Reasonable excuse, special circumstance and deliberately withholding: The UT weighs in again with a twist
The Upper Tribunal (Tax and Chancery Chamber) (“the UT”) has again been forced to deal with reasonable excuse and special circumstances in the context of Schedule 55 penalties in Harrison -v- The Commissioners for HM Revenue and Customs [2022] UKUT 00216. This time, however, it also dealt with a separate point concerning whether the First-tier Tribunal (Tax Chamber) (“the FTT”) had erred in deciding that the taxpayer had deliberately withheld information that would enable HMRC to assess the tax liability.
This decision is important because it confirms that:
- the reasonable excuse test in Perrin is best practice but was “not intended to be a strait jacket” (paragraph 29 of the decision);
- a reasonable excuse must exist before the non-compliance. That means excuses that come to light after the non-compliance are only relevant insofar as they impact on whether the failure was remedied without unreasonable delay (paragraph 31 of the decision);
- there is nothing “special about the word special” when assessing whether there are special circumstances warranting a special reduction. It is not wrong, however, to express the test as being “uncommon or exceptional”, they simply do not add anything to the statutory language (paragraph 57 of the decision);
- brevity of reasoning does not mean the reasoning is inadequate for the purposes of special reduction (paragraph 60 of the decision); and
- on the facts, there was sufficient evidence for the FTT to find that the taxpayer had deliberately withheld information which would enable or assist HMRC to assess the taxpayer’s liability to tax (paragraph 67 of the decision).
It is, however, another aspect of this decision which is particularly noteworthy. The UT found that whilst there had not been cross-examination of the taxpayer about his mental health, it was open to the FTT to reject the taxpayer’s explanation, even when it had been unchallenged. That was for two reasons:
- HMRC’s Statement of Case, and skeleton argument put the taxpayer on notice that the extent of his mental health concerns were not accepted by HMRC (paragraph 68 of the decision);
- More importantly (in the UT’s judgment) the Court of Appeal’s decision in Griffiths -v- Tui (UK) Ltd [2021] EWCA Civ 1442 allowed a judge to reject evidence, even in the absence of challenge in cross-examination as part of an assessment of the totality of the evidence.
It is the second of these findings which is of most significance because it offers a glimmer of hope that evidence may be rejected even where an element of an opposing party’s case has not been challenged or tested in cross-examination. Time will tell as to what impact, if any, this has on conduct of appeals before the FTT.
Joshua Carey appeared in Harrison -v- The Commissioners for HM Revenue and Customs. The judgment can be found here.
In the Schedule 55 penalty arena, Joshua has appeared in Perrin -v- Revenue and Customs Commissioners [2018] STC 1302, Raggatt -v- Revenue and Customs Commissioners [2018] UKUT 412 (TCC), Edwards -v- Revenue and Customs Commissioners [2019] STC 1620, Revenue and Customs Commissioners -v- Rogers and Shaw [2020] STC 220.
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