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HMRC internal manual

VAT Civil Penalties

Breach of VAT Regulatory Provisions: Definition of Regulatory Penalties: Reasonable Excuse

VAT Act 1994 Section 69(8) states that where reasonable excuse can be established to our or an appeal tribunal’s satisfaction there is no liability to a penalty.

The law does not specify what a reasonable excuse is, but Section 71 specifically excludes

  • insufficiency of funds to pay any VAT due, or
  • reliance placed on another person to perform any task, where neither the fact of that reliance nor any dilatoriness or inaccuracy on the part of the person relied upon is a reasonable excuse.

The reliance on third parties to perform a task usually applies to the person’s accountant but it could be any person.

General considerations

Compassionate circumstances

Reasonable excuse may apply if there are compassionate circumstances, for example

  • serious illness of the trader
  • member of immediate family
  • or
  • bookkeeper.

Where an individual is totally responsible for the running of a small business (such as a sole proprietor or husband and wife partnership) you could accept as a reasonable excuse serious illness or recuperation of the trader, a member of the trader’s immediate family or the trader’s book keeper at the time the failure to comply with the regulatory requirement occurred.

However, the trader would be expected to make other arrangements to ensure there is no repeated failure to meet the regulatory requirement.

Failure to keep or produce records or documents

Most regulatory penalties are issued to secure the production of records/documents or as a consequence of the non production of records or information (see V1-24B for further guidance regarding penalties for failure to keep or produce records or documents and for afailure to ).

Tribunals have discounted the following grounds for reasonable excuse when considering appeals against other VAT civil penalties and can be expected to apply the same criteria to appeals against regulatory penalties

  • ignorance of the law
  • oversight or misunderstanding within a business
  • error or indolence
  • preoccupation with work
  • inexperience in business affairs
  • no intent to escape payment of tax
  • no tax due
  • reasons which amount to mitigating circumstances.