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Five decisions of the First Tier Tribunal have been heard on appeal against a fixed penalty of £100 imposed by HMRC as a result of SDLT land transaction returns being filed after the 30 day deadline.

The taxpayer is ahead so far - winning three of the appeals, but HMRC's levying of the penalty was upheld in the other two cases.  The interesting point about all of these cases surrounds what amounts to a "reasonable excuse" for failing to file a return on time.

In Runham & Naramore (TC00933) and Pericleous (TC00930), the taxpayer alleged that the forms that were lost in the post (or DX) or not processed by HMRC and this was accepted as being a reasonable excuse in each case.  This is particularly important because HMRC's own guidance (at SDLTM 86460) states that they do not regard a return delayed in the post to amount to a reasonable excuse.  The tribunal made clear that it was not bound by HMRC's construction of reasonable excuse and cited comments from Steptoe ([1992] STC 757), which related to the meaning of a reasonable excuse in a VAT context.

In Carolyn Browne (TC00754) Ms Browne relied on her solicitors to submit a land transaction return in respect of the flat she bought.  It was clear from correspondence that they failed to submit the return on time (and the Solicitors Regulation Authority subsequently intervened into the practice).  The tribunal held that reliance on a third party, while specifically excluded from being a reasonable excuse for VAT purposes, it was not specifically excluded from the SDTL penalty regime.  On that basis, the tribunal was entitled to consider whether reliance on a defaulting third party amounted to a reasonable excuse, and they found that in this situation it did.

In Ryan (TC00596) the taxpayer seems to have undertaken his own conveyancing work and was unaware of the time limit for filing an SDLT return.  The tribunal did not consider this to be a reasonable excuse and upheld the penalty.  Similarly in Pariser (TC00725) the tribunal (on the basis of the evidence) found that the taxpayer had not sent the forms on time (he did not instruct a third party to do it on his behalf).

It is impossible to tell how many of these fixed penalties are not appealed even when a taxpayer has a reasonable excuse.  However, the practical approach taken by the Tribunal in these cases shows that it has been prepared to consider a wide definition of "reasonable excuse" and had regard both to the position under other taxes (notable VAT) and the interpretation that HMRC has of the term.  It is particularly interesting that in drafting the SDLT legislation reliance on a third party was not specifically excluded from the definition of reasonable excuse, and that the tribunal was prepared effectively to say that HMRC's guidance (on forms lost in the post) is wrong.  Taxpayers who feel they have been wrongly charged a penalty should take note of these cases because the Tribunal may take a more pragmatic approach than they think.

The rules on penalties for late filing will be changed when the provisions of schedules 55 and 56 of Finance Act 2009 come into effect.  The new rules will impose a penalty of £100 initially for failing to file on time, but if the taxpayer remains in default beyond three months (and HMRC serves a notice on the taxpayer), a further penalty of £10 for each day that the return remains undelivered will be levied.  The statutory definition of reasonable excuse in the new penalty provisions is different to the current position and reliance on another person will only be capable of being a reasonable excuse if the taxpayer takes reasonable care to avoid that other person's failure.

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