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HMRC internal manual

Compliance Handbook

Penalties for VAT and Excise Wrongdoing: in what circumstances is a penalty payable: reasonable excuse: what is a reasonable excuse

A person will not be liable to a penalty if they have a reasonable excuse for their conduct and they remedy their action without unreasonable delay after the excuse ends.

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” (Rowland v HMRC [2006] STC (SCD) 536 at paragraph 18). For example, in Anthony Wood trading as Propave v HMRC (2011 UK FTT 136 TC 001010), the First Tier Tribunal applied this definition in their decision released on 23 February 2011.

A reasonable excuse is normally an unexpected or unusual event that could not be reasonably foreseen or is beyond the person’s control, and which prevents the person from complying with the underlying obligation. An unexpected combination of events may together be a reasonable excuse.

It is necessary to consider the actions of the person from the perspective of a prudent person exercising reasonable foresight and due diligence, having proper regard for their responsibilities under the tax acts.

If the person could reasonably have foreseen the event, whether or not it is within their control, we expect the person to take steps to meet their obligations.

If the VAT or excise wrongdoing is non-deliberate, a reasonable excuse may exist. It is not possible to give a comprehensive list of what might be a reasonable excuse. Each depends upon the particular circumstances in which the wrongdoing occurred and the particular circumstances and abilities of the person who is responsible for the wrongdoing. What is a reasonable excuse for one person’s circumstances may not be a reasonable excuse for another person in different circumstances.

If the VAT or excise wrongdoing is deliberate, see CH93100 and CH93200, there cannot be a reasonable excuse for the person’s conduct.

The reasonable excuse provision does not extend to a person who

  • supplies a product of the kind listed in CH91500 to another person, and
  • knows that the other person will use it for a purpose that attracts a higher duty.

Further guidance on this wrongdoing is at CH91450.

CH92150 gives some examples of what could be a reasonable excuse.

The law does specify two situations that are not reasonable excuses. These are

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