Data gathering: penalties: reasonable excuse: shortage of funds
A shortage of funds is not in itself a reasonable excuse for failing to comply with a data-holder notice. You must consider why the person did not have the funds.
Most businesses experience cash flow problems as part of their normal cycle of business. They manage those difficulties as part of their day-to-day operations. So a normal, expected shortage of funds is something we expect a data-holder to be able to manage, perhaps by arranging short-term finance.
However, a person may have a reasonable excuse for the failure to comply with the data-holder notice when
- the failure resulted from a shortage of funds, and
- the shortage of funds occurred despite the person exercising reasonable care and due diligence having given proper regard to their tax obligation.
When considering whether there is reasonable excuse you must look at the circumstances that gave rise to the shortage of funds. If you accept the shortage of funds amounts to a reasonable excuse you must also consider if the person remedied the failure without unreasonable delay after the excuse ended, see CH29680.
Each case must be considered on its own facts taking into account all of the circumstances that gave rise to the failure to comply with the notice.
We issued a data-holder notice to ETSR, a registered charity, for ETSR to provide relevant data. ETSR failed to provide the data by the date specified in the notice, claiming that they had insufficient funds to dedicate someone to extract the data that we had requested. ETSR does not have a reasonable excuse. The charity should have either negotiated a longer time scale or requested assistance to extract the information. There was no event outside their control that caused the shortage of funds.
Remember that there is no statutory definition of ‘reasonable’ or ‘unreasonable’. Each case must be judged on its own merits in view of the data-holder’s abilities and circumstances, see CH29620 and CH29630.