SAM10090 - Appeals, postponements and reviews: appeals: reasonable excuse
As explained in SAM61290, a customer can appeal against any late filing penalty on the grounds that they had a reasonable excuse for the late submission of the return, and against a late payment penalty, or a surcharge (for tax years 2009-10 and earlier), on the basis that they had a reasonable excuse for late payment.
For a late filing penalty, you should consider whether the customer had a reasonable excuse at the date the relevant penalty arose. For example, if you have an appeal against a daily penalty assessment, consider whether the customer had a reasonable excuse at the time the daily penalties first became payable. Also consider if at any time during the period of daily penalties, the customer has provided facts which show they had a reasonable excuse for any part of the period.
A late payment penalty is not imposed until the balancing or final payment for the year is more than 30 days overdue. Therefore, even if there were problems on or around the due date, the customer should have been able to make arrangements to pay before the trigger date for the first late payment penalty (see SAM61380).
Surcharge (for tax years 2009-10 and earlier) is not imposed until the balancing or final payment for the year is more than 28 days overdue. Therefore, even if there were problems on or around the due date, the taxpayer should have been able to make arrangements to pay before the surcharge date.
There is no definition in law of ‘reasonable excuse’. Any reasonable excuse will be based on all the facts and circumstances of the specific case but the law does specify two situations that are not reasonable excuse: 1) A shortage of funds and 2) Reliance on another person.
A reasonable excuse is normally something that stopped the customer from meeting a tax obligation on time that they took reasonable care to meet. It might be due to circumstances outside their control or a combination of events.
Once a reasonable excuse has ended, the customer must submit the outstanding return or make payment without unreasonable delay. As a guide, ‘unreasonable delay’ would be within 14 days, unless another time limit applies. Each case needs to be determined in the light of all the particular circumstances of the individual case. Further guidance on reasonable excuse can be found in the Compliance Handbook at CH160000, CH61500 for failure to file on time and CH150000 onwards for failure to pay on time.
You must consider each case by reference to the particular circumstances in which the failure occurred and the abilities of the customer. What is a reasonable excuse for one person’s circumstances and abilities may not be a reasonable excuse for another person.
You should not agree reasonable excuse where the customer was able to manage the rest of his business and personal affairs and pay other bills during that period. It is not possible to give a comprehensive list of what might be a reasonable excuse. However, the following examples identify circumstances where you might agree reasonable excuse and circumstances where you should not agree reasonable excuse.
Examples of what you might agree as grounds of reasonable excuse
Examples of what you should not agree as grounds of reasonable excuse
Reasonable excuse for late partnership returns
Disability
Applying reasonable excuse at the date penalty arose (for tax years 2010-11 onwards)
Special reduction (for tax years 2010-11 onwards)
Examples of what you might agree as grounds of reasonable excuse
This guidance has now been updated in CH160300 and is has follows
It is not possible to give a comprehensive list of what might be a reasonable excuse as each case will depend on the specific circumstances. These examples are not model answers, nor are they to be viewed as the correct response in situations that appear similar. They are only intended to give you an idea of the factors you may need to take into account when considering reasonable excuse. Each case is unique and must be considered on its own facts.
For reasonable excuse to apply, it is important that the person can demonstrate that the reasonable excuse they are relying on actually happened in the way they describe. Ideally, this would be done with documentary evidence.
Coronavirus – Covid-19 pandemic
Where a person has not been able to meet an obligation on time due to the impact of COVID-19, HMRC will usually accept that they will have a reasonable excuse.
A reasonable excuse resulting from COVID-19 must have applied on or before the date on which the obligation should have been met, and not at some time after this date.
Mental health
Follow the guidance in CH160400.
Physical illness
Follow the guidance in CH160500.
Ignorance of the law
Follow the guidance in CH160600.
Reliance on another person
Follow the guidance in CH160700.
Bereavement
The death of a partner or close relative of the person such that it impacted on the person`s ability at that time to meet their obligation will normally be treated as a reasonable excuse.
