VAT & Rare Example of a Reasonable Excuse

The Julian & Anor v HMRC case is a fascinating example of how tax law interacts with real-world circumstances, especially when it comes to penalties for failing to notify HMRC about VAT registration. In this case, Mr and Mrs Julian, who ran a family farm on the Isles of Scilly, had been using the Agricultural Flat Rate Scheme (AFRS) for over 25 years. They weren’t VAT registered, as the AFRS allowed them to operate differently. However, in 2021, new rules came into effect: if a business’s taxable supplies exceeded £230,000, they had to notify HMRC and register for VAT.

The problem? The Julians and their accountant had no idea the rules had changed.

The new requirement wasn’t publicised in the usual places—no mention in the Finance Act, no press releases, and nothing in the standard guidance. The only reference was buried in a technical document aimed at tax specialists. Their accountant, who was diligent and kept up with tax news, only stumbled across the change by chance in 2023. As soon as they realised, they notified HMRC, registered for VAT, and paid the arrears. HMRC still imposed a penalty, but at the minimum rate, recognising their cooperation.

The key legal question was whether the Julians had a “reasonable excuse” for not notifying HMRC sooner. The Tribunal looked at established case law and concluded that, in some situations, not knowing about a legal requirement can be a reasonable excuse—especially if the change wasn’t publicised and the taxpayer acted responsibly otherwise. The Tribunal found it unreasonable to expect ordinary taxpayers or generalist accountants to discover obscure changes hidden in technical documents. Once the Julians became aware, they acted quickly, which also counted in their favour.

In the end, the Tribunal cancelled the penalty, finding that the Julians’ lack of knowledge was objectively reasonable in the circumstances. This case is important because it shows that HMRC and the courts will consider how accessible information about legal changes is, and whether a taxpayer’s actions were reasonable given their situation. It’s a reminder that “reasonable excuse” isn’t just a technicality—it’s about fairness and practicality in the real world.