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Appellant v The Commissioners for Her Majesty's Revenue and Customs [2017] UKFTT 839 (TC)

The First Tier Tribunal has allowed an appeal against a taxpayer's late payment penalties and surcharges due to her mental health problems.

A taxpayer had not paid her taxes and as a consequence had accrued a large debt to Her Majesty's Revenue and Customs (HMRC). She had a diagnosis of schizophrenia and there was medical evidence to support it, which HMRC did not dispute.

The taxpayer who challenged the debt (who remained unnamed to maintain her privacy) was referred to as 'the appellant' in the judgement.

In January 2007, the HMRC sent the appellant notice to complete five tax returns for the years 2001/2002–2005/2006 inclusive, which were to be submitted by 24 April 2007. The appellant did not return them, which led to late filing penalties and the HMRC estimating her tax liability. The appellant then filed tax returns for 2002/2003, 2003/2004 and 2004/2005.

She argued that she had submitted returns for tax years 2005/2006, 2006/2007 and 2007/2008 after HMRC issued determinations totalling £29,000, but that HMRC stated they did not receive them. The HMRC applied more penalties and interest relating to the debts.

A person is entitled to appeal the penalty or surcharge but it must be done within 30 days of the notice. A late appeal can be made if the Tribunal gives permission. The Tribunal will consider:

  1. The importance of timescales. Permission will only be granted in exceptional cases.
  2. HMRC's entitlement to finality in a taxpayer's affairs.
  3. Chance of success.
  4. The reason for the long delay.

In considering the chances of success, the appellant argued two grounds:

  1. She did not receive notifications from HMRC.
  2. She had a reasonable excuse.

Permission was given because she had a good case on reasonable excuse because of her mental health problem. She also said that it was her mental health problem that caused the delay.

The Judge found that the penalties and surcharges were correctly imposed. A mental health problem does not affect a person's liability to pay tax; everybody must pay tax and will be liable for interest charges if they are late.

However, the appellant's mental health problem had prevented her from rationally dealing with her affairs, or instructing others to do so. This amounted to an exceptional reason that justified extending the time limit for payment, and a reasonable excuse for failing to comply with her tax obligations.

Mind welcomes this judgment. It is positive that mental health is now being recognised as a 'reasonable excuse' and is being put on an equal footing with physical health.

The full judgment can be found here.

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