Reasonable Excuse Case Law for Landlord Tax Penalties (Perrin and Martland)

Reasonable excuse is the working statutory defence in landlord tax penalty cases. Where the defence is established, the penalty is vacated entirely under Schedule 41 paragraph 20 for failure-to-notify, or the careless inaccuracy penalty can be suspended under Schedule 24 paragraph 14. The defence is statutory, not a matter of HMRC officer discretion, and is appealable to the First-tier Tribunal.

The controlling Upper Tribunal authority on the reasonable-excuse test is Perrin v HMRC [2018] UKUT 156, which sets a four-stage framework. The parallel Upper Tribunal authority on late-appeal applications (where the 30-day Notice-of-Appeal window has been missed) is Martland v HMRC [2018] UKUT 178, which draws on the Court of Appeal's Denton three-stage framework. This page walks both, with worked landlord scenarios and the typical patterns that succeed and fail.

The statutory framework for reasonable excuse

Schedule 41 FA 2008 paragraph 20 establishes the reasonable-excuse defence to failure-to-notify penalties: "Liability to a penalty does not arise in relation to an act or failure which is not deliberate if the person satisfies HMRC or (on appeal) the First-tier Tribunal that there is a reasonable excuse for the act or failure." The defence does not apply to deliberate or deliberate-and-concealed failures. The burden is on the taxpayer to satisfy HMRC or the Tribunal.

Schedule 24 FA 2007 paragraph 14 is the parallel suspension mechanic for careless inaccuracy penalties. Suspension does not vacate the penalty; it conditionally postpones it for up to 2 years, with the penalty cancelled if suspension conditions are met (typically conditions designed to prevent future careless inaccuracy, such as adopting accounting software or engaging a qualified accountant). The full suspension mechanic is covered in our Schedule 24 page.

The two mechanics are distinct but draw on similar reasonableness concepts. A successful reasonable-excuse defence under Sch 41 paragraph 20 vacates the penalty entirely. A successful suspension argument under Sch 24 paragraph 14 postpones the penalty and ultimately cancels it if the conditions are met.

The Perrin four-stage test

The Upper Tribunal in Perrin v HMRC [2018] UKUT 156 established the four-stage framework now used in all reasonable-excuse cases. The stages are sequential: all four must be satisfied for the defence to succeed.

Stage 1: What was the excuse?

The taxpayer must identify the specific factual circumstance relied on. A general claim that "I had a difficult time" is not enough. The Tribunal needs to know what specifically prevented compliance: an illness diagnosis, a bereavement, a fire or flood, a software failure, professional advice that turned out to be wrong.

Stage 2: Was the excuse objectively reasonable?

The test is what a reasonable person facing the same circumstances would have done, adjusted for the taxpayer's individual attributes (age, health, business sophistication, professional resources available). Excuses that are objectively reasonable in the Tribunal's view typically include:

• Serious illness of the taxpayer or a close family dependent.
• Bereavement of a spouse, partner, child or close family member.
• Fire, flood or major property damage affecting records.
• Mental health crises that demonstrably affected the taxpayer's ability to attend to tax matters.
• HMRC system failures preventing return submission within the relevant window (rare in practice).
• Reliance on competent professional advice that turned out to be wrong (qualified, see below).

Excuses that are typically not reasonable under stage 2 include: ordinary work stress, software failures within the taxpayer's control, postal failures where the taxpayer left submission to the last day, ignorance of the law unless from a particularly inaccessible source, and routine personal-life difficulties (unless severe).

Stage 3: Did the excuse cause the failure?

Causation, not pretext. The Tribunal looks for a direct connection between the circumstance and the failure to comply. A bereavement six years before a missed deadline does not pass stage 3 unless the grief substantially extended through the relevant period. A serious illness diagnosed two weeks before the deadline does pass stage 3, but only for failures attributable to those two weeks.

Stage 4: Was the failure remedied without unreasonable delay?

This is the stage where most reasonable-excuse arguments fail. Once the original excuse ceased to apply, did the taxpayer remedy the failure promptly? A bereavement that lasted 12 months explains the failure for those 12 months, but does not explain why the failure continued for a further 24 months after the grief had subsided. Stage 4 requires the taxpayer to have acted promptly once the circumstance resolved.

The Martland three-stage late-appeal framework

Where a landlord has missed the 30-day Notice-of-Appeal window under TMA 1970 section 31A, the route to preserving appeal rights is an application for permission to appeal late. The controlling Upper Tribunal authority is Martland v HMRC [2018] UKUT 178, which draws on the Court of Appeal's Denton framework for relief from sanctions in civil litigation.

The three-stage Martland test:

Stage 1: Length of the delay

The Tribunal considers how long after the 30-day window the appeal was lodged. Delays of a few days are typically treated as minor; delays of weeks attract scrutiny; delays of months require substantial justification. The Tribunal does not have a fixed cut-off, but delays beyond 6 months are rarely permitted absent very strong reasons.

