Madana Saibo Mohamed Hakeem v The Commissioners for HMRC

Mr Hakeem was in receipt of rental income in respect of the tax years ended 5 April 2017, 5 April 2018, 5 April 2019 and 5 April 2020. HMRC imposed “failure to notify” penalties totalling £1,153.84, arising from his failure to notify his liability to income tax on income received from renting a property.

HMRC invited the Tribunal to exercise its powers under s 50(7) of the Taxes Management Act 1970 (“TMA”) to increase the penalty by £20.70 to £1,174.54, on the basis that the original calculation contained a typographical error. The underlying tax assessment is not in dispute.

MrHakeem appealed to this Tribunal against the penalties on the basis that he had a reasonable excuse for the failure to notify. He relied on his financial circumstances and submitted that his omission was a genuine mistake, arising from his ignorance of the relevant legal requirements and his reliance on incorrect advice provided by a friend.

The Tribunal was provided with a hearing bundle comprising 386 pages.

In determining the appeal, we applied the principles set out in Christine Perrin v HMRC [2018] UKUT 156 (“Christine Perrin”), and having done so, we found that he did not have a reasonable excuse. We therefore dismissed his appeal and upheld the penalty.

We accept that the penalty was incorrectly calculated and therefore vary it by £20.70 pursuant to s 50(7) TMA. The revised penalty is £1,174.54.

We make findings of fact relevant to this appeal on the basis of the documents in the bundle and Mr Hakeem’s oral evidence.

In September 2002, Mr Hakeem purchased a property at Southwell Avenue (“the Property”). The Property was sold in December 2019. Mr Hakeem received rental income from the Property in the tax years ended 5 April 2017, 5 April 2018, 5 April 2019 and 5 April 2020.

Mr Hakeem explained that he had been advised by a friend that, provided his annual rental income did not exceed £16,000, he would not be liable to pay income tax. He did not question or seek to verify that advice.

On 25 January 2023, HMRC wrote to Mr Hakeem stating that they had reason to believe that he was or had been in receipt of rental income, and requested information by 24 February 2023.

On 19 June 2023, HMRC received a signed property declaration form from Mr Hakeem, dated 26 May 2023, in which he:

On 30 June 2023, HMRC acknowledged receipt of that declaration and requested further information regarding rental income and expenditure for the period from 6 April 2018 to 5 April 2022.

On 22 August 2023, HMRC received further correspondence from Mr Hakeem, dated 18 August 2023, which included a schedule of rental income and expenditure and confirmation that the Property had been purchased on 16 September 2002 and sold on 19 December 2019.

On 18 December 2023, HMRC issued updated tax computations for the tax years ended 5 April 2017 to 5 April 2020 and requested a response by 17 January 2024.

On 3 February 2024, Mr Hakeem informed HMRC that he had omitted repair costs for the 2018/19 tax year and provided details of those costs. On 1 March 2024, HMRC accepted the repair costs for the 2018/19 tax year and issued revised calculations of the tax due.

On 12 April 2024, Mr Hakeem confirmed during a telephone call that he agreed with HMRC’s calculations. HMRC informed him that a penalty explanation letter would follow.

On 17 April 2024, HMRC issued a penalty explanation letter setting out the penalties they intended to charge.

On 31 May 2024, HMRC issued discovery assessments for the tax years ended 5 April 2017 to 5 April 2020.

On 5 June 2024, HMRC issued a notice of penalty assessment in the total sum of £1,153.84.

In calculating the amount of penalty to charge, HMRC took into account the following factors:

Pursuant to para 4 of Sch 41 Finance Act 2008 (“FA 2008”), the penalty for a non-deliberate failure to notify falls within a range of 20% to 30% of the potential lost revenue. In accordance with para 11, HMRC reduced the penalty to reflect the quality of the Appellant’s disclosure, namely the extent of his telling, helping and giving access to records. HMRC allowed a reduction of 70% to the permitted range of 20% to 30% to reflect the timing and quality of Mr Hakeem’s disclosure, and that it was prompted..

On 7 January 2025, Mr Hakeem contacted HMRC to enquire whether his appeal had been received. HMRC confirmed that it had not.

On 18 February 2025, Mr Hakeem again contacted HMRC stating that he had sent his appeal twice. He was advised to resend it by email. On the same date, he emailed HMRC enclosing a letter dated 9 January 2025 and proof of postage. In that letter, he appealed against the penalty.

