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HMRC internal manual

Compliance Handbook

Penalties for VAT and Excise wrongdoing: in what circumstances is a penalty payable: reasonable excuse: shortage of funds

A shortage of funds is not in itself a reasonable excuse for wrongdoing. You must consider why the person did not have the funds.

It is difficult to envisage a situation in which shortage of funds can be offered as a reasonable excuse for committing a non-deliberate VAT or excise wrongdoing. In the unlikely event that it is, you should consider critically

  • whether the wrongdoing was non-deliberate (reasonable excuse does not apply to deliberate wrongdoings), and
  • the circumstances that directly led to the shortage of funds.

When considering if there was a 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 wrongdoing without unreasonable delay after the excuse has ended, see CH92400.

Remember that there is no statutory definition of ‘reasonable’ or ‘unreasonable’. Each case must be considered on its own merits in view of the person’s abilities and circumstances. See CH92100 and CH92150.