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HMRC internal manual

Compliance Handbook

Penalties for Failure to Notify: in what circumstances is a penalty payable: reasonable excuse: shortage of funds

A shortage of funds is not in itself a reasonable excuse for a failure to notify. 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 person to be able to manage, perhaps by arranging short-term finance.

However, a person may have a reasonable excuse for failing to notify when

  • the failure resulted from a shortage of funds and 
  • the shortage occurred despite the person exercising reasonable foresight and due diligence, having given proper regard to their obligation to notify by the due date.

When considering if there is a reasonable excuse you must look at the circumstances that gave rise to the shortage of funds. If you accept that the shortage of funds amount to a reasonable excuse you must also consider if the person remedied the failure without unreasonable delay after the excuse has ended, see CH71660.

Each case must be considered taking into account all of the circumstances that gave rise to the failure to comply with the information notice.


Paul started to trade as a self-employed landscape gardener. He knew he would have to tell HMRC because he’d read the leaflets. However, when he worked out his earnings for the year he realised that due to a major customer withholding payment he didn’t have enough money to pay the tax due. He decided to wait until he’d managed to save some money and so missed the deadline for telling us he was liable to income tax.

Paul may consider he is unable to pay his tax due to circumstances beyond his control but this should not prevent him contacting us to notify his liability as soon as he is aware of it and if appropriate agreeing a time to pay arrangement.

Remember that there is no statutory definition of ‘reasonable’ or ‘unreasonable’. Each case must be judged on its own merits in view of the person’s abilities and circumstances. See CH71540 and CH71560.

FA08/SCH41/PARA20 (2)(a)