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HMRC internal manual

Senior Accounting Officer Guidance

Reasonable excuse: what is reasonable excuse

A person will not be liable to a penalty if they have a reasonable excuse for a failure of the Senior Accounting Officer (SAO) provisions and they remedy that failure 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). This was confirmed by the First Tier Tribunal, in Anthony Wood trading as Propaye v HMRC (2011 UK FTT 136 TC 001010), in the judgement 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.

A company should identify its SAO or SAOs during the financial year. So it should be able to tell HMRC who they are the day after the end of the financial year. A company does not have to wait until the day before the deadline to notify us. If a problem arises in notifying it is more likely to be an administrative or communication matter than one of not having the information. Also there will be a number of people within the company who can provide the notification on the company’s behalf and it is difficult to envisage a scenario where all those people would be unavailable to act on behalf of a company.

By contrast, an SAO may have to await the preparation of financial statements and the company’s return and tax computation to be able to explain failures in the systems on a qualified certificate. The SAO may well need much of the time available. In the case of sickness, bereavement and so on shortly before the last date we could see that the SAO might have this as an excuse.

So the company will be less likely to have a reasonable excuse for missing its time limit for notifying HMRC than an SAO will have for failing to provide their certificate on time.

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. SAOG20300 gives some examples of what could be a reasonable excuse.

The law does specify two situations that are not reasonable excuses. These are

  • shortage of funds, but see the exception in SAOG20600, and
  • reliance on another person, but see the exception in SAOG20700.