had not deducted tax from the lump sum, the amount due was promptly paid by Ms Spink on 4 September 2013.

Ms Spink made a late notification of her appeals against the penalty assessments to the FTT on 7 January 2014.

FTT's decision

The FTT observed that there is no statutory definition of what constitutes 'reasonable excuse', which is "a matter to be considered in the light of all the circumstances of the particular case". HMRC argued that a reasonable excuse is normally an "unexpected or unusual event that is either unforeseeable or beyond the taxpayer's control, and which prevents them from complying with their obligation to pay on time."

The FTT found that the taxpayer had been advised that HMRC were obliged to contact the DWP to establish what tax (if any) had been deducted from the lump sum. Telephone conversations between February and August 2013 confirmed this was what was occurring. HMRC appeared to indicate in their correspondence that the tax and accruing penalties had to be paid, but Ms Spink relied more on the conversations she was having with individuals at HMRC rather than what appeared to be generic or automated correspondence from HMRC.

In the view of the FTT, it was not unreasonable for Ms Spink to take the view that until the tax status of the lump sum had been determined, there was no further liability to tax. Within a very short period of time from being informed that the lump sum was taxable and that no tax had been deducted from the lump sum, Ms Spink paid the tax due. Accordingly, the FTT concluded that she had a reasonable excuse and the penalties were discharged.


This case is a useful example of the sort of circumstance which the FTT will consider amounts to a reasonable excuse, for the purposes late payment penalties. Although each case will turn on its own individual facts, Ms Spink understood that HMRC were looking into her case and in such circumstances the FTT was of the view that she had a reasonable excuse for the late payment. HMRC can perhaps be criticised for not only raising the penalty assessment, but also for allowing matters to proceed to the FTT where Ms Spink was ultimately vindicated.

The blog was written by Nigel Brook.

[1] Pauline Dobson Spink v The Commissioners for Her Majesty's Revenue & Customs [2014] UKFTT 524 (TC).

[2] The successor provisions to section 59C TMA 1970.

[3] Had Ms Spink rejected the correction, it would have been treated as being of no effect, pursuant to section 9ZB(4) TMA 1970.

[4] In accordance with section 59B(4) TMA 1970.

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