What is a 'reasonable excuse' in terms of making an appeal against a tax penalty for late filing, late payment or error?
Subscribers: see your detailed guide, Grounds for Appeal: Reasonable Excuse.
This is a freeview 'At a glance' guide to reasonable excuse as a ground for appeal.
At a glance
A taxpayer may appeal a tax penalty when they are able to prove that they had a reasonable excuse for not doing what they were supposed to do.
- The phrase 'reasonable excuse' takes its everyday meaning and depends entirely on the facts and circumstances of each individual case.
- As there are many forms of reasonable excuse it is something that is not just limited to 'unforeseeable or exceptional circumstances'.
- A taxpayer is expected to know which deadline applies and make a reasonable effort to meet their filing obligations and make accurate tax returns.
- Reliance on the acts of a third party, such as an accountant or adviser is not allowed as a defence when appealing VAT penalties, it maybe a defence for direct tax penalties in certain circumstances, i.e where the tax rules are sufficiently complex.
- Each case will be considered on its own merits.
See Appeals: Grounds for Appeal Toolkit
Read this in conjunction with our guide: How to appeal a tax penalty.
Reasonable excuse or reasonable care?
To avoid any confusion in terminology:
- The defence of 'reasonable excuse' applies to compliance failures in tax.
These include:
- Late filing of returns; Schedule 55 FA 2009.
- Failing to file online; TMA 1970 s.8(1)(d)/VAT.
- Failing to make a payment on time; Schedule 56 FA 2009.
- Failing to notify chargeability; Schedule 41 FA 2008.
The defence of 'reasonable care' is slightly different, although the two may cross over.
- Reasonable care mainly applies in the context of calculating tax geared penalties for error and mistake caused by careless behaviour Sch 24 FA 2007.
- Carelessness for the purposes of discovery assessments s.29(4) TMA 1970.
What is a reasonable excuse?
'Reasonable excuse' is not fully defined by the legislation. For a reasonable excuse to apply, there are only two requirements:
- The taxpayer in making an appeal (the appellant) must put forward an excuse.
- It must be decided whether, when viewed objectively, that excuse is reasonable in the context of the delay that has triggered the penalty.
HMRC's original view was that an excuse is reasonable where some 'unforeseeable and exceptional event' beyond the taxpayer's control is responsible for the compliance failure. Unsurprisingly the tax tribunals do not confine themselves to such a narrow interpretation.
Excuses may include (but are not limited to):
- Illness.
- Natural disaster e.g. the global coronavirus pandemic.
- Postal delay.
- IT issues.
- HMRC error.
- Adviser error.
See Appeals: Grounds for Appeal Toolkit
Useful guides on this topic
How to appeal a tax penalty
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
Failure to notify chargeability to tax
What is the failure to notify chargeability to tax? What happens if you fail to notify HMRC about your taxes? What penalties apply for failing to notify HMRC that you have a tax liability?
Penalties: Errors in returns and documents (subscribers' guide)
What penalties apply if you make an error or mistake? Is there a penalty if you fail to tell HMRC about an under-assessment? How are penalties calculated? How do you check penalties? What can you do if you receive a penalty?