In 2018, in a case called Perrin v HMRC, the Upper Tribunal set out straightforward steps for tribunals to follow when deciding whether a taxpayer has a “reasonable excuse”. There is a reasonable excuse defence to various penalties and it is commonly pleaded before the tribunals. The Upper Tribunal’s guidance was welcome and simplified the process for all concerned.
However, the Upper Tribunal also expressed a degree of frustration with HMRC’s insistence on arguing cases before the tribunals based on what HMRC had repeatedly been told was an incorrect definition of a reasonable excuse. The Upper Tribunal said this:
“It is regrettably still the case that HMRC sometimes continue to argue that the law requires any reasonable excuse to be based on some “unforeseeable or inescapable” event, echoing the dissenting remarks of Scott LJ in CCE v Steptoe [1992] STC 757. It is quite clear that the concept of “reasonable excuse” is far wider than those remarks implied might be the case. In an appropriate case where HMRC base their argument on this unsustainable position, the FTT may well consider it appropriate to exercise their jurisdiction to award costs against HMRC for unreasonable conduct of the appeal. Similar observations apply to the HMRC “mantra” … to the effect that an “unexpected or unusual event” is required before there can be a reasonable excuse. The statutory phrase is “reasonable excuse”, and those are the words that are to be applied by HMRC and the FTT, interpreted as set out above; the addition or substitution of other words beyond those used in the statute can very easily obscure rather than clarify the value judgment as to whether or not a taxpayer has a reasonable excuse, and should be avoided.”
So, to summarise, the Upper Tribunal was saying that HMRC must stop claiming that a reasonable excuse is limited to “unforeseeable or inescapable” events, or that an “unexpected or unusual event” is required before there can be a reasonable excuse. If HMRC did not stop making those claims, the Upper Tribunal was instructing tribunals to consider awarding costs against HMRC, because arguing cases in that way was “unreasonable conduct”.
Now what do we find in 2026? Here’s an extract from a recent First-tier Tribunal (FTT) decision (W Byers Ltd), on 15 June 2026:
“HMRC place reliance on the established formulation of reasonable excuse as set out in The Clean Car Co Ltd v CCE [1991] VATTR 234. I accept that the correct test is whether a reasonable and prudent trader, exercising reasonable foresight and due diligence and having proper regard to their statutory obligations, would have acted in the same way.
“HMRC further rely on Perrin v HMRC [2018] UKUT 156 (TCC), in which the Upper Tribunal stated that a reasonable excuse ordinarily involves an unexpected or unusual event, either unforeseeable or beyond the taxpayer's control, which prevents compliance.”
That second paragraph couldn’t be more wrong. Has HMRC gone back to its old, “unreasonable conduct” days, or did the FTT make a mistake? We will be sure to cast a beady eye over forthcoming FTT decisions and let you know.
