SAM10090 - Appeals, postponements and reviews: appeals: reasonable excuse
As explained in SAM61290, a customer can appeal against any late filing penalty on the grounds that they had a reasonable excuse for the late submission of the return, a late payment penalty, or a surcharge (for tax years 2009-2010 and earlier), on the basis that they had a reasonable excuse for late payment.
For a late filing penalty, you should consider whether the customer had a reasonable excuse at the date the relevant penalty arose. For example, for an appeal against an assessment to daily penalties, you should consider whether the customer had a reasonable excuse at the date when daily penalties first became payable.
A late payment penalty is not imposed until the balancing or final payment for the year is more than 30 days overdue. Therefore, even if there were problems on or around the due date, the customer should have been able to make arrangements to pay before the trigger date for the first late payment penalty (see SAM61380).
Surcharge (for tax years 2009-2010 and earlier) is not imposed until the balancing or final payment for the year is more than 28 days overdue. Therefore, even if there were problems on or around the due date. the taxpayer should have been able to make arrangements to pay before the surcharge date.
There is no definition in law of ‘reasonable excuse’ but the law does specify two situations that are not reasonable excuse: 1) A shortage of funds and 2) Reliance on another person.
A reasonable excuse is normally an unexpected or unusual event, either unforeseeable or beyond the customer’s control, which prevents him from complying with an obligation when he would otherwise have done. A combination of unexpected and unforeseeable events may, when viewed together, be a reasonable excuse. Once a reasonable excuse has ended, the customer must submit the outstanding return or make payment without unreasonable delay. Further guidance on reasonable excuse can be found in the Compliance Handbook (CH155600).
You must consider each case by reference to the particular circumstances in which the failure occurred and the particular circumstances and abilities of the customer. What is a reasonable excuse for one person’s circumstances may not be a reasonable excuse for another person in different circumstances.
You should not agree reasonable excuse where the customer was able to manage the rest of his business and personal affairs and pay other bills during that period. It is not possible to give a comprehensive list of what might be a reasonable excuse. However, the following examples identify circumstances where you might agree reasonable excuse and circumstances where you should not agree reasonable excuse.
Examples of what you might agree as grounds of reasonable excuse
Examples of what you should not agree as grounds of reasonable excuse
Reasonable excuse for late partnership returns
Disability
Applying reasonable excuse at the date penalty arose (for tax years 2010-2011 onwards)
Special reduction (for tax years 2010-2011 onwards)
Examples of what you might agree as grounds of reasonable excuse
Note: These examples are not model answers, nor are they to be viewed as the ‘correct’ response in situations that appear similar. Each reasonable excuse case is unique and must be considered on its own facts.
The customer did not receive the return
Where you are satisfied that the customer did not receive the return, for example it has been sent back as undelivered or the completed return was lost or delayed in the post.
The customer is expected to allow sufficient time for the return to reach you. However if the return was posted in good time and an unforeseen event occurred which disrupted the normal post service and led to loss or delay of the return, for example fire or flood at the Post Office where the return was handled or prolonged industrial action by the Post Office, would be considered reasonable excuse.
An extended period of exceptionally severe weather very close to the filing deadline
For example, this may prevent a taxpayer who has taken appropriate steps to ensure their return is completed and submitted by the deadline, from giving written authority to their agent to finalise and submit the return on their behalf, so the taxpayer no longer has the time, or opportunity, to make an alternative arrangement.
You may agree extreme weather conditions prevented the taxpayer from filing their return on time.
Loss of tax records
You should normally agree as a reasonable excuse loss of records through fire, flood or theft, although you should be satisfied that the information for completion of the return could not be replaced in time for the customer to complete the return by the due date.
Serious illness
The illness must be so serious that it prevented the customer from controlling his business affairs immediately before the deadline and from that date to the time the completed return is received. Coma, heart attack, stroke or any other serious or life threatening illness constitutes a reasonable excuse.
Where the illness involves a lengthy stay in hospital or convalescence the customer should normally have made arrangements for completing and sending in the tax return on time. There may however be circumstances where this was not possible.
The serious illness of a close relative or domestic partner should only be accepted if the situation took up a great deal of the customer’s time and attention during the period from the filing date to the date the return is received.
