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July 2, 2018

NRCGT & Ignorance of the Law - Where are we now?

As discussed in our previous blog, New Rulings Cast Doubt of NRCGT Penalties (January 2018), taxpayers have been receiving mixed results from Tribunal cases with regards to penalties for the late filing of NRCGT tax returns.

Previous Cases

All these cases involved a non-UK resident who disposed of UK property and failed to complete the Non-Resident Capital Gains Tax ("NRCGT") return within the 30-day deadline.

The taxpayers claimed that they were unaware of the requirement to file the return, and that this was a reasonable excuse for failing to comply with the legislation.

HMRC contended that ignorance of the law cannot be a reasonable excuse, and that taxpayers have an obligation to stay up-to-date with tax legislation.

First-Tier Tribunal (FTT) decisions are not binding, and therefore a Judge is free to depart from a previous decision of the FTT, if appropriate. With this in mind, there has been a divergence of opinion over the validity of HMRC’s contention that ignorance of the law cannot be a reasonable excuse.

In Rachel McGreevy v HMRC [2017], Judge Thomas held that ignorance of the law regarding the requirement to file the NRCGT return was a reasonable excuse for failing to do so. In a scathing attack on HMRC, he found that the new requirement to file the return had not been widely publicised by HMRC and that it was reasonable for a non-UK resident to be unaware of the changes. This ruling was subsequently followed in Patsy-Anne Saunders v HMRC.

However, Judge Mosedale in David & Jennifer Hesketh v HMRC [2018] and Robert Welland v HMRC [2018] disagreed, and found in favour of HMRC in both cases. This was on the basis that HMRC’s failure to publicise these changes and warn taxpayers cannot amount to a reasonable excuse.

In Raymond Hart v HMRC [2018], Judge Brannan agreed with Judge Mosedale’s decision in Welland and Hesketh. Judge Brannan saw some justification for an exception to the general principle concerning ignorance of the law in cases concerning difficult questions, however the he did not believe that an obligation to submit a return was particularly complex. Furthermore, the obligation to file was publicly announced and advertised online.

Eric Scowcroft v HMRC

In the latest case on this matter (Eric Scowcroft v HMRC [2018]), Judge Thomas maintained his position from McGreevy and held that whilst ignorance of basic law cannot be an excuse, the requirement to file a NRCGT did not fall into his definition of basic law, that being law which can reasonably be expected to be known by everyone who falls within its ambit.

In reaching his decision, Judge Thomas referenced the recent Upper Tribunal (UT) case of Christine Perrin v HMRC [2018], where a taxpayer had incurred penalties for the late filing of her self-assessment tax return.

In that case, Judges Herrington and Poole stated that whilst “ignorance of the law is no excuse” is a much-cited saying, they saw no basis for this argument in this case. Some requirements of the law are well-known and simple, whereas others are much less so. Going forward, it is a matter of judgement for the FTT in each case to determine whether it was objectively reasonable for the particular taxpayer in the circumstances of the case to have been ignorant of the requirement.

In applying this ruling to Mr Scowcroft’s circumstances, Judge Thomas found that a reasonable person would not consider the need to complete a NRCGT return, particularly in Mr Scowcroft's case where he had sold his principal residence and had incurred a significant loss.

In his decision, Judge Thomas also referred to the case of James Robertson v HMRC [2017], where he held that ignorance of the High Income Child Benefit Charge ("HICBC") was not a reasonable excuse because it had been widely publicised.

(That said, this view was also challenged in David Lau v HMRC [2018], where it was held that ignorance of the law regarding the HICBC could not be a reasonable excuse. Please see our blog Ignorance is Bliss? - Child Benefit & Failure to Notify (May 2017) for further details.)

Where are we now?

Judges in the FTT are only bound by the precedents set in higher courts and are free to follow or dissent from decisions of their fellow FTT judges.

With this in mind, Judge Thomas’ reference to the UT in Perrin would appear to be an attempt to enhance the persuasiveness of his interpretation of “reasonable excuse” for other FTT judges.

Until a clear precedent is set by the UT or higher courts, taxpayers with NRCGT penalties are likely to face continued uncertainty over whether ignorance of the law can amount to a reasonable excuse in such cases.



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