Postal delays
The person is expected to allow sufficient time for the return or payment to reach HMRC. However, if the return or payment was posted in good time but the normal post service was disrupted and led to loss or delay, for example fire or flood at the Post Office or prolonged by industrial action by the Post Office, it would normally be accepted as a reasonable excuse. Or, if the person is able to provide a certificate of posting which shows that the return or payment was posted in good time and that there was a delay in delivery to us this would also normally be accepted as a reasonable excuse.
Service issues with HMRC Online Service
Reasonable excuse may be accepted where:
- HMRC Online Service does not accept the return
The person or their agent was unable to use HMRC`s online services. The person should provide the error message or details of the error message and the date it could not be filed online. However, HMRC does not want to penalise customers who have made a genuine attempt to file online so you should consider each case on its merits where details of the appropriate error message have not been provided
- Delayed receipt of online activation codes (PINs)
Accept as a reasonable excuse if the person registered to use the online service on or before the filing date but did not receive their activation PIN in time to file by the deadline, provided that they filed online as soon as possible once they received their activation PIN.
- Delayed receipt of a replacement ID, new password or replacement activation code
Accept as reasonable excuse if the person applied for a replacement User ID, password or activation code before the deadline, and filed their return without delay once they received the missing details. If application for this information was made after the deadline, reasonable excuse is not acceptable.
Loss of tax records
You should normally accept the loss of records through fire, flood theft or computer failure, as a reasonable excuse. You should be satisfied that the information for completion of the return could not be replaced in time for the person to complete the return by the due date.
Other possible reasonable excuse examples can include
- the person had an unexpected stay in hospital that prevented them from dealing with their tax affairs
- the person`s computer or software failed just before or while they were preparing their online return
- a fire, flood or theft prevented the person from completing their tax return
- delay caused by HMRC
- members of Armed Forces on active service overseas.
It must be remembered that each reasonable excuse is unique and must be considered on its own facts in view of the person`s abilities and circumstances.
What is or is not a reasonable excuse is personal to the individual’s abilities and circumstances. Those abilities and circumstances may mean that what is a reasonable excuse for one person may not be a reasonable excuse for another.
For example, there are some situations which we will not normally accept, on their own, as a reasonable excuse, such as:
- pressure of work
- lack of information
- lack of a reminder from HMRC
Statute identifies two specific situations that are not a reasonable excuse, unless certain conditions are met. These are:
- insufficiency of funds, and
- reliance on a third person but follow the guidance in CH160700.
Insufficiency of funds
The law says that insufficiency of funds is not a reasonable excuse unless the insufficiency is attributable to events outside the persons control.
Therefore, consideration must be given to establish why the person did not have the funds to meet the obligation. Many people may experience cash flow problems for varying reasons and they usually manage these as part of their normal daily life. So, in general, an insufficiency of funds is something we would expect a person to be able to manage, perhaps by arranging short-term finance.
This is not to say there will never be events outside a person`s control that create a severe cash shortage that cannot be managed.
A person may have a reasonable excuse if
- the insufficiency of funds is the cause of the failure, and
- the insufficiency of funds occurred despite the person exercising reasonable foresight and due diligence, having given proper regard to meet their obligation.
Insufficiency of funds is not a ‘reasonable excuse’, but the underlying causes may be. If this shortage of funds is the cause of the failure and the person has been pro-active in trying to remedy this, then they may have a reasonable excuse. For example, the person requests HMRC that the payment of the amount be deferred and HMRC agrees to the deferment for a period, therefore you must look at the circumstances that gave rise to the shortage of funds.
Each case must be considered on its merit, taking into account all the circumstances that gave rise to the failure to comply with the obligation.
Examples
Reasonable excuse exists
Over 90% of the monthly income of Luke’s small engineering business comes from one client. The client had always paid their account promptly on the 15th of each month and Luke used this income to pay his PAYE due on the 19th. On 15 June the company contacted Luke to say it was going into receivership and was unable to pay their account.
Luke had been given no prior indication this major client was in financial difficulties and as a consequence of the loss of this account was unable to pay his PAYE by the due date. Luke was unable to arrange any other finances before his next month’s PAYE was due but quickly arranged to sell some assets in order to release finances. He paid his PAYE in full on 30 July.
