Commentary

A4.568E Reasonable excuse—insufficiency of funds and cashflow difficulties

Administration and compliance

A4.568E Reasonable excuse—insufficiency of funds and cashflow difficulties

A4.568E Reasonable excuse—insufficiency of funds and cashflow difficulties

In relation to failure to notify, failure to make a return and failure to pay on time, insufficiency of funds is not a reasonable excuse unless it is attributable to events outside the taxpayer's control1.

Insufficiency of funds does not arise in the context of inaccuracy in a document and hence is not mentioned in the penalty provisions relating to that area.

Case law on insufficiency of funds as a reasonable excuse

The principles applicable in this area were set out by the Court of Appeal in Steptoe2. The case concerned surcharges under the then operative penalty regime for late payment of VAT. The relevant statute stated that insufficiency of funds could not amount to a reasonable excuse. Nonetheless, at first instance the tribunal accepted that Mr Steptoe, who was an electrical contractor working almost exclusively for a borough council, had a reasonable excuse by virtue of the council's persistent late payment of his invoices.

The majority of the Court of Appeal held that the statute did not prevent the tribunal from considering the underlying cause of the insufficiency of funds. They also held that the underlying cause of the insufficiency was not restricted to unforeseeable or inescapable events. If the exercise of reasonable foresight and due diligence and a proper regard for the fact that the tax would become due on a particular date would not have avoided the insufficiency of funds, then the taxpayer might well have a reasonable excuse for non-payment.

However, that

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