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HMRC internal manual

Compliance Handbook

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HM Revenue & Customs
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Penalties for VAT and Excise Wrongdoing: in what circumstances is a penalty payable: reasonable excuse: overview

A person won’t be liable to a penalty for a non-deliberate, see CH93300, VAT or excise wrongdoing if

  1. they satisfy us that they have a reasonable excuse, see CH92100, for what they have done, and 
  2. they put right their action without unreasonable delay after the excuse has ended, see CH92400.

Reasonable excuse does not apply where the VAT or excise wrongdoing is deliberate, see CH93100 and CH93200.

Supplying products knowing that they will be misused, see CH91450, is a deliberate act. Consequently there cannot be a reasonable excuse for this particular wrongdoing.

The onus is on the person who

  • issues an invoice showing VAT when not authorised, or
  • puts an Excise duty product to use that attracts a higher rate of duty, or
  • handles goods subject to Excise unpaid duty,

to satisfy us that they had a reasonable excuse when the wrongdoing took place.

For example, it is difficult to see how a person could have a reasonable excuse if they issue an invoice charging VAT when

  • either they are correctly not registered for VAT
  • or they are not registered for VAT but they should be.

However, each case must be considered on its own merits.

There is no statutory definition of reasonable excuse, which is a matter to be considered in the light of all the circumstances of the particular case. See the more detailed explanation at CH92100.

What is reasonable will differ from person to person depending on their particular circumstances and abilities. However, there are some excuses which are not normally acceptable as reasonable. These are

  • shortage of funds, but see the exception in CH92300, and
  • reliance on another person, but see the exception in CH92350.

If the reasonable excuse for the person’s conduct ends, we will treat the excuse as continuing if the person

  • puts right the action, and
  • does so without unreasonable delay after the excuse ends.

If the person does not remedy the wrongdoing without unreasonable delay after the excuse has ended they remain liable to a penalty.

What is unreasonable delay depends upon the facts and circumstances of each case, see CH92400. If the person does delay unreasonably then, whatever the reason for their conduct, they will not have a reasonable excuse.

If we decide not to accept the person’s excuse as reasonable, they can ask for a review of our decision or appeal. The person may appeal to the tribunal whether or not they request a review. The Appeals, Reviews and Tribunals Guidance (ARTG) contains full details of the review and appeals process at ARTG3000+.

FA08/SCH41/PARA20