Compliance: Overview & ‘Reasonable excuse’: Cash-flow problems & TTQT failures
A shortage of funds is not, in itself, a reasonable excuse for a failure to make payments on time. You must consider why the person did not have the funds.
Most businesses experience cash flow problems as part of their normal cycle of business. They manage those difficulties as part of their day-to-day operations. So, a normal expected shortage of funds is something we expect a person to be able to manage, perhaps by arranging short-term finance, see CISR81110.
However a person may have a reasonable excuse for failing to notify when
- The failure resulted from a shortage of funds, and
- The shortage occurred despite the person exercising reasonable foresight and due diligence, having given proper regard to their obligation to make payments on time.
‘Cash-flow’ is not a ‘reasonable excuse’ in itself, but the underlying causes may well be. You will need to ask the customer the following questions
- have they suffered a bad debt? and, if so
- when was the bad debt incurred?
- how much was the bad debt?
- what action has the customer taken to try and recover the bad debt?
- what action has the customer taken to restore their cash-flow?
When you have this information, you may be able to compare this with the TTQT failures identified during the ‘Qualifying period’, or the due dates of CIS monthly returns due to be filed for a CIS penalty appeal.
If this shortage of funds is the cause of the failure to make payment(s) on time and the customer has been pro-active in trying to remedy this without reasonable delay after the excuse has ended then they may have a reasonable excuse.
HMRC would not expect anyone to use the same ‘reasonable excuse’ more than once because they should put measures in place to prevent the non-compliance from happening again. Any further claims for ‘reasonable excuse’ arising from the same cause should therefore not be accepted, other than in the most unusual of cases.