V5.335 Reasonable excuse

A person is not liable to most civil penalties if he can demonstrate to HMRC or, on appeal, a tribunal, that there was a “reasonable excuse” for the conduct concerned1. The test has been put in the following terms2

“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?”

HMRC's compliance handbook (CH555800) was quoted with approval by the Upper Tribunal3 in relation to default surcharge. It states that a person may have a reasonable excuse for failing to pay on time when the failure resulted from a shortage of funds which “occurred despite the person exercising reasonable foresight and due diligence, having given proper regard to their tax due date obligations.”

There is no defence of “reasonable excuse”, however, in relation to conduct involving dishonesty (see V5.341, V5.357), a penalty described in V5.345 (although there are other means by which such a penalty may be reduced) or in relation to a penalty under VATA 1994 Sch 12 para 10 (failure to comply with a direction or summons issued by a VAT tribunal – see V5.391).

It is a question of law in the first instance whether the reasons put forward are capable of amounting to a reasonable excuse for the person's conduct. It

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