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Making Tax Digital Reasonable Excuse Appeal

Making Tax Digital Reasonable Excuse Appeal

MTD (Making Tax Digital) proved very costly for one taxpayer. Discovering that ignoring an HMRC electronic notice to file landed him with £1,300 in late filing penalties.

As part of its broader strategy, the tax department has been encouraging taxpayers to switch to paperless communication via their online personal tax account. Problems highlighted recently in a tribunal decision concerning Ben Smith, who got into a tangle after consenting to paperless filing in June 2016.

In April 2017, HMRC posted a notice for him to file a tax return in his online account and sent him an email notifying him about the new message.

MTD Reasonable Excuse Appeal: Unexpected notice to file

Ben Smith had operated a one-person service company up until December 2014, when he took up a full-time job as an employee of a large company. He naturally thought that as a simple PAYE employee, with no other income, that he no longer had to complete tax returns.

In testimony before the tribunal convened to hear his reasonable excuse appeal:

  • Smith understood from a conversation with HMRC’s helpline in April 2016 that he would not need to file a tax return for 2016-17.
  • So assumed the email message he received on 6 April 2017 was spam and deleted it.

Subsequent HMRC reminders were automatically categorised as spam and automatically deleted. Ben Smith was blissfully unaware of the fact that HMRC was continuing to send emails until he received a letter through the post from the tax office. The letter informed him that he owed penalties totalling £1,300 for his late 2016-17 tax return.

MTD Reasonable Excuse Appeal: The agent still in the loop

When he was the sole director of his service company, Smith had authorised Fenn & Co to prepare his tax returns. HMRC sent a letter to the adviser in October 2018 about Smith’s £900 late penalties for the 2016-17 tax return. Still, Fenn & Co said that it had previously notified HMRC that it was no longer acting for the taxpayer. They also said that they had no record of ever receiving the letter sent by HMRC.

Unfortunately for Mr Smith, the tribunal judges concluded that HMRC had acted by Mr Smith’s previous and extant instructions. It was his responsibility to remove Fenn & Co as his agents.

MTD Reasonable Excuse Appeal: Was notice given?

Making Tax Digital Reasonable Excuse AppealThe taxpayer’s argued that on the principle that posting a notice within HMRC’s computer system, to alert him it electronically, did not meet the definition of a notice being “given” in section 8 of the Taxes Management Act 1970.

He also argued that HMRC “offered no evidence of any terms of agreement for paperless communication.” My Smith said during the hearing that he had no recollection of agreeing that he would have to go into his online account to find out what HMRC wanted to communicate. He added that he’d received many phishing emails purporting to be from HMRC in the past and had deleted them.

The judges didn’t buy this argument and reminded him of the terms and conditions(T&C’s) to which he agreed by ticking the consent box in his tax account. Given the T&Cs he had acceded to plus the content of HMRC’s emails which explicitly stated that (unlike most spam emails) “For security reasons, we have not included a link with this email,” the tribunal turned down his reasonable excuse appeal.

MTD Excuse Appeal: What should a reasonable taxpayer do?

The judges decided that: A reasonable taxpayer who consented to paperless communication would expect to receive some emails from HMRC. Should read more than the first lines of an email from the tax office on their phone instead of deleting it. Then he would be expected to check their online account.

The tribunal chair said; “Even if he were unsure about the spam/not spam status of the email, the reasonable person would know he could safely check his online account using the access codes previously provided. We find that Mr Smith did not act reasonably in deleting the email, which alerted him to the Notice to File without reading it. As a result, we find that he does not have a reasonable excuse for failing to file his return by the due date.”

Tax Accountant’s Conclusion

Image of David Jones Shrewsbury Accountant and Founder of Morgan Jones

David Jones, Shrewsbury Accountant

I have some sympathy with the taxpayer, especially on the point that his accountant had specifically told HMRC that he was no longer in business, that they were no longer acting for him, and that this was somehow his fault because HMRC had ignored the communication from Fenn & Co!

Nevertheless, the simple lesson from the tribunal judges is that ignoring emails for whatever reason is essentially the same as letting those ominous brown envelopes pile up in the in-tray – foolhardy and potentially expensive.

If you would like more detailed information on some aspect of UK Tax, send me an e-mail and I’ll be pleased to advise further.