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HMRC internal manual

VAT Civil Penalties

HM Revenue & Customs
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Default Surcharge: Discretion, reasonable excuse and mitigation: What is reasonable excuse

In order to establish a reasonable excuse, a trader must give us evidence to show that hiscircumstances fall outside the normal risks of his particular business or that there was amisfortune that was unforeseeable and could not be prevented or avoided.

The crucial question is - “was the trader faced with a difficulty which could nothave been anticipated and that a person acting in a reasonable manner could not haveovercome?” If the problem persists the trader will be expected to show that he tookall reasonable steps to try and overcome the difficulty

The following must always be taken into account when deciding whether aparticular excuse is reasonable (other factors may also need to be considered depending onthe specific circumstances of the case)

  • Has the problem been around for some time?
  • Did the difficulties arise immediately before the due date or did the trader have time to put matters right (i.e. were the circumstances unavoidable and/or unpreventable)?
  • Has the trader used the same excuse before?
  • Reviewing officers should also contact Large Payers Unit when an appeal is received in respect of a large payer (identified by review code 443 on VISION). Large Payers Unit manually record surcharge defaults and will often have information relevant to the case.

Exclusions from reasonable excuse

Section 71 of the VAT Act 1994 specifically excludes the following from being areasonable excuse

  • lack of funds to pay any VAT due, or
  • reliance on any other person to perform a task, where there has been a delay or inaccuracy on that person’s part.

Note: While lack of funds in itself is not accepted as a reasonable excuse theunderlying cause of the lack of funds may do so.

Where a reasonable excuse is established before a default is recorded, a VAT 719 should beinput to inhibit automatic surcharge processing for the relevant period(s). Please see thefollowing guidance on

  • how to process applications for reconsiderations against defaults, see VCP10561
  • circumstances which can and cannot form the basis of an appeal, see VCP10562

Factors affecting reasonable excuse

Depending upon the specific nature of the excuse, the following points should beconsidered

  • insufficiency of funds, see VCP10534
  • return and/or payment sent in time, see VCP10535
  • non receipt of SLN, see VCP10536
  • illness/loss of key personnel, see VCP10537
  • computer breakdown/loss of records, see VCP10538, and
  • error on cheque, see VCP10539.