CISR81020 - Compliance: Overview: Reasonable excuse

This guidance sets out what may or may not be accepted as being a ‘reasonable excuse’ when it comes to considering why returns or payments were not filed or paid on time, and why a customer may not have met their compliance obligations that has led to gross payment status not being granted or being withdrawn from them. It is anticipated that this instruction will be required when you are considering appeals made either by a customer against a penalty for the late filing of a contractor’s monthly return, or by a customer not being given, or having their gross payment status withdrawn.

TMA70/S118 (2)

The statutory reference covering ‘reasonable excuse’ is contained at TMA70/S118(2) and states:

... where a person had a reasonable excuse for not doing anything required to be done he shall be deemed not to have failed to do it unless the excuse ceased and, after the excuse ceased, he shall be deemed not to have failed to do it if he did it without unreasonable delay after the excuse had ceased.'

Statute does not define what a 'reasonable excuse' is. You should consider all claims on their merits. Honesty of purpose is a preliminary condition that a customer always needs to fulfil. You also need to take into account the circumstances of the person making the claim. You need to establish all the relevant facts:

• the circumstances which led to the failure to submit the payment or return on time,
• the extent to which appropriate preliminary work had been put in hand before the excuse prevented further progress,
• when the necessary steps were taken to remedy the failure after the excuse had ended.

The important point to remember is that the customer must have taken action without unreasonable delay to rectify the position in relation to their outstanding obligations as soon as the circumstances surrounding the ‘reasonable excuse’ have ceased to be present.

In most cases it is unlikely that illness, absence or domestic problems would persist at such a level throughout the period for making payments and delivering tax returns or contractor/employer returns for a customer. And even if the difficulties were at their worst at the crucial time towards the end of the due dates in respect of these obligations then the customer should still be able comply with their statutory duties within a reasonable time shortly after this.

For an illness to be treated as a reasonable excuse it must generally be so serious that it prevented the customer from dealing with their tax affairs before the deadline and from that date to the time the payment(s) or completed return(s) were actually sent in. Examples of such illnesses include:

• coma
• major heart attack
• stroke
• any serious mental or life-threatening illness.

If an illness involves a lengthy stay in hospital or convalescence the customer is expected to have made arrangements for completing and sending in any payments due, completing Self- Assessment (SA) or Company (COTAX) returns due, and completing contractor monthly returns (CIS300) due. But there may be reasons why this is not possible; you will therefore need to ascertain all the facts surrounding the ‘reasonable excuse’.

If the excuse is the serious illness of a close relative or partner, you may accept it as a reasonable excuse only if

• the situation took up a great deal of the customer’s time and attention during the period from the various deadlines to the date the payment or completed return(s) was sent in, and
  
  
• steps had already been taken to have the payment or return ready on time.

You should test excuses involving illness, absence or family problems but you should ask questions with sensitivity. Where possible you should consider talking with the customer directly. If you are still unsure whether the excuse is reasonable when you have all the facts, you should see CISR97030 and make a formal submission to the CIS Advisory Team. An excuse is reasonable only if some event beyond the customer’s control has prevented the payment or return from being sent in before the deadline

What can be a ‘Reasonable Excuse’?

The following examples are a guide to, but not an exhaustive list, of circumstances, which might amount to a reasonable excuse.

• the customer is a sole trader, or director of a ‘one man’ company, and has suffered a sudden and serious illness during the payment and filing dates, or has been affected by a prolonged and serious illness throughout this same period
  
  
• unavoidable and unexpected absence close to the payment and filing dates because of business commitments or domestic emergencies
  
  
• accidental destruction of the records through fire or flood.
  
  
• exceptional postal delays because of a strike by postal workers or other civil disturbance. On the first occasion that a customer claims that a return has gone astray accept their word, unless there is evidence in the file that throws real doubt upon the claim. On any subsequent occasion ask the customer to substantiate the claim. Accept it only if examination of the available information shows that the return was posted in time to be delivered by the filing date.
  
  
• although the appropriate return or payment has not been received from the customer, they claim nevertheless to have posted it in good time. Unless there is evidence to the contrary, such a claim should be accepted on the first occasion that it is made, provided that a further return or payment is then submitted promptly. In any subsequent claim to this the customer should be required to substantiate such a claim by evidence of posting of some kind
  
  
• sudden disruption to a business or its records by a break in
  
  
• installation of a new computer system or program for the payroll or accounting which has hit unexpected teething problems.

HMRC have, in the past, only accepted cash-flow problems as a reasonable excuse where the subcontractor could clearly demonstrate that this was due to the unexpected failure of one or more of his contractors’ businesses or sudden difficulty in arranging finance, where the general background was one of good compliance.

Where a subcontractor has missed a payment, or payments after 1 June 2008, and claims, as a reasonable excuse, that it was due to cash-flow problems, you can take a more sympathetic view where the subcontractor has some evidence of general financing difficulties, and has had a reasonably good payment record, prior to that date.

What is a not ‘Reasonable Excuse’?

It will not be a reasonable excuse to claim that:

• the failure is due to a dilatory agent,
  
  
• information relevant to the payment or return was not available by the due date,
  
  
• the affairs of the customer are too complicated to enable the payment or return to made on time,
  
  
• the customer is too busy running the business,
  
  
• in the case of a late return there is no intention of avoiding tax, or of deferring payment of tax,
  
  
• the customer is not liable to pay any tax for the period for which the return is required, or has overpaid tax,
  
  
• a payment is made in good time, but because there were insufficient funds in the account to honour the cheque, the cheque consequently ‘bounced’.

If doubts remain about the validity of the claims, you may offer an internal review of the matter (see ARTG4000), or alternatively the appellant may make an appeal direct to the Tribunal for a ruling on the matter.