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  • Writer's pictureXero Queen

What is a reasonable excuse for late filing?

So here we are in February and there are those people who have failed to file their Self-Assessment tax return by 31st January. A late filing penalty may not be inevitable if a person has a reasonable excuse for the non-compliance.



When to use the reasonable excuse defence

In some cases, a person can prevent a penalty being issued in the first placed by explaining their reasonable excuse when they rectify their non-compliance.

Alternatively, if a penalty has already been issued, the taxpayer will need to provide details of their reasonable excuse as part of an appeal against the penalty. If the appeal to HMRC fails, the taxpayer can appeal to the Tribunal on the basis of reasonable excuse.

Meaning of reasonable excuse

In legislation there is no statutory definition of ‘reasonable excuse’, however the legislation for specific penalty regimes does exclude some reasons as being a reasonable excuse, these are:

• a lack of funds, unless attributable to events outside the person’s control; and

• reliance on another person to do anything, unless the person took reasonable care to avoid the failure.

There are no such exclusions where a person initially had a reasonable excuse for a failure to comply, but the excuse has now ended. For example if a person was in an accident but is now fully recovered. As long as the failure is remedied without unreasonable delay once recovered the reasonable excuse is allowed to stand. If the person delays further once recovered the reasonable excuse is no longer accepted.

The case of Perrin v R & C Commrs [2018] is an interesting one as HMRC argued that the law requires:

• any reasonable excuse to be based on some ‘unforeseeable or inescapable’ event, and

• there to be an ‘unexpected or unusual event’ before there can be a reasonable excuse.

The Upper Tribunal went on to dismiss these arguments which sets a president for future cases.

There are numerous First-tier Tribunal (FTT) cases considering reasonable excuse, but, unlike the Perrin Upper Tribunal decision, these do not provide precedent.


HMRC Guidance and Manuals

HMRC guidance on gov.uk gives the following examples to taxpayers of what may count as a reasonable excuse:

• your partner or another close relative died shortly before the tax return or payment deadline;

• you had an unexpected stay in hospital that prevented you from dealing with your tax affairs;

• you had a serious or life-threatening illness;

• your computer or software failed just before or while you were preparing your online return;

• service issues with HM Revenue and Customs (HMRC) online services;

• a fire, flood or theft prevented you from completing your tax return;

• postal delays that you could not have predicted;

• delays related to a disability or mental illness you have;

• you were unaware of., or misunderstood, your legal obligation; and

• you relied on someone else to send your return, and they did not. You must send your return or payment as soon as possible after your reasonable excuse is resolved. The guidance also states that these will not be accepted as a reasonable excuse:

• your cheque bounced or payment failed because you did not have enough money;

• you found the HMRC online system too difficult to use;

• you did not get a reminder from HMRC; or

• you made a mistake on your tax return.

HMRC’s Compliance Handbook covers reasonable excuse from key case law, as previously mentioned in the case of Perrin v R & C Commrs the Upper Tribunal set out a four-step approach to considering the question of reasonable excuse:

(1) Establish what facts the taxpayer asserts give rise to a reasonable excuse. (These may include the belief, acts or omissions of the taxpayer or any other person.)

(2) Decide which of those facts are proven.

(3) Decide whether, viewed objectively, those proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. This should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times This could involving asking ‘was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?’

(4) Having decided when any reasonable excuse ceased, decide whether the taxpayer remedied the failure without unreasonable delay after that time (assuming the failure was not remedied before the reasonable excuse ceased). The matter should be decided objectively taking into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times.

The approach set out in Perrin is good practice, but is not intended to be a straitjacket. Rather, it is a helpful way for the First Tier Tribunal to address the statutory questions.

Covid-19

HMRC have confirmed that, where a taxpayer is unable to meet an obligation (such as a paying or filing deadline) due to the impact of Covid-19 on either themselves or their agent, it will be accepted as a ‘reasonable excuse’ provided they explain how they were affected and remedy the failure as soon as they can. However the distraction caused by the Covid-19 pandemic is not always accepted as a reasonable excuse. In the case of Hawksmoor Construction Ltd (2022) the First Tier Tribunal did not accept that the company had a reasonable excuse for not having sufficient funds to make a VAT payment. While the sole director was absent from the business because he and his partner had Covid-19 and had just had a baby, there should have been sufficiently robust procedures to withstand the temporary absence ‘particularly at a time when the arrival of a child meant that a period of absence could have been anticipated’.


I hope you have found this blog helpful. There is further information available at www.GOV.UK.



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