On 27 March 2025, HMRC issued a view of the matter letter maintaining their decision on the penalties and offering Mr Hakeem the opportunity for a statutory review or to appeal to the Tribunal.

On 29 April 2025, Mr Hakeem submitted his appeal to the Tribunal.

The tax amounts due in respect of the rental income are not in dispute between the parties. The appeal concerns only whether or not Mr Hakeem had a reasonable excuse for his failure to notify the income tax due to HMRC.

The applicable statutory provisions so far as relevant to this appeal, and the related case law, are set out below.

Section 7 TMA is headed “Notice of liability to income tax and capital gains tax” and reads:

“(1)

Every person who

(a)

is chargeable to income tax or capital gains tax for any year of assessment, and

(b)

falls within subsection (1A) or (1B) shall, subject to subsection (3) below, within the notification period, give notice to an officer of the Board that he is so chargeable.

(1A)

A person falls within this subsection if the person has not received a notice under section 8 requiring a return for the year of assessment of the persons total income and chargeable gains.”

The reference to a “notice under section 8” is to a self-assessment return; those within self-assessment do not need to notify liability under s 7 TMA because they will include the related amounts in their tax returns. Mr Hakeem had not received such a return, and so was required by s 7 TMA to notify his liability to income tax.

Section 7(1C) TMA provides that the “notification period” during which a person in Mr Hakeem’s position was required to notify his liability was six months after the end of the relevant tax year. Mr Hakeem was in receipt of rental income for the tax years ended 5 April 2017, 5 April 2018, 5 April 2019 and 5 April 2020. He did not notify HMRC of his liability to income tax in respect of the tax years ended 5 April 2017 and 5 April 2018 until 19 June 2023. He did not notify HMRC of his liability to income tax in respect of the tax years ended 5 April 2019 and 5 April 2020 until 18 August 2023.

The penalties were charged under FA 2008. Schedule 41, para 1 provides:

“A penalty is payable by a person (P) where P fails to comply with an obligation specified in the Table below (a ‘relevant obligation’).”

The first of those “relevant obligations” is the obligation to notify liability under s. 7 TMA. As Mr Hakeem had failed to notify by the end of each of the “notification period” set out in s.7 TMA, he was liable to penalties under Sch 41 FA 2008.

Sch 41, para 20 FA 2008 is headed “reasonable excuse” and reads:

“(1)

Liability to a penalty under any of paragraphs 1, 2, 3(1) and 4 does not arise in relation to an act or failure which is not deliberate if P satisfies HMRC 9 10 or (on an appeal notified to the tribunal) the tribunal, that there is a reasonable excuse for the act or failure.

(2)

For the purposes of sub-paragraph (1)-

(a)

an insufficiency of funds is not a reasonable excuse unless attributable to events outside P's control,

(b)

where P relies on any other person to do anything, that is not a reasonable excuse unless P took reasonable care to avoid the relevant act or failure, and

(c)

where P had a reasonable excuse for the relevant act or failure but the excuse has ceased, P is to be treated as having continued to have the excuse if the relevant act or failure is remedied without unreasonable delay after the excuse ceased.”

The other provisions in that Schedule were not in issue.

As is clear from Sch 41, para 20(1) FA 2008, a person who is liable to a penalty for failure to notify can only rely on a reasonable excuse defence if the failure was not deliberate.

HMRC do not argue that this was a case of “blind eye” knowledge: in other words, that Mr Hakeem deliberately avoided notifying HMRC about his income tax liability.

In Christine Perrin at [81] the Upper Tribunal (Tax & Chancery Chamber) (“UT”) set out a recommended process for this Tribunal to use when considering whether a person has a reasonable excuse:

“(1)

First, establish what facts the taxpayer asserts give rise to a reasonable excuse (this may include the belief, acts or omissions of the taxpayer or any other person, the taxpayer’s own experience or relevant attributes, the situation of the taxpayer at any relevant time and any other relevant external facts).

(2)

Second, decide which of those facts are proven.

(3)

Third, decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, the Tribunal should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the Tribunal, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”

(4)

Fourth, having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time. In doing so, the Tribunal should again decide the matter objectively, but taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.”