Stage 2: Reason for the delay

The Tribunal asks why the delay occurred. Acceptable reasons typically overlap with the reasonable-excuse grounds (illness, bereavement, fire, flood). Unacceptable reasons typically include: administrative inertia, reliance on ADR negotiation in the belief that the appeal clock was paused, mis-reading of the 30-day rule, and adviser failure (unless the adviser was demonstrably culpable and not relied on in good faith).

Stage 3: All the circumstances of the case

The third stage is a balancing exercise. The Tribunal weighs the merits of the underlying appeal, the prejudice to HMRC from late permission, the prejudice to the taxpayer from refusal, the public interest in the orderly progression of tax appeals, and any other relevant factors. The merits of the underlying appeal are relevant but not decisive: a strong substantive case does not automatically rescue a weak procedural case.

Reliance on professional advice as a reasonable excuse

Reliance on competent professional advice that turns out to be wrong is a recognised category of reasonable excuse, but it is qualified in important ways. The leading authority strand includes Upper Tribunal decisions in cases such as Hok Ltd v HMRC, Perrin itself, and various subsequent decisions applying the four-stage test to adviser-reliance scenarios.

The qualifications:

• The adviser must have been reasonably qualified. Reliance on an unqualified person presenting as a tax adviser, or on a friend with informal experience, does not generally qualify.
• The instructions to the adviser must have been complete and honest. Where the taxpayer withheld relevant facts from the adviser, the resulting adviser error does not give rise to reasonable excuse.
• The taxpayer must have exercised reasonable monitoring of the adviser. Blind reliance without any check on the adviser's work falls short. A "prudent taxpayer" reviews adviser output to the extent a person of their sophistication can.
• The error must be one a competent adviser could reasonably have made. Where the adviser's error was so basic that no competent adviser would have made it, the question becomes whether the taxpayer's selection of the adviser was itself careless.

Adviser-reliance reasonable-excuse arguments are stronger in landlord cases where the underlying tax position was technically nuanced (capital-vs-revenue boundary cases, foreign-income treaty cases, complex incorporation structures) and weaker where the position was straightforward (basic SA105 reporting, ordinary section 24 mechanics).

Categories of reasonable excuse: what works and what does not

Drawing on the post-Perrin Upper Tribunal and First-tier Tribunal decisions, the following patterns recur in landlord cases.

Generally accepted

• Serious illness of the taxpayer. Hospital admission, cancer treatment, major operations with extended recovery, severe mental health crises. Supported by medical evidence (GP letters, hospital discharge summaries, prescriptions).
• Bereavement of a close family member. Spouse, partner, parent, child. The grief period is treated as variable based on individual circumstances but typically 3 to 12 months. Supported by death certificates and (where helpful) GP letters confirming grief-related impact on functioning.
• Fire, flood or major property damage affecting records. Documented by insurance claims, contractor reports, and the timeline of records-recovery efforts.
• Serious illness of a close dependent requiring the taxpayer's care. Particularly where the dependent's care displaced the taxpayer's normal capacity to attend to financial matters.
• Demonstrable HMRC system failures. Where the taxpayer attempted to file or notify within the relevant window but was unable to do so because of an HMRC online-services outage. Rare in practice.

Generally not accepted

• Pressure of work or ordinary business demands. Self-employment, business growth, and similar commercial pressures are not reasonable excuses; the obligation to attend to tax matters runs alongside other commitments.
• Postal or courier failures where the taxpayer left submission to the last day. The duty to file or notify in good time is on the taxpayer; reliance on last-day postal delivery is not reasonable.
• Software or accounting-system failures within the taxpayer's control. Cloud-storage outages, lost laptop with un-backed-up files, accountant-software bugs that should have been spotted in time.
• Ignorance of the law (general). Not knowing about the section 7 notification obligation is not a reasonable excuse for failure to notify. Exceptionally, ignorance can be reasonable where the law is genuinely obscure and the taxpayer took reasonable steps to inform themselves, but this is a narrow category.
• Reliance on HMRC online tools that turn out to be misleading. Mixed authority; case-by-case analysis required.
• Ordinary life difficulties (relationship breakdown, financial pressure, family stress). Without an objectively unusual severity or duration, ordinary stressors do not meet the Perrin stage 2 threshold.

Combining reasonable-excuse arguments with unprompted-disclosure floors

Where reasonable excuse is genuinely available, it vacates the penalty entirely. Where it is not available but the disclosure was nonetheless prompt and high-quality, the unprompted-disclosure floors under Schedule 24 paragraph 10 (for inaccuracy) or Schedule 41 paragraph 13 (for failure-to-notify) reduce the penalty within the band. The two mechanics are independent and can both be argued in the same case.

The argument order in landlord penalty negotiations is typically: (1) push back on behaviour band first (careless vs deliberate, see Schedule 24 FA 2007 bands); (2) argue reasonable excuse to vacate the penalty; (3) failing reasonable excuse, argue unprompted-disclosure status to access the lower floor; (4) argue quality-of-disclosure (telling, helping, giving access) to reduce within the floor-to-maximum range; (5) for careless penalties only, argue suspension under Schedule 24 paragraph 14.

