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HMRC internal manual

Compliance Handbook

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

Where a person has a reasonable excuse for a wrongdoing they must remedy that wrongdoing without unreasonable delay after the excuse ends.

If they do, we will treat the excuse as continuing until they have remedied the wrongdoing and will therefore not charge a penalty. If they do not do this, they will not have a reasonable excuse for the wrongdoing and therefore we will charge the penalty.

You need to consider carefully the point at which a reasonable excuse ends and the action the person took after that time to remedy the wrongdoing. Each case must be dealt with on its own merits.

In terms of reasonable delay, there is no statutory definition of ‘unreasonable’. Each case must be judged on its own merits in view of the person’s abilities and circumstances.

Examples

No unreasonable delay

Hannah’s business runs a canal boat up and down the canal for day-trippers. In June 2010 her husband is diagnosed with an illness that requires hospital treatment and a period of recovery.

Because of the disruption to the business, and the time that Hannah spends caring for her husband, ordering fuel for the canal boat is overlooked. When the shore fuel store is empty the barge skipper, Hannah’s employee, uses the heating oil from the tank next to the boat fuel tank.

When she is back at work the skipper tells her what he has done. Hannah contacts us immediately to let us know and explains the circumstances. Hannah has a reasonable excuse for the wrongdoing and she told us of the failure without unreasonable delay once the excuse ended.

Unreasonable delay

Gideon and his business partner start to receive wine from France that they sell through a shop in the High Street. Gideon is the buyer and travels extensively in France. He uses a REDS agent to pay us the duty due and has to tell the REDS agent each month what deliveries he has had.

In June Gideon becomes seriously ill. His partner, who runs the shop side of the business, does not know exactly what they must tell the REDS agent about deliveries received. He tells the REDS agent only about what he takes from the warehouse (not a duty suspended warehouse) into the shop, not about goods received into the warehouse.

Following several months of intensive treatment, Gideon returns to work in November. As he is not yet fit enough to travel around France, Gideon busies himself with catching up with the office paperwork. He immediately realises that during his absence the REDS agent has not been given the correct information and that the deliveries have been under-declared. However, Gideon does not tell the REDS agent about the under-declared deliveries and pass on the correct figures until February. There was an unreasonable delay in notifying us of the deliveries after the excuse had ceased and therefore he is not treated as having a reasonable excuse.

FA08/SCH41/PARA20 (2)(c)