The recent cases of Research and Development Partnership Limited v HMRC TC271 and Huntley Solutions Limited v HMRC TC272 provide an interesting contrast in the meaning of reasonable excuse. Both cases were heard by the same Tribunal on the same day and both concerned the imposition of a penalty for failure to comply with HMRC notices requiring production of documents and information. Both taxpayers relied on the same accountant to deal with the provision of the information. The accountant was overwhelmed with work and had failed to provide the relevant information.
The taxpayers claimed that the fault was that of the accountant on whom they had relied to satisfy the HMRC notices and the default of the accountant represented a reasonable excuse as far as the taxpayer was concerned.
The Tribunal agreed that reliance on a third party is capable of being a reasonable excuse – but whether it does so depends upon the particular tasks involved. In the case of Research and Development Limited the taxpayer was required to produce a detailed explanation of its research and development tax relief claim with reference to the legislation. The relevant legislation was not straightforward or easily understood by those not generally acquainted with tax law and it was reasonable for the taxpayer to rely on the accountants to provide the information. This represented a reasonable excise and the penalty should not have been imposed.
In the case of Huntley Solutions Limited the arguments and the reasoning were identical. However, in this case the Tribunal found that the information and documents required from the taxpayer were straightforward and easily understood and it was not reasonable for them to rely on the accountants to provide this information when they could have complied with the notices themselves. Accordingly, they did not have a reasonable excuse and the penalties remained chargeable.
It is interesting to compare these cases with the decision in Adams TC48 earlier this year in which the Tribunal said that the taxpayer was not guilty of negligent conduct as he was fully entitled to rely on his professional advisers (who had made a mistake). The Tribunal concluded that once it was clear that Mr Adams had relied on advice from his advisers, any allegation of negligence against him personally should have been withdrawn. What amounts to a reasonable excuse and what amounts to negligence are of course entirely different things, but this more sympathetic approach to the difficulties faced by taxpayers is clearly to be welcomed.