Bereavement
The death of a close relative or domestic partner shortly before the filing date should be treated as a reasonable excuse, as long as steps had already been taken to complete the return on time.
Members of Armed Forces on active service overseas
Accept reasonable excuse claims from members of the armed forces on active service overseas who are unable to file by the deadline.
Duplicate return
Where the customer states the return was sent in under a different UTR and the record confirms this, accept as a reasonable excuse.
HMRC Online Service does not accept the return
Accept as a reasonable excuse if a paper return is filed after the filing date because
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- The customer or agent was unable to file using SA Online
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- Provides either the error message or details of the error message
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- The date they tried to file the return online and realised that it could not be filed online
HMRC does not want to penalise customers who have made a genuine attempt to file online before the deadline. You should therefore consider sympathetically on its merits a reasonable excuse claim without details of the appropriate error message.
Do not accept under this heading a claim that the failure to file on time was caused by the lack of free HMRC software (see below under ‘Examples of what you should not agree as a reasonable excuse’).
Delayed receipt of online activation codes (PINs)
Accept as a reasonable excuse if the customer registered to use the online service before the filing date but did not receive their activation PIN in time to file by the deadline, provided that they filed online as soon as possible once they received their activation PIN.
Delayed receipt of a replacement ID, new password or replacement activation code
Accept as reasonable excuse if the customer applied for a replacement User ID, password or activation code before the deadline, and filed their return without delay once they received the missing details. If application for this information was made after the deadline, reasonable excuse is not acceptable.
Payment lost in the post
Where a claim that the payment has been lost in the post or lost by HMRC is made you should ask the customer to produce evidence that an attempt to pay by the due date was made. If there was a fire or flood at the Post Office where the cheque was handled this should be classed as a reasonable excuse. However, you should also consider how soon payment was made once the customer became aware that the original cheque had been lost. The customer should have taken prompt steps to send a replacement.
Payment dishonoured
If the payment was dishonoured solely because of an error by the bank, you should accept this as a reasonable excuse. However the customer would be expected to have acted promptly in sending a replacement on becoming aware of the error.
Examples of what you should not agree as grounds of reasonable excuse
Tax return too difficult
The customer should have taken early steps to contact HMRC or a tax adviser for assistance in order to complete the return by the due date.
Tax return not sent in
Non submission of the return should not in itself be treated as a reasonable excuse. The same event that prevented the taxpayer from paying on time may however have also prevented the tax return from being filed on time. Each case should be considered on its own facts.
Pressure of work
The time given for completion of a return is considered to be sufficient to allow the customer to arrange his affairs to ensure that the return is completed by the due date and that payment is made on time.
Failure by tax agent
Failure by agent would not normally be treated as a reasonable excuse. It is the responsibility of the customer to ensure that his return is completed and delivered on time and that payment is made on time.
Lack of information
Where the customer is unable to obtain all the information needed to complete the return, the guidance issued with the return states that estimated information and an explanation in the additional information space should be submitted.
Not knowing how much to pay
This is not a reasonable excuse. The customer should submit his tax return in sufficient time to allow for a calculation or statement of account to be issued before the due date. The tax return guidance tells the customer that where a statement of account is not received an estimate of the amount due should be paid.
Shortage of funds
The taxpayer is expected to have kept money aside to pay his tax bill when it is due. The legislation states that not having the money to pay is not a reasonable excuse.
Cheque made out incorrectly
It is the taxpayer’s responsibility to make sure that the cheque is made out correctly.
Absence of HMRC reminders
Normally reminders are issued before the return due date but lack of receipt of a reminder should not be treated as a reasonable excuse. The tax return itself shows the due date and it is the customer’s responsibility to ensure that the return is received by that date. Likewise, the tax return guidance shows the due date for payment and it is the customers responsibility to pay on time.
Lack of free HMRC software
HMRC is not obliged to provide free software to enable customers to file their returns online. Free HMRC software only covers the personal tax return and certain supplementary pages.
Customers who need to complete other supplementary pages or who file other returns online, for example the Trust and Estates Tax Return or the Partnership Tax Return, need to use commercial software.
Do not accept as a reasonable