Hacking Episode a ‘Reasonable Excuse’ for Late Filing of Tax Returns

Taxpayers are personally responsible for filing their tax returns on time, and failing to do so can lead to stiff financial penalties. However, in one case, the First-tier Tribunal (FTT) ruled that a self-employed website developer whose accountants lost all of his data following a computer hacking incident had a reasonable excuse for missing the deadline.

The man had incurred penalties totalling £3,200 for failing to file two tax returns on time. He had ceased trading as a self-employed person and had no idea that the penalties had been imposed until after he informed HM Revenue and Customs (HMRC) of a change of address.

It eventually emerged that the accountants who had represented him during his period of self-employment had lost all of his data after their computers were hacked. When he discovered this, his returns were swiftly filed, but HMRC refused to waive the late filing penalties imposed under the Finance Act 2009.

In upholding his challenge to that refusal, however, the FTT found that he had a reasonable excuse for the late filings. The accountants had failed to inform him of the loss of his data and he was entitled to assume that they had followed his instructions and filed his returns on time. Once the truth emerged, he had taken immediate steps to remedy the situation. The penalties were quashed.