The single most expensive avoidable error is conceding the band classification at the outset and then arguing reasonable excuse without challenging the band. The band is often the largest lever; reasonable excuse and the floor mechanics are the next-largest.

Worked scenario: Sch 41 failure-to-notify with bereavement reasonable-excuse argument

Background. A landlord's spouse handled all family financial matters including the rental property accounting for a portfolio of 4 buy-to-lets. The spouse died unexpectedly in March 2024. The surviving landlord, in severe grief, did not notify HMRC of the rental income for the 2024/25 tax year (notification deadline 5 October 2025). In April 2026, HMRC opens an enquiry on the basis of Land Registry plus mortgage data.

Penalty position. Sch 41 failure-to-notify applies. Standard band: non-deliberate. Cat 1. Maximum 30 per cent. Prompted disclosure (HMRC-opened enquiry). Floor: 10 per cent (outside 12 months from 5 October 2025; disclosure in April 2026 is 6 months outside the section 7 deadline). Penalty would land at 10 per cent if no reasonable-excuse defence.

Reasonable-excuse argument under Perrin four-stage test.

• Stage 1: Excuse identified: death of spouse who handled all financial matters, in circumstances of acute personal grief.
• Stage 2: Objectively reasonable for a bereaved surviving spouse to be unable to attend to tax-administrative matters in the immediate post-bereavement period.
• Stage 3: Direct causation: the spouse had previously handled the rental accounting; their death directly caused the failure to notify.
• Stage 4: The surviving landlord engaged an accountant in February 2026 (11 months after the bereavement) and the accountant identified the failure and recommended LPC disclosure. Disclosure was made within 60 days of engagement. The remedy is within a reasonable timeframe given the 6-month grief-extension argument is supported by medical evidence.

Likely outcome. FTT typically accepts the defence on these facts. Penalty vacated under Sch 41 para 20. Tax and interest still payable.

Worked scenario: Martland late-appeal application after ADR delay

Background. A landlord receives a closure notice on 1 February 2026 with a £24,000 amendment to rental income figures. Believing the matter would settle through HMRC ADR, the landlord engages in ADR conversations from 15 February. ADR fails on 15 April 2026. The landlord lodges Notice of Appeal on 20 April 2026, 78 days after the closure notice (48 days late).

Martland three-stage analysis.

• Stage 1 (length of delay): 48 days. Material but not extreme.
• Stage 2 (reason for delay): Reliance on ADR negotiation in the belief that the appeal clock was paused. This is a recognised but generally unsuccessful Martland ground; the 30-day rule is well-established and ADR does not pause the clock.
• Stage 3 (all circumstances): Merits of underlying appeal moderate; HMRC prejudice from late permission limited; taxpayer prejudice from refusal substantial (loss of £24,000 amendment challenge).

Likely outcome. Refused. The Martland framework treats ADR-reliance as an inadequate reason for missing the 30-day window. The protective-Notice-of-Appeal discipline would have avoided this position.

How reasonable excuse sits alongside the broader penalty framework

The reasonable-excuse and late-appeal mechanics operate within the broader landlord enquiry-and-penalty framework:

• Closure notices and 30-day appeals: see our closure notice mechanics page for the underlying procedural framework. The Martland late-appeal route applies where the 30-day window has been missed.
• Penalty bands: see our Schedule 24 page for the standard penalty mechanics. Reasonable excuse vacates the penalty under Sch 41 and triggers suspension under Sch 24 paragraph 14.
• Discovery time limits: see our discovery assessment time limits page. Reasonable-excuse defences do not affect the underlying assessment validity; they vacate the penalty attached to the assessment.
• Voluntary disclosure routes: see our LPC page and our WDF page. Reasonable-excuse arguments can be made within the disclosure framework as part of the penalty-band negotiation.

The relationship with HMRC's Compliance Handbook guidance

HMRC's Compliance Handbook at CH71540 onwards sets out HMRC's internal guidance on reasonable excuse for Schedule 41 failure-to-notify penalties. The Compliance Handbook is not binding on the FTT (which applies the statutory test on its own analysis), but it is a useful indicator of HMRC's negotiation position before tribunal. Where the HMRC officer's view of reasonable excuse is more restrictive than the Compliance Handbook guidance, citing the manual back to HMRC is often productive. Where the officer's view aligns with the Compliance Handbook but a stronger Perrin argument is available, the FTT is the next escalation.

The interplay is therefore: HMRC officer review applies the Compliance Handbook; FTT review applies the Perrin four-stage test on statutory grounds. The two should align in most cases, but where they diverge, the FTT test is the controlling one.

If you are facing a tax penalty that you believe should not apply because of circumstances beyond your control, or if you have missed the 30-day appeal window and are considering a late-appeal application, the form at the foot of the page is the route to a structured first-pass assessment of the Perrin and Martland positions on your facts.