Taxpayer’s HMRC Letter Misread Leads to Penalties
Misreading the Message: A Costly Assumption
A recent tribunal case has highlighted the risks for taxpayers who misunderstand HMRC correspondence. After receiving a letter indicating he was no longer required to submit a return, Asim Hussain believed this exemption was permanent, only to face investigations and penalties years later.Context: HMRC Correspondence and Reporting Obligations
Asim Hussain had been filing self-assessment tax returns since 2002, routinely reporting his income up to the 2015/16 tax year. Sometime between 2015 and 2017, HMRC sent Hussain a letter suggesting he did not need to submit a return for the following tax year. Hussain interpreted this as a permanent change, confident that any future liabilities would be handled through PAYE.Inquiry Triggers and Responses
Fast forward to November 2021: HMRC opened an inquiry into Hussain’s affairs, requesting details of rental income. Hussain, overwhelmed by major family health responsibilities, responded with some of the required information but experienced significant delays.After extended correspondence, HMRC ultimately assessed additional tax liabilities totalling £3,166.60 for 2016/17 to 2020/21, with penalties of £757.87 for failure to notify chargeability. Hussain’s subsequent appeal contested only the penalties, not the underlying tax bills.
| Tax Years Assessed | Additional Tax (£) | Penalty (£) |
|---|---|---|
| 2016/17–2020/21 | 3,166.60 | 757.87 |
Tribunal’s View: Reasonable Excuse Tested
The core of Hussain’s appeal was his belief that the HMRC letter confirmed he never needed to submit a return again, no matter his circumstances. He also cited difficult personal circumstances involving full-time care for his disabled son.However, neither Hussain nor HMRC could produce the original letter. HMRC presented a standard version of the likely letter (SA251), which included the wording “Based on the information you gave us, that was the last year that you needed to send us a return.” Importantly, it also clarified that taxpayers must update HMRC if their situation changes and that future liability may trigger a new return requirement.
The tribunal considered whether Hussain’s misunderstanding and his family obligations were valid reasonable excuses under tax law. While acknowledging the burdens of his personal situation, the tribunal concluded that the letter, when read in full, placed the onus on Hussain to notify HMRC if his circumstances changed.
Key findings included:
- Hussain had prior experience with rental income and self-assessment obligations
- Reliance on PAYE was unreasonable for non-salary income
- The letter did not permanently exempt him from filing obligations
- Rickie Lowery, Tax Writer
- Do not assume exemption from future returns based on a single HMRC letter
- Review all communications thoroughly; when in doubt, contact HMRC directly
- Keep records of all correspondence
- Changing personal circumstances do not automatically exempt one from tax obligations
- Log in to your HMRC personal tax account and check your filing requirements
- Consult an accountant or tax advisor
- Contact HMRC if you receive a letter about stopping returns to understand any future obligations
Quotes and Expert Perspectives
"Many taxpayers, especially unrepresented ones, will be reliant on HMRC advising them of their tax responsibilities to one extent or another, which may allow them some leeway should that advice be ambiguous when read by a layperson."
"While the advice in the first part of the SA251 could potentially be misinterpreted, the remainder of the letter removed much of the ambiguity, leaving Hussain without the reasonable excuse he needed."
The tribunal accepted Hussain’s version of events but determined that a reasonable taxpayer should have clarified their obligations with HMRC, especially over a five-year period.
Lessons for Taxpayers and Advisors
This case demonstrates the importance of careful reading and understanding of any correspondence from HMRC. Taxpayers must remain proactive and seek clarification if unsure about their obligations—particularly if they have complex or changing income sources, such as rental income or other non-PAYE earnings.Key Takeaways
What to Do If You’re Unsure
Staying informed and proactive is essential. Ambiguity in HMRC communications is not a sufficient excuse for non-compliance, as this case makes clear.
