CH26420 - Information & Inspection Powers: penalties: when is a penalty chargeable: reasonable excuse: shortage of funds

Where there is a financial cost involved in assembling information, retrieving documents or allowing an inspection, a shortage of funds is not in itself a reasonable excuse. You must consider why the person did not have the funds.

Assembling documents should involve little expense for a person who has reasonably well-ordered records. On the other hand, having to assemble information may well require additional expense. We expect the person to make arrangements to meet any costs of complying with the information notice or inspection at the appropriate time. Cash-flow problems, which are a normal cycle of business life, are not a reasonable excuse.

However, a person may have a reasonable excuse for failing to comply with an information notice when

  • the failure resulted from a shortage of funds, and
  • the shortage occurred despite the person exercising reasonable care and due diligence, having given proper regard to their obligation to comply with the information notice.

When considering if there is a reasonable excuse you must look at the circumstances that gave rise to the shortage of funds. If you accept there is a reasonable excuse for the shortage of funds you must also consider if the person remedied the failure without unreasonable delay after the excuse has ended, see CH26460.

Each case must be considered taking into account all of the circumstances that gave rise to the failure to comply with the information notice.

For example

Paul received an information notice requiring his statutory records for his previous accounting period. He didn’t have enough money to pay his storage firm to retrieve the documents from storage because he had not received payment of his invoices from a main customer, A Ltd, which had gone into administration. We may accept that Paul has a reasonable excuse for failing to comply with the information notice requiring production of those documents.

Paul’s reasonable excuse ends when A Ltd pays the outstanding invoices or he otherwise comes into funds. We would expect him to produce the documents without unreasonable delay thereafter.

If Paul explained the situation to us it may be sensible to extend the period given by the information notice to produce the records, see CH23420.

Remember that there is no statutory definition of ‘reasonable’ or ‘unreasonable’. Each case must be judged on its own merits in view of the person’s abilities and circumstances. See CH26340 and CH26360.

FA08/SCH36/PARA45 (2)(a)

CEMA79/S118G