CH160900 - Reasonable excuse: how to establish if there is a reasonable excuse

A person will not be liable to a penalty if they can show that they have a reasonable excuse. Each case must be considered on its own facts and merits and you need to take into account a person’s abilities, circumstances and experience.

The onus is on the person to satisfy you that they have a reasonable excuse. They should tell us if they consider they have a reasonable excuse and show that they met their obligations without unreasonable delay once that excuse had ceased. They must explain the reasons for the failure, and you must listen carefully to the explanation offered taking into account all the circumstances and the available evidence.

It is important that the person explains to HMRC not only what their excuse is (for example, a particular health condition) but also how that issue detrimentally affected their ability to comply with their tax obligation.

It is good practice to establish the full facts starting from the point that the statutory obligation should have been carried out to the point when compliance occurred. Once all the facts are obtained, it may become apparent to both you and the person that the reasonable excuse did not exist for the full duration of the non-compliance and/or the failure was not remedied without unreasonable delay once the excuse ceased.

The onus is on the person to provide evidence in support of their argument that there was a reasonable excuse. If the person has not provided all the information you need, you should ask for any further information and documents that might help you understand the situation. You must ensure that any evidence you request is reasonable and proportionate.

If a person appears to have difficulty communicating, for instance if English is not their first language you may need to consider referring them to the Extra Support Team.

In the case of Perrin v HMRC [2018] UKUT 156 (TC), see CH160950, the Upper Tribunal set out a four-stage process for determining if the taxpayer has a reasonable excuse:

1. Establish what facts the taxpayer believes give rise to a reasonable excuse. The facts may include:

  • the taxpayer’s beliefs
  • the taxpayer’s own experiences and relevant attributes
  • the situation of the taxpayer at any relevant time
  • acts carried out by the taxpayer or someone else
  • acts that the taxpayer or someone else should have carried out but did not.

2. Decide which of those facts are proven, based on the evidence available.

3. Decide whether, viewed objectively, the facts that have been proven are an objectively reasonable excuse for the customer’s failure and, if they are, when that reasonable excuse stopped. The Tribunal should ask itself

“Was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”

4. After deciding when any reasonable excuse stopped, decide whether the customer remedied their failure without unreasonable delay (unless they had already done so before the reasonable excuse stopped).

You should follow the four points above when considering whether the customer has a reasonable excuse.

When deciding what facts are proven, the standard of proof is the balance of probabilities. That is, whether it is more probable than not that the fact is correct.

Whether there is a reasonable excuse is a matter of judgement:

  • if you consider the excuse to be reasonable you must accept it
  • if you do not consider that the person’s arguments represent a reasonable excuse then you must tell the person and give them the opportunity to provide further argument and/or evidence as to why they have a reasonable excuse before you give notice of your decision.

Your letter notifying the person of your decision must also advise them of their appeal and review rights in accordance with the Appeals, Reviews and Tribunals Guidance at ARTG2100+ for direct taxes and ARTG3000+ for indirect taxes. ARTG15000 contains standard wording for explanation letters.