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HMRC internal manual

Compliance Operational Guidance

HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: penalties: reasonable excuse

Section 118(2) TMA 1970

If as a fact the failure has occurred, the only way an employer or contractor can avoid a failure penalty is to show he has a ‘reasonable excuse’.

The reasonable excuse must cover the whole of the period of lateness.

Reasonable excuse cannot be defined in absolute terms. The reasonableness will vary from case to case.

Generally, you are looking for some circumstance which

  • is beyond the employer’s or contractor’s control and
  • made the failure unavoidable and
  • evidence that the failure was remedied without unreasonable delay once that obstacle was out of the way.

In all instances you should

  • ascertain, as far as possible, the employer’s own reasons for the failure. This is best done during a meeting.

You must

  • listen and consider carefully what you are told. The explanation should be tested against information already held.

You should bear in mind that

  • it is not a statutory requirement for an End of Year return form to be issued by us (This content has been withheld because of exemptions in the Freedom of Information Act 2000)  
  • it is not a reasonable excuse to say that we took no action to obtain a return
  • the statutory obligation lies with the employer under

    • Regulation 73 of the Income Tax (Pay As You Earn) Regulations 2003 and
    • Para 22 of Schedule 4 of the Social Security (Contributions) Regulations 2001

or the contractor under

  • Regulation 40A of the Income Tax (Subcontractors in the Construction Industry) Regulations 1993 and
  • Reg 4 of the Income Tax (Construction Industry Scheme) Regulations 2005.