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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.

HMRC consider reasonable excuse to be something that stops a person from meeting a tax obligation despite them having taken reasonable care to meet that obligation. It is necessary to consider what a reasonable person, who wanted to meet their obligation would have done in the same circumstances and decide if the action of the person met that standard as outlined by Judge Medd in The Clean Car Company (LON/90/138X)

‘One must ask oneself: was what the taxpayer did a reasonable thing for a responsible trader conscious of and intending to comply with his obligations regarding tax, but having the experience and other relevant attributes of the taxpayer and placed in the situation that the taxpayer found himself at the relevant time, a reasonable thing to do? Put in another way which does I think alter the sense of the question; was what the taxpayer did not an unreasonable thing for a trader of the sort I have envisaged, in the position that the taxpayer found himself, to do?’

Whether a person has a reasonable excuse will depend on the particular circumstances in which the failure and the abilities of the person who has failed. What is a reasonable excuse for one person may not be a reasonable excuse for another person.

An unexpected combination of events may together be a reasonable excuse.

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 as each case will depend on the specific circumstances. CH92150 gives some examples of what could be a reasonable excuse. 

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.

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.