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Can a lack of knowledge of tax rules ever save you?

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Staying on top of the latest tax legislation probably isn’t at the top of the to-do list of the majority of UK citizens, and that’s understandable. If you were to miss something though, would you be let off? Or would your ignorance turn out to be not so blissful, after all?

HMRC agrees that a reasonable excuse can stand as a valid defence for an appellant of a tax penalty. However, what falls under the definition of a reasonable excuse? Documents being lost through theft, fire or flood – that’s acceptable. Serious illness or bereavement (at relevant times), check. Computer or electrical faults, you’re covered. If you need to get hold of a document from a third party then HMRC concedes that it’s reasonable to expect a delay, as long as you can prove you requested the document in reasonable time.

However, under most normal circumstances there are things that will not be considered as a reasonable excuse. Pressure of work, difficulty in complying, lack of reminders from HMRC, and yes, ignorance of tax law. Officially, not being aware of the law to which you have failed to comply will not get you out of paying your penalty. There have been isolated cases, however, where the opposite is true.

For example, in April 2015, the way in which UK citizens living abroad filed Capital Gains Tax (CGT) returns on any UK properties they sold, changed. Where before they would report their capital gains on the annual tax return, now they must file a special Non-Resident Capital Gains Tax (NRCGT) return within 30 days of the property’s disposal. Plenty of UK citizens living abroad missed the memo, and appealed their penalties when they discovered the news.

Judges rulings on these cases were inconsistent, but in the McGreevy v HMRC [2017] case, the appellant was successful, with the judge stating that, “it is preposterous to expect that a document on HMRC’s website which is not easy to find for a tax judge makes invalid all possible excuses about not knowing of the NRCGT return deadlines,” also saying that, “only a small coterie of people obsessed by tax” would expect anybody to even consider checking the Autumn Statement. Each appeal will be looked at on a case by case basis, but officially, it’s up to you to stay informed.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.

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