A farmer has managed to overturn a £43,000 tax penalty after a tribunal judged that HMRC had “hidden” changes to VAT rules that “ordinary taxpayers” wouldn’t notice. Andrew Julian paid £500,000 to HM Revenue and Customs (HMRC) in 2023 after missing the deadline to notify the tax body that his 35-acre farm on the Isles of Scilly was liable for VAT following a rules change in 2021. But HMRC also demanded £43,438 as a late payment penalty for failing to meet the deadline – despite the change to the Agricultural Flat Rate Scheme (AFRS) being “hidden away in a document aimed at specialists involved in tax policy”.

A first-tier tribunal upheld Mr Julian’s appeal against the fine last month, criticising the decision to conceal a “very significant” change to VAT rules in a file that it was “entirely reasonable” for an “ordinary taxpayer” to be unaware of. Emma Beechey, of accountancy firm Moore Kingston Smith, said the late payment fee amounted to a major “financial burden” for a small family farm.

She told The Telegraph: “This is essentially the age-old battle with HMRC on what constitutes a reasonable excuse, given it is not defined in legislation. HMRC’s guidance generally deals with ‘unforeseen circumstances’.

“HMRC took a narrow approach and failed to recognise that in this case the law change was hidden away and not easily accessible to the taxpayer or even a generalist accountant.”

The rule change in question amended existing AFRS rules, which were designed to cut administrative red tape for small farms by allowing them to dodge 20% VAT registration and instead add a 4% flat rate to their normal sales prices.

An amendment included in the 2020 spring Budget capped the scheme at businesses with taxable supplies worth over £230,000, however, with firms in question required to inform HMRC upon breaching the limit.

The tribunal heard that Mr Julian’s accountant learned of the exist threshold by chance while researching other farming reliefs in April 2023, at which point they duly contacted HMRC and registered for VAT.

It concluded that the farmer and his family were not tax experts and that it was unreasonable to expect them or their accountant to trawl through HMRC’s website on the offchance of stumbling upon something relevant to their tax position.