In Julian & Anor v HMRC [2026] TC09768, the First Tier Tribunal (FTT) found that taxpayers who failed to register for VAT had a reasonable excuse. In the circumstances, it was objectively reasonable for them to be unaware of changes to the Agricultural Flat Rate Scheme, which resulted in their VAT registration obligation.
The Julian Partnership rented approximately 35 acres of land from the Duchy of Cornwall on the island of St Martin’s in the Isles of Scilly, which it used to grow flowers for sale. The partnership also operated two cottages as holiday lets and kept a small herd of beef cattle.
- Having previously Registered for VAT when starting the business, Mr and Mrs Julian became aware of the Agricultural Flat Rate Scheme (AFRS) in 1995 and, as a result, Deregistered for VAT and thereafter held an AFRS certificate.
- Entry and exit criteria for the AFRS were announced in the 2020 Spring Budget.
- As of 1 January 2021, businesses became ineligible for the AFRS where the total annual value of taxable supplies exceeded £230,000.
- An obligation was placed on users of the AFRS to notify HMRC if the £230,000 threshold was breached.
- Until April 2023, Mr and Mrs Julian and their accountant were unaware of the introduction of the exit threshold, when their accountant identified it by chance while researching other Farming reliefs.
- As the partnership’s supplies had exceeded the exit threshold, the business duly notified HMRC and registered for VAT.
- HMRC charged a £43,438 penalty for Failure to notify liability to register for VAT for the period 1 March 2021 to 24 April 2023. At 10% of the potential lost revenue, this was the minimum possible penalty on the basis that the:
- Failure to notify was non-deliberate.
- Disclosure was unprompted.
- Julians had cooperated fully with HMRC.
- Mr and Mrs Julian appealed to the First Tier Tribunal (FTT).
The FTT found that:
- Mr and Mrs Julian were farmers, not tax experts. They, and their accountant, were not aware of the changes to the legislation.
- There were no other nearby farmers from whom they might have found out about the AFRS changes.
- They properly and responsibly employed a competent accountant to help them meet their obligations.
- Their accountant was not a specialist in farming tax, nor did she have specialist resources within the firm, such as a large accountancy firm would have.
- It was unreasonable and unrealistic to expect taxpayers, or their agents, to:
- Trawl through HMRC’s website on the off-chance they might come across something relevant to their tax position.
- Contact HMRC from time to time to enquire whether there is anything new they need to know.
- The changes to the AFRS were not contained in the Finance Bill or Act, nor were they the subject of a separate announcement. The changes were introduced by Regulation.
- The intention to change the rules was mentioned in a brief paragraph buried within the Overview of Tax Legislation and Rates (OOTLAR): essentially hidden in a document aimed at specialists involved in tax policy.
- It was entirely reasonable that an ordinary taxpayer would be unaware of the OOTLAR.
- It was also reasonable that a generalist accountant in a small firm should be equally unaware of it.
- It was objectively reasonable in the circumstances for Mr and Mrs Julian to have been unaware of the obligation to register for VAT.
- As such, the Julians had a Reasonable excuse for failing to notify their liability to register for VAT.
The appeal was allowed.
Useful guides on this topic
Flat rate scheme: Farmers
What is the agricultural Flat Rate Scheme? Who can use it? What are the conditions? What is the benefit? What about non-farming income?
Farming: Tax Overview
What is farming? What are the tax consequences and tax considerations of farming? What are the features of agricultural tenancies? What expenses can farmers claim for tax purposes? Are there special tax and accounting rules for farmers? What are the VAT rules for farmers?
Grounds for Appeal: Reasonable excuse
What is considered to be a 'reasonable excuse' when a taxpayer makes an appeal against a tax compliance failure?
Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?
Penalties: Failure to Notify
What tax penalties apply if you fail to notify HMRC that you are chargeable to tax? Can they be appealed or reduced?
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