David Hill v HMRC: Upper Tribunal clarifies scope of reasonable excuse based on adviser reliance

The Upper Tribunal has partly allowed an appeal by two pension scheme administrators against penalties for failing to comply with HMRC information notices, upholding the First-tier Tribunal's finding that they lacked a reasonable excuse but setting aside its approach to the level of the penalties imposed.

In David Hill & Anor v The Commissioners for HMRC [2026] UKUT 306 (TCC), Judge Nicholas Aleksander and Judge Jennifer Dean considered an appeal from a First-tier Tribunal decision of September 2024, which had dismissed challenges brought by David Hill and David McCracken to escalating penalties, ultimately running into five figures each, for failing to comply with notices issued in January 2018.

Both men were scheme administrators of pension schemes operated by Liddell Dunbar, which engaged Independent Tax to advise on the notices and correspond with HMRC on the administrators' behalf. The consistent advice conveyed to them was that, because the schemes had been wound up, no response was required. HMRC disagreed, pointing out the notices had been issued to the individuals personally rather than to the schemes, and penalties followed in successive tranches between December 2018 and December 2019.

The central question was whether the appellants had a reasonable excuse for non-compliance by virtue of reasonably relying on that advice. Applying the three-stage test from Perrin v HMRC, the First-tier Tribunal had found that although the appellants genuinely held the belief conveyed to them, they had not taken reasonable care in relying on it, having accepted brief and often unclear correspondence from their advisers at face value without seeking copies of what was being sent to HMRC or asking basic questions when the advice shifted or when HMRC's own letters directly contradicted it.

Counsel for the appellants argued this approach was wrong in law, submitting that a lay client is entitled to rely on advice from a seemingly competent professional unless something is reasonably obviously wrong with it, and that the appellants could not be expected to interrogate a technical point of tax law. The Upper Tribunal rejected that submission as too narrow, holding that reliance on professional advice does not remove a taxpayer's own responsibility to exercise independent judgement and take reasonable care, including questioning inconsistencies or a lack of clarity in what they are told, even where they cannot assess the underlying technical merits. The tribunal found this approach consistent with the statutory requirement in paragraph 45 of Schedule 36 to the Finance Act 2008 that reliance on another person is not itself a reasonable excuse unless reasonable care was taken. On that basis, the findings that neither appellant had queried repeated warnings from HMRC or asked for clarification when the advice changed were ones properly open to the First-tier Tribunal, and the appeal was dismissed on this ground.

The appellants fared better on the question of penalty quantum. The First-tier Tribunal had rejected their argument that the penalties should sit at the lower end of the seriousness scale partly by reference to paragraph 49A of Schedule 36, a provision allowing HMRC to seek higher tribunal-imposed penalties, which the Upper Tribunal found applied only to notices issued where the taxpayer's identity is unknown and had no bearing on the notices in this case. As that error may have affected the assessment of seriousness, the Upper Tribunal allowed the appeal on this ground alone.

The parties have been directed to make submissions on whether the question of quantum should be remitted to the First-tier Tribunal or remade by the Upper Tribunal itself.