IEIM750080 - Reasonable Excuse

No penalty will be due if a person has a reasonable excuse for a failure to comply with any of the requirements of the regulations, as long as the failure was rectified without unreasonable delay once the reasonable excuse had ceased.

Reasonable excuse is a widely used concept in tax law, and additional guidance on its general application may be found at https://www.gov.uk/tax-appeals/reasonable-excuses.

In the context of these regulations, in particular a lack of funds will not be a reasonable excuse, and nor will relying on legal advice, where the advice was unreasonable, was not based on a full and complete view of the facts or was given or procured by a person who was a promoter (see IEIM721030) in relation to the arrangement in question.

The regulations provide that in considering whether a person has a reasonable excuse for a failure, HMRC, or the First Tier Tribunal (FTT) as the case may be, must give consideration to whether the person has in place reasonable procedures to ensure that they are able to meet their obligations under the regime. Failure to have such procedures in place will not automatically mean that a penalty is due, but simply that a person will not be able to rely on having procedures in place as part of their defence.

Equally, having procedures in place will not automatically mean that no penalty is due. HMRC, or the FTT as the case may be, will need to give full consideration to the circumstances of the failure. For example, if repeated reporting failures occur over a short period of time, that may suggest the procedures in place are insufficient, despite on first appearance seeming adequate, particularly if no steps have been taken to address any potential gaps. Similarly having procedures in place within an organisation but failing to take reasonable steps to ensure those procedures are complied with by staff may mean that a penalty is still due.