When is ignorance of the law a reasonable excuse?

The expression ‘ignorance of the law is no excuse’ is well-known.

In implementing the law on reasonable excuse, HMRC – and the Inland Revenue and Customs & Excise before it – has tended to apply an absolutist approach, but recent case law indicates that there are circumstances in which ignorance of the law can be a reasonable excuse for a taxpayer’s failure to meet an obligation.

The expression itself springs from one of the old maxims of equity: ‘One may excuse ignorance of a fact, but ignorance of the law is no excuse’. But there is more to it than that. On my shelves is a 1933 edition of a short handbook of some of the more important maxims of equity (Juris Proverbia by EA Steele) and, when citing this particular maxim, it goes on to comment:

‘It would however be injudicious to take the maxim too literally, for a distinction is drawn between a mistake (or ignorance) of a general principle of law and a mistake (or ignorance) of some mere matter of private right or title.’

Tax case law: Perrin

In Perrin v HMRC Commrs [2018] UKUT 156 (TCC), the Upper Tribunal observed (para 81) that a genuine belief which turns out to be mistaken can nonetheless be a reasonable belief, looking at the matter objectively and taking into account ‘the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times’.

In short, the First-tier Tribunal (FTT), called upon to adjudicate on a reasonable excuse claim, might ask itself whether the taxpayer’s belief (or indeed the taxpayer’s action or omission) was ‘objectively reasonable for this taxpayer in those circumstances’.

So far, so much in accordance with the established law on reasonable excuse set out in The Clean Car Company Ltd (1991) VATTR 234 (see my blog Stalin ate my homework: reasonable excuse and the self-assessment deadline).

The Upper Tribunal judges in Perrin went on to say (para 82):

‘One situation that can sometimes cause difficulties is when the taxpayer’s asserted reasonable excuse is purely that he/she did not know of the particular requirement that has been shown to have been breached. It is a much-cited aphorism that “ignorance of the law is no excuse”, and on occasion this has been given as a reason why the defence of reasonable excuse cannot be available in such circumstances. We see no basis for this argument. Some requirements of the law are well-known, simple and straightforward but others are much less so. It will be a matter of judgment for the FTT in each case whether it was objectively reasonable for the particular taxpayer, in the circumstances of the case, to have been ignorant of the requirement in question, and for how long.’

The key point here is that the FTT must ask itself whether it was reasonable, in an objective sense, for the taxpayer, given their particular circumstances or attributes, to be unaware of the legal requirement at the time the penalty arose, and for how long their lack of awareness can be justified.

In Perrin, the taxpayer had twice completed all the steps for filing her return online, except the last one which required her to press the ‘Submit’ button. She appealed against the non-filing penalty charged by HMRC. The FTT held that she had a reasonable excuse for the first such failure, but that had ceased when HMRC wrote to her to explain her mistake, so she did not have a reasonable excuse for the second failure. The Upper Tribunal agreed, holding that the taxpayer’s genuine belief that she had done all that was necessary to file her return online did not constitute a reasonable excuse in relation to the second failure.

Tax case law: Jacques

As a statement by the Upper Tribunal of the process that should be gone through to decide whether there was a reasonable excuse, and of when a genuine but mistaken belief as to the law could constitute a reasonable excuse, the principle set out in Perrin is binding.

This principle was relied upon by the FTT in the very recent case of Jacques v HMRC Commrs [2020] UKFTT 311 (TC) in which the taxpayer pleaded that his ignorance of the High Income Child Benefit Charge (HICBC) was a reasonable excuse for his failure to complete a self-assessment return to notify his liability. Practitioners will need no reminding of the complexities of the HICBC rules, which have caught out many taxpayers.

On being ‘nudged’ by HMRC, the taxpayer rang to enquire what he should do, then at HMRC’s request, completed tax returns for the two years in which he was liable for the charge, 2016/17 and 2017/18. HMRC imposed a failure to notify penalty for the first of the two years, but not for the second because of the taxpayer’s voluntary disclosure.

HMRC contested his claim for reasonable excuse on the grounds that it was up to the taxpayer to understand the law and how it applied to him; it was not up to HMRC to notify him of his liability; neither his ignorance of the law nor the fact that HMRC did not inform him of it until very late 2019 was a reasonable excuse.

The judge (Nigel Popplewell) agreed that HMRC had no obligation to notify every taxpayer of every change in the law that might apply to them. Equally, he said, the taxpayer is not obliged to ‘go rummaging through all HMRC’s information on the off-chance that there might be something which is hidden away in it which is relevant to his tax position’.

The judge asked: ‘Is it reasonable for this taxpayer not to have so rummaged? In my view, yes.’

He was a PAYE taxpayer in the years in question and had not previously completed a self-assessment return; if he had been within self-assessment, he might have known about HICBC from studying the notes to the return, but he was not.

The judge went on to criticise HMRC for its reliance on an old case taken out of context and its selectivity in quoting from Perrin, omitting to mention paragraph 82 of the judgment (quoted above) which is most relevant in determining whether ignorance of the law can be a reasonable excuse.

Conclusion

In summary therefore, ignorance of the law can be a reasonable excuse if the taxpayer’s ignorance, viewed objectively, was reasonable given the taxpayer’s particular circumstances or attributes.

Is it reasonable for a taxpayer with a responsible attitude to complying with his or her tax obligations, but with his/her own (as defined by the tribunal) experience, attributes and situation at the time, to have been unaware of the requirement in question?

On the one hand, an objective standard of reasonableness. On the other, a recognition that what is reasonable for a taxpayer with one set of attributes or circumstances – age, health, experience, etc – may not be thought reasonable for another taxpayer with a different set of attributes and circumstances.

Subscribers to Bloomsbury Professional Tax Online can read more about reasonable excuse in Guide to Taxpayers' Rights and HMRC Powers by Robert Maas, here. Want to take a look at the range of high quality tax news and commentary our subscribers enjoy? Visit our website for further information. 

Robin Williamson

Written by Robin Williamson

Robin Williamson MBE CTA (Fellow) is an author and commentator on tax, welfare and public policy. He was technical director of the CIOT’s Low Incomes Tax Reform Group from 2003 to 2018 and a part-time senior policy adviser at the Office of Tax Simplification from 2018 to 2019. In May 2020 he won the lifetime achievement award at the Tolley Taxation Awards.

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