In the case of Paul & Annette Galbraith t/a Galbraith Ceramics (TC/2012/06785 published on 25 April 2013) the First-Tier Tribunal (FTT) considered whether the partners had a reasonable excuse for filing a paper rather than electronic partnership return by the 31 January filing deadline.
HMRC received the paper partnership tax returns on 31 January 2012 for the tax year ended 5 April 2011. As the deadline for filing a paper return is 31 October following the end of the tax year, HMRC imposed late filing penalties on the two partners, as per the statutory regulations.
The partnership appealed these penalties on the basis that they had a reasonable excuse, viz:
…the 31 October 2011 deadline was missed because it was not possible to submit the 2011 Partnership tax return online as HMRC’s software does not cater for Partnership tax returns.
HMRC asserted that the penalties should stand because the taxpayers had the choice of submitting either a paper return by 31 October or an online return by 31 January, and that there was therefore no need to use any software to file the return.
The FTT considered whether HMRC discriminated against the partnership and noted that self-employed taxpayers had the opportunity of using the free software provided by HMRC. They ruled that HMRC did discriminate against the partnership in this instance and that it would be unreasonable and unfair to require a taxpayer to incur expenditure (the purchase of software) to satisfy a statutory obligation. The taxpayer did therefore have a reasonable excuse.
The FTT then went further and stated that factors such as the need for extra time because the tax reference number has yet to be certified, or inadequate advice received from the provider to operate the online software might also count towards a reasonable excuse to submit the paper return, post the 31 October deadline.
This case is helpful for tax advisers and small partnerships, where the costs of acquiring the online software for filing a partnership return is not commercially viable.
Gabelle provides support to practitioners with HMRC disputes and enquiries into their clients’ affairs. We can advise on all aspects of the enquiry and the appeal system including the referral of appeals to the First-tier Tribunal. To discuss the implications of the case please contact TaxDesk on 0845 490 0509 and ask for John Hood.