The UT further observed at [82]:

“One situation that can sometimes cause difficulties is when the taxpayer’s asserted reasonable excuse is purely that he/she did not know of the particular requirement that has been shown to have been breached. It is a much-cited aphorism that “ignorance of the law is no excuse”, and on occasion this has been given as a reason why the defence of reasonable excuse cannot be available in such circumstances. We see no basis for this argument. Some requirements of the law are well-known, simple and straightforward but others are much less so. It will be a matter of judgment for the FTT in each case whether it was objectively reasonable for the particular taxpayer, and in the circumstances of the case, to have been ignorant of the requirement in question, for how long…”

Mr Hakeem put forward two main bases on which he had reasonable excuse: his level of unrelated outstanding debt and the financial hardship the penalties would cause him, and his ignorance of the law and reliance on a friend’s incorrect advice. We have dealt with each of these separately below.

The first and second steps recommended in Christine Perrin are that the Tribunal identify the facts relied upon that Mr Hakeem considers form his reasonable excuse and determine which of those are established. Mr Hakeem has intimated in his appeal that his financial situation, debt and the additional financial burden caused by the penalties would amount to a reasonable excuse.

Although what amounts to a reasonable excuse is not defined in the legislation, circumstances which do not, are expressed in sub-paragraph 20(2) of Schedule 41 to FA 2008. One of those is an insufficiency of funds.

Mr Hakeem’s financial circumstances may explain his failure to pay; however, they do not provide a reasonable excuse for his failure to notify. The obligation to notify is a separate statutory requirement, and his financial situation does not explain or justify non-compliance with that obligation.

The UT confirmed at [82] in Christine Perrin that ignorance of the law can in some circumstances be an objectively reasonable excuse, “taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time”.

In the case of Gilbert v HMRC [2018] UKFTT 437, Judge Hellier expanded on the practical application of the UT’s decision in Christine Perrin. At [40] he states:

“In relation to a breach of the law the answer to the question: “what caused the taxpayer’s ignorance of the change in the law?” will affect whether he or she acted reasonably. In some cases that cause may well afford a reasonable excuse: for example if the taxpayer had been in a coma, or was advised by HMRC or another reputable source that the law would not or was unlikely to change in a relevant period, or if the taxpayer did not have the mental capacity to understand the possibility of a change in the law; in other circumstances the cause of that ignorance may be unlikely to found a reasonable excuse: for example a simple assumption that there would be no change or a decision to do nothing unless asked to do something by HMRC In the first set of examples it might be said that the taxpayer acted reasonably having regard to his circumstances and the need for compliance, in the second the reverse.”

The burden of proof rests with Mr Hakeem to establish that there was a reasonable excuse for the failure to notify. Accordingly, it is for Mr Hakeem to identify and adduce evidence of any specific factors which contributed to his lack of awareness of the relevant obligations.

Mr Hakeem submitted that he had relied on advice given to him by a friend, namely that no income tax would be chargeable if his annual rental income was less than £16,000. However, he made no submissions as to any qualifications, expertise, or other attributes of this individual that would render such reliance reasonable. Nor did Mr Hakeem provide any explanation as to why he failed to verify this advice by undertaking his own enquiries or otherwise exercising due diligence.

HMRC submitted that Mr Hakeem was in receipt of rental income but failed to obtain appropriate advice or otherwise inform himself as to his tax liabilities. Whilst acknowledging his reliance on a friend’s advice, HMRC contended that such reliance does not constitute a reasonable excuse in the circumstances.

HMRC further submitted that guidance on the tax treatment of rental income is publicly available, and that it was incumbent upon Mr Hakeem to take reasonable steps to inform himself of his statutory obligations or to seek professional advice.

We agree with HMRC that it was not objectively reasonable for Mr Hakeem to rely on informal advice from an unqualified friend, in the absence of any attempt to verify its accuracy.

In those circumstances, we find that Mr Hakeem has failed to discharge the burden of establishing a reasonable excuse. His ignorance of the requirement to notify his liability, and his reliance on unsubstantiated advice, do not amount to a reasonable excuse.

HMRC invited the Tribunal to exercise its power under s 50(7) TMA to vary the penalty, increasing it from £1,153.84 to £1,174.54. The original calculation was based on an incorrect figure, in that the income tax liability for the year ended 5 April 2020 should have been £1,324.60 rather than £1,234.60. HMRC also stated that granting this uplift does not cause Mr Hakeem any prejudice as Mr Hakeem has accepted the tax assessment.

As there is no dispute between the parties as to the amount of the underlying tax assessment, we vary the penalty so that it is calculated by reference to the correct amount of tax due and therefore accurately reflects the statutory basis for the penalty.

For the reasons set out above, we find that Mr Hakeem does not have a reasonable excuse for his failure to notify his liability.

We dismiss the appeal and vary the amount of the penalty, increasing it from £1,153.84 to £1,174.54.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.