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HMRC internal manual

VAT Civil Penalties

Belated Notification Penalty: Reasonable excuse: Subcontractor payments not included in turnover

Please see the Compliance Handbook CH70000 for more details about the new failure to notify penalty.

Tribunals have found that where amounts paid to a main contractor on behalf of subcontractors are not included in the turnover of the main contractor, these are not grounds for reasonable excuse.

Several cases where consultants and self employed salespeople regarded themselves as employees and claimed reasonable excuse have not been up held by Tribunals.

To determine whether a person is self employed or an employee, the trading circumstances and contractual position should be closely examined. You should consult with other HMRC business units that specialise in Employment Status if a person is awaiting a decision on their business status.

If a trader claims reasonable excuse for not realising that they were self employed, a Tribunal will consider the age, experience and educational circumstances of the trader.

Note: In the Geary case, 3 painters, one aged 26 and 2 teenagers, claimed reasonable excuse because they considered they were employees of the company rather than self employed. The tribunal held they were self employed but allowed reasonable excuse in view of their age and social and educational circumstances.

Where traders claim reasonable excuse in these circumstances you should consider whether the age, experience and level of education of the trader are grounds for mitigation of the penalty, see VCP10445 or in exceptional circumstances reasonable excuse.