CTM94140 - CTSA: penalties for late returns: Reasonable excuse

TMA70/S118 (2)

The statutory filing date for the return will be a date at least twelve months after the end of the accounting period. In most cases the computer issues a reminder about one month before that date.

This allows adequate time to keep successful claims for ‘reasonable excuse’ to a minimum.

Statute does not define ‘reasonable excuse’. You should consider all claims on their merits.

HMRC consider reasonable excuse to be something that stops a company from meeting a tax obligation despite them having taken reasonable care to meet that obligation. It is necessary to consider what a reasonable person, who wanted to meet their obligation would have done in the same circumstances.

Whether a company has a reasonable excuse will depend on the particular circumstances in which the failure occurred. What is a reasonable excuse for one company may not be a reasonable excuse for another company.

The company must remedy the failure as soon as can reasonable be expected after the excuse has ended.

Honesty of purpose is a preliminary condition that a company always needs to fulfil. You also need to take into account the circumstances of the person making the claim. You expect a higher standard from an experienced controlling director than you do of a newly appointed director with no previous business experience.

You need to establish all the relevant facts, including:

  • the circumstances which led to the failure to submit the return in time,
  • the extent to which appropriate preliminary work such as preparation of accounts had been put in hand before the excuse prevented further progress,
  • whether the necessary steps were taken to remedy the failure after the excuse had ended.

The following are examples of, the circumstances that might amount to a reasonable excuse.

  • One director runs the company and he (or an immediate family member) dies or suffers a sudden and serious illness close to the filing date. Alternatively, the director has a prolonged and serious illness throughout much of the return period.
  • Unavoidable and unexpected absence abroad of the responsible director close to the deadline because of business commitments or domestic emergency.
  • Accidental destruction of the records through fire or flood.