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HMRC internal manual

VAT Civil Penalties

Insurance Premium Tax: Discretion, reasonable excuse and mitigation: Reasonable Excuse

Please note: penalties under Schedule 7 Finance Act 1994 for failure to notify liability to register have been replaced by the Failure to Notify penalty introduced by Schedule 41 Finance Act 2008. The Failure to Notify penalty applies where an obligation to notify liability to register for IPT occurs on or after 01/04/2010. Penalties under Schedule 7 Finance Act 1994 will continue to apply where an obligation to notify occurs before 01/04/2010.

Please see the Compliance Handbook CH70000 for more information about the Failure to Notify penalty.

Please note: penalties under the Finance Act 1994 for failure to provide information and failure to produce records have now been replaced by penalties under Schedule 36 Finance Act 2008 where HMRC have requested information or documents on or after 01 /04/2010. If HMRC requested information or documents before 01/04/2010 the Finance Act 1994 penalties will continue to apply.

Please the Compliance Handbook CH20000 for more information about information and inspection powers.

Reasonable excuse removes a trader’s liability to penalty. A trader has the right to ask for an internal review of any penalty and if still dissatisfied, to appeal to a VAT and Duties Tribunal.

You must always consider whether or not the trader has a reasonable excuse for his failure. The decision on penalty action is a local one as these officers are better able to understand the circumstances of the case.

There are no Tribunal case histories that establish what is and isn’t considered a reasonable excuse for any of the Insurance Premium Tax (IPT) penalties. However, the Finance Act 1994, Schedule 7, paragraph 20, states that lack of funds or reliance upon a third party cannot be used as a reasonable excuse.

You should be wary of accepting as a reasonable excuse any of the following if they were offered as the only reason. But a combination of any of these may be serious enough in the circumstances of a particular case for you to accept them as a reasonable excuse.

  • ignorance of the basic law
  • oversight
  • misunderstanding
  • a claim of earlier notification with no evidence of attempt to pursue it further
  • no loss of tax
  • no intent to evade
  • the severity of a penalty.