As Luke did not pay two months PAYE liability by the due dates and failed to contact HMRC to seek a Time to Pay agreement he received a late payment penalty. He appealed against the penalty on the grounds that he had a reasonable excuse.
Luke’s shortage of funds could not have been reasonably expected and left him little time to arrange additional funding at such short notice. Once he was able to raise the additional funds, he remedied his PAYE payment failure without unreasonable delay. As a result, HMRC would accept that Luke had a reasonable excuse for his failure to pay on time.
No reasonable excuse exists
Simon recently took on additional employees and invested time and money training them before they could produce income. This meant that his business had a severe cash flow problem. Simon did not file his tax return because he knew that he had a large capital gains liability.
Simon does not have a reasonable excuse for not filing his tax return. The circumstances were not beyond his control. Simon should have filed the return on time even if he was unable to pay the tax by the filing date. He should have contacted HMRC and, if appropriate, agreed a time to pay arrangement.
Examples of what you should not agree as grounds of reasonable excuse
Tax return too difficult
The customer should have taken early steps to contact HMRC or a tax adviser for assistance in order to complete the return by the due date.
Tax return not sent in
Non submission of the return should not in itself be treated as a reasonable excuse. The same event that prevented the taxpayer from paying on time may however have also prevented the tax return from being filed on time. Each case should be considered on its own facts.
Repeated claims that the customer did not receive the return
Reasonable excuse might not apply in cases where the customer has claimed on more than one occasion that he did not receive the return. SA Notes will show if the customer has claimed this as a reasonable excuse before. In these cases you must check the record for a change of address, or if a return has been received back as RLS for the year involved. If no evidence is found you should assume that the return was delivered and not accept the customer has a reasonable excuse. You must include these facts in any submission to the tribunal.
Pressure of work
The time given for completion of a return is considered to be sufficient to allow the customer to arrange his affairs to ensure that the return is completed by the due date and that payment is made on time.
Failure by tax agent
Failure by agent would not normally be treated as a reasonable excuse. It is the responsibility of the customer to ensure that his return is completed and delivered on time and that payment is made on time.
Lack of information
Where the customer is unable to obtain all the information needed to complete the return, the guidance issued with the return states that estimated information and an explanation in the additional information space should be submitted.
Not knowing how much to pay
This is not a reasonable excuse. The customer should submit his tax return in sufficient time to allow for a calculation or statement of account to be issued before the due date. The tax return guidance tells the customer that where a statement of account is not received an estimate of the amount due should be paid.
Shortage of funds
The taxpayer is expected to have kept money aside to pay his tax bill when it is due. The legislation states that not having the money to pay is not a reasonable excuse. See Compliance Handbook (CH155800)
Cheque made out incorrectly
It is the taxpayer’s responsibility to make sure that the cheque is made out correctly.
Absence of HMRC reminders
Normally reminders are issued before the return due date but lack of receipt of a reminder should not be treated as a reasonable excuse. The tax return itself shows the due date and it is the customer’s responsibility to ensure that the return is received by that date. Likewise, the tax return guidance shows the due date for payment and it is the customer’s responsibility to pay on time.
Lack of free HMRC software
HMRC is not obliged to provide free software to enable customers to file their returns online. Free HMRC software only covers the personal tax return and certain supplementary pages.
Customers who need to complete other supplementary pages or who file other returns online, for example the Trust and Estates Tax Return or the Partnership Tax Return, need to use commercial software.
Do not accept as a reasonable excuse any claim that the customer failed to file on time because HMRC did not make available free software appropriate to their circumstances.
Reasonable excuse for late partnership returns
The nominated partner is responsible for sending HMRC the partnership return. If the return is not sent to HMRC on time, the nominated partner may have a reasonable excuse for the return being late. The circumstances of the other partners are not normally relevant but you should consider the facts of each case on its own merits.
Where a nominated partner dies before submitting the return, the personal representative of the deceased is not responsible for submitting the return because they do not become a partner of the partnership in place of the deceased. The personal representatives responsibility extends only to the tax payments due from the deceased.
