Sometimes ‘but I didn’t know’ are magic words

You may be aware of the saying that ignorance of the law is no excuse. However, a recent Scottish tax case shows that, when it comes to penalties for failing to comply with tax rules, things are not always black and white.

In June Kelly Thomson v Revenue Scotland [2026] FTSTC 5, the First-tier Tribunal for Scotland, considered penalties imposed on a commercial tenant who had failed to submit a Land and Buildings Transaction Tax (LBTT) return following the early termination of her lease.

LBTT is the Scottish tax which applies to property transactions, including certain commercial leases.

The concept of a 'reasonable excuse' is intended to be considered in real-world circumstances of individual taxpayers, says Kerri McHale

What some people may not know is that a tenant's LBTT obligations don’t necessarily end when the tax due at the start of the lease has been paid. Further returns can be required during the life of a lease and when it ends.

Ms Thomson signed a 10-year lease of a commercial property in Ardrossan but subsequently terminated it early in accordance with the lease's break option when the business failed. She did not submit the LBTT return required following the termination. By the time the return was made, Revenue Scotland imposed late-filing penalties totalling £1,000. She asked Revenue Scotland to review their decision, but they upheld the penalties. Ms Thomson appealed as £1,000 was a huge sum to her that she did not have. She said: "But I did not know…"

In most situations, simply saying that you did not know about a tax obligation is unlikely to get you very far. However, the tribunal looked at Ms Thomson's particular circumstances.

Ms Thomson had no previous property or business experience and did indeed not know about the LBTT requirements. Of significance was the fact that she had not completed the original LBTT return herself. That task had been dealt with by the landlord and no LBTT had been payable due to the small sums involved. As a result, Ms Thomson had not been alerted to the fact that taking on the lease brought with it continuing LBTT reporting obligations. Once Revenue Scotland contacted her, she acted promptly.

The tribunal concluded that, taken together, the circumstances meant Ms Thomson had a "reasonable excuse" for failing to submit the return on time. Her appeal was allowed and the penalties were cancelled.

That raises the question of whether "I did not know" is now a defence? The answer is "not quite".

The decision does not give tenants a general 'get-out-of-jail-free' card for missing LBTT deadlines. The tribunal stressed the particular and unusual circumstances of Ms Thomson's case.

However, it is a useful reminder that the concept of a "reasonable excuse" is intended to be considered in real-world circumstances of individual taxpayers. What may be unreasonable for an experienced property investor with professional advisers may be entirely different for someone encountering the tax system for the first time.

Commercial tenants need to remember LBTT can involve ongoing reporting obligations. A return may be required at every three-year anniversary of the effective date of a notifiable lease and when the lease is assigned or terminated, even where there is no additional tax to pay.

So, while Ms Thomson ultimately escaped her £1,000 penalty, avoiding the problem in the first place remains the safer option.

What this story clearly indicates for commercial tenants is that when a lease comes to an end, the obligation to submit a final LBTT return does not end with it.

Kerri McHale is a Senior Practice Development Lawyer, Dentons​