Penalties for failure: painting a Gray picture?

An inordinate number of cases appearing before the First-tier Tribunal relate to penalties for failure to perform some tax obligation or other at the time at which the law requires it to be performed.  The question is usually whether there is a “reasonable excuse” for the failure.  It’s worth drawing attention to a case heard last year, Gray Publishing [2014] UKFTT 113 (TC) which hasn’t been as widely publicised as perhaps it deserves.  Certainly HMRC don’t seem always to give it as much weight as they should.

The case happened to be about filing P35 returns.  The taxpayer believed (incorrectly) that no P35 was required.  So – of course – she didn’t file one.  It was argued on her behalf that if you honestly believe that you aren’t required to do something, that must be a reasonable excuse for not doing it.  Put that way, the statement seems self-evidently true.  And the Tribunal so found.  Nor was this a case of a Tribunal going off on a frolic of its own and making a decision that was unsupported by precedent: on the contrary, the Tribunal carefully reviewed relevant case law in the field of both tax and criminal law in coming to its very clear and well-explained conclusion.

Nor is it directly relevant to ask whether it is “reasonable” or “rational” to hold the belief.  As the Tribunal put it, “if the claimant’s honest belief is, when viewed objectively, irrational or apparently unreasonable, that is a factor that might weigh in the forensic exercise of deciding whether the person claiming to hold the stated (honest) belief did in fact hold the claimed (honest) belief.  It is not a separate test to be applied in deciding whether an honest belief amounts to a reasonable excuse”.

Hence in such a case there is a two-stage test.  First, establish what the claimant actually in fact honestly and genuinely believed to be true.  Second, consider whether, if what the claimant believed to be true had in fact been true, that would have been a “reasonable excuse” for the claimant’s action or inaction.  Thus, in Mrs Gray’s case, because the taxpayer honestly and genuinely believed at the relevant time that no P35 was required, she had a reasonable excuse for not filing a P35 at the relevant time.

Note, however, that this does not mean that mere ignorance of an obligation can be set up is a defence to a penalty for failing to meet it.  “I genuinely did not know that there was a law requiring me to do X” (even if a true statement) may not, of itself, get you off a penalty for failing to do X.  “I genuinely thought I had done X” or “I genuinely held a positive belief that I was not required to do X” may do so.

For more on the finer points of penalties, please get in touch with your usual contact partner or use our enquiry form.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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