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HMRC internal manual

Enquiry Manual

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HM Revenue & Customs
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Penalties: Culpability - Defences: Failure to Notify: Responses

Obligation to notify (Ignorance of the law)

Ignorance of the law is not a reasonable excuse. Where, however, the liability turns on a technical consideration which an unrepresented taxpayer might not appreciate, or on a disputed point of law, or a debatable view of the facts (for example, property dealing or an illegal activity) you will have to take a realistic view of the taxpayer’s actions.

The point may often, in practice turn on your (or the tribunal’s) view of the taxpayer’s credibility as a witness. You should consider seeking advice from contact link before taking any positive action in such a case.

Amount of income to attract liability

The excuse may depend on figures. A single man drawing £300 per week from his business might invest £2,000 and spend £3,000 on equipment during the year. It would be pointless for such a taxpayer to plead that he was not aware that he was making a profit in the region of £20,000. He could do so by showing that his bank balance had fallen, that he had more creditors (or fewer debtors) or less stock, but he would then be showing that his level of accountancy or business knowledge was such that he must have had a fair idea of the level of his profit.

On the other hand, a young person with little business experience drawing only nominal amounts from the business, with a reducing bank balance and no accounts prepared, might well not realise that they had a taxable profit made up largely of stock and debtors: you might decide that they had a reasonable excuse for failing to notify chargeability.

The comment of Rowlatt, J, in Attorney-General v Johnstone, 10TC at page 763, is useful

This is a very bad case. Here is a man who says he put down £300 BONA FIDE, when he was making £1,500 and had been making it for years.

Do you tell me that a man who can conduct a successful business - he says he does it all himself - making £1,500 a year does not know at the end of the year what his books show? His banking account will tell him; his household expenses will tell him; what he has in his pocket will tell him. He would know if he made £300 or £1,500. It is no use putting up this argument to me or to anybody else who knows anything of human affairs.

Careful note should be taken of indications of concealment (for example, savings spread over a number of accounts) or other signs of intentional evasion.

Oral Notice

An alleged unrecorded telephone or personal call can be difficult to deal with. A recorded call presents no problem. Even though we say that a notification should be in writing EM4555, an oral notification, accepted by HMRC, would be at least a reasonable excuse. You should ask

  • when the call was made?
  • what was said?
  • what made it a notification of chargeability?
  • how the taxpayer can be so sure exactly what happened and precisely what was said so long ago?

and evaluate the replies.

Illness etc

It is unlikely that illness, absence or family problems would persist at such a level, throughout the period during which chargeability could be notified, as to constitute a reasonable excuse for an extended period. Even if the taxpayer’s difficulties were at their worst at the crucial time at the end of the period, they should still be able to find time to comply with their statutory duties within a reasonable time thereafter, especially if they are able to carry on their business. They would presumably have been able to instruct an agent to do what was necessary.