MR Harris Groundworks (A Partnership) v Revenue & Customs [2010] UKFTT 358 (TC)
[22]“The issue arises as to whether reliance on a third-party is prevented from being a reasonable excuse. For VAT purposes there is specific provision that where "reliance is placed on any other person to perform any task, neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied on is a reasonable excuse." There is also specific provision that insufficiency of funds is not a reasonable excuse (see section 71 VATA). The legislation that I am concerned with in this case was passed after the VAT legislation but only contains a provision that insufficiency of funds is not a reasonable excuse. There is no equivalent provision that reliance on a third party is not a reasonable excuse for direct tax purposes.[23]Whilst in the VAT context it was thought necessary to exclude reliance on a third party as presumably otherwise it could be a reasonable excuse in the direct tax context it is, at most only a indication that reliance on a third party can be a reasonable excuse. However, I consider it a very telling indication especially as it is a limited exclusion for VAT (see Enterprise Safety Coaches notwithstanding GB Capital Ltd ).[24]The Thorne case and Enterprise Safety Coaches are clear authority that reliance on a third party can be a reasonable excuse.[25]I conclude that in the direct tax context reliance on a third party can be a reasonable excuse.[26]The issue then becomes, did Mrs Rowland have an effective reasonable excuse? Having found that it was reasonable from Mrs Rowland to rely on her then accountants and that it was this reliance that led to the underpayment, I consider that this was an excuse for making the underpayment and as the reliance was reasonable the excuse was at first blush reasonable. Having further concluded that reliance on a third party can be a reasonable excuse I conclude that Mrs Rowland has a reasonable excuse in the particular circumstances of this case for not having paid the tax on time and had this reasonable excuse throughout the period of default.” 25. Although Rowland concerned reliance on outside advisers whilst the present appeal concerns reliance on an employee i.e. the General Manager Profile Security Systems v Customs & Excise Commissioners [1996] STC 808 did not restrict reliance to outside advisers but included reliance on trusted employees.26. It is quite clear that M R Harris Groundworks relied on a trusted employee, the General Manager, who had been with the firm for 12 years and who had a lot of financial autonomy. Mr and Mrs Harris were often not in the office due to their other business commitments and he was thus the cheque signatory on 90% of all cheques. The partnership had put a significant amount of trust in him.27. In the above circumstances we find that the trust placed in Mr BM was not unreasonable. It is clear from the evidence of Mrs Harris that Mr and Mrs Harris were focusing on the building company and the responsibility for ensuring that payments were made to HMRC was ultimately with the General Manager. It was clear from Mrs Harris’s evidence that the General Manager was paying whoever would ‘pester’ him the most for payment. Of course because HMRC did not ‘pester’ Mr BM for payment they were last in line to be paid. His order of priority of payments was different to the instructions he had been given by Mr and Mrs Harris.28. In our view as per Rowland reliance on a third party, such as the General Manager, can be a reasonable excuse in the direct tax context. Having found it was reasonable for the partnership to rely on its General Manager, and that it was this reliance which led to the failure to meet its obligations we conclude that the partnership who, on becoming aware of the failures to meet its tax obligations, took steps to remedy the situation, has a reasonable excuse and therefore should be treated as having satisfied the compliance test.29. The appeal is therefore allowed.30. 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. TRIBUNAL JUDGE RELEASE DATE: 30 July 2010