Is being new to the system a reasonable excuse?

HMRC has an extra support team (EST) for those who, for a variety of reasons, struggle to engage with HMRC, which provides access to a real time online webchat with an HMRC adviser. To access the resource, the user must confirm what qualifying criteria their personal circumstances fall under; eg the user may have mental health conditions. 

A recent First-tier Tribunal case involved a taxpayer who sought support from HMRC’s EST service. Mr Cohen needed to complete a tax return for the first time for the 2021/22 tax year. He failed to notify HMRC of chargeability by the 5 October 2022 deadline, but did register and sign up for paperless contact in December 2022. 

In February 2023, a notice to file was issued by HMRC, giving a filing date for the taxpayer’s 2021/22 tax return in May 2023. The return was filed electronically in April 2023 and the tax due was paid at the same time. A late payment penalty was issued by HMRC as the tax was not paid by the due date of 31 January 2023. Mr Cohen contended that he had a reasonable excuse for late payment on the basis he had contacted HMRC’s EST prior to the notice to file being issued because it was his first time completing a tax return and he was awaiting a unique taxpayer reference number, so wanted to ask whether he could have extra time to complete his tax return. 

The webchat disconnected while Mr Cohen sought to clarify the difference between ‘filing’ the return and making the resultant ‘payment’. A continuation call with a new adviser did not pick up from the same point and the taxpayer’s belief was that the return submission and payment dates were the same.

The tribunal considered whether, on the facts, it was objectively reasonable for the taxpayer to have been unaware that the tax should have been paid by 31 January 2023. It ruled in favour of the taxpayer, noting he was completely new to self-assessment and that, ‘his actions in seeking assistance were guided by a commitment to complying with his tax obligations.’ It is interesting to note the weight the tribunal attached to the fact the taxpayer was actively seeking to understand the position and do the right thing. Actions taken and their underlying motive are useful points for consideration by others that are new to the self-assessment system, who may find themselves inadvertently missing filing or payment deadlines and looking to appeal resultant penalties.

Last year, the Office for Budget Responsibility (OBR) considered the fiscal implications of freezing personal tax thresholds and tax rate bands for the tax years between 2022/23 and 2027/28. It concluded that nearly four million additional individuals will be expected to pay income tax, whilst three million more will begin to pay the higher rate and 400,000 will suffer the additional rate of income tax. With the numbers set to be brought into the tax net and/or pay higher rates of tax, many for the first time, the issues addressed in this case could become much more common.