Disability
Ordinarily, the existence of a disability will not, on its own, present a barrier to customers in meeting their tax obligations. However if a customer claims that they have not been able to comply with a tax requirement because of a disability, you should fully consider how the effects of any disabling condition could have prevented them from complying with that obligation.
Every failure should be considered on its own facts. We would not usually accept the same reasonable excuse on more than one occasion. This is because we would expect any customer who knows he will find it difficult to meet a requirement because of an existing disability, to make every reasonable effort to anticipate this and make alternative arrangements. If a customer is subject to an irregularly fluctuating condition which they know might recur, you should consider whether or not there are reasonable contingency measures they could plan in the event their condition recurs, to try to ensure they comply with their obligations.
The following scenarios are examples used to help you understand the factors to consider when making a decision about reasonable excuse.
Scenario 1
Mr A is blind. He is unable to use the HMRC website and so decides to submit his SA return on paper. He asks an agent to compile and submit the return for him, but, before the filing date, the agent is taken ill. He returns the paperwork to Mr A shortly before the filing date, but as he is blind, Mr A is unable to complete the return himself and has no opportunity to make alternative arrangements before the filing date. He immediately arranges for another person to complete and submit his return by 14 November.
He receives a £100 filing penalty but it is cancelled on appeal because we accept that he had a reasonable excuse for missing the deadline date and had remedied the failure without delay.
We would not accept that every blind person who fails to submit his return by the due date has a reasonable excuse. In this case, the customer had taken steps to comply with his obligation but circumstances outside his control left it too late for him to make alternative arrangements and his disability prevented him from doing it himself.
Scenario 2
Mr X is an unrepresented self-employed builder without any family. He is diagnosed with a post-traumatic stress disorder in July 2011. He has to stop working and is incapable of taking any decisions. He is therefore unable to complete his returns and calculate the tax due for 2010-11 on 31 January 2012 or to appoint an agent. Following treatment, he is able to return to work in May 2012. He completes his tax return in May and pays the remaining tax due shortly thereafter.
Having received medical evidence of his condition, weaccept that the customer has a reasonable excuse. No penalties are due as he fulfils his tax obligations after the excuse has ceased.
Applying reasonable excuse at the date penalty arose (for tax years 2010-11 onwards)
A customer who does not have a reasonable excuse for failing to submit their return by the filing date will have to pay the initial fixed £100 late filing penalty unless (exceptionally) they are eligible for ‘special reduction’. However, the same customer may have a reasonable excuse for not submitting the return by the date that a subsequent penalty arises. Circumstances including serious illness, bereavement, disruption to the postal service and issues with HMRC Online Service may prevent the customer from filing their return in time to avoid a later penalty.
Example 1
Ms B did not have a reasonable excuse for failing to file her 2010-11 return by 31 January 2012 and has paid the £100 fixed penalty. She received a 30 day daily penalty warning letter on 11 June 2012 and she registered to use the online service on 12 June. She received her activation PIN on 19 June and filed her return online on 22 June. You can accept that Ms B had a reasonable excuse which she remedied without unreasonable delay so daily penalties should not be charged for the period 12 June to 22 June. (Daily penalties are still chargeable for the period 1 May to 11 June).
Example 2
Mr Y did not have a reasonable excuse for failing to file his 2010-11 return by 31 January 2012 and has been charged the fixed penalty, daily penalties and the first tax-geared late filing penalty. It is now December 2012 and his return is 11 months late. He engages an accountant to prepare his return so he can submit an online return before the 12 month tax-geared penalty applies on 1 February 2013. He has an appointment with his accountant to sign off his return on 29 January. However, on the day of the appointment his wife is taken seriously ill and is rushed to hospital. He has to cancel the appointment and is unable to authorise his accountant to submit the return until early February. You can accept that Mr Y had a reasonable excuse which he remedied without unreasonable delay and that the 12 month tax-geared penalty does not arise.
Special reduction (for tax years 2010-11 onwards)
HMRC has discretion to reduce a penalty because of special circumstances. This discretion can only be considered if there was no reasonable excuse for the failure to file on time. You must consider ‘special reduction’ if you decide not to allow the appeal. For guidance on special reduction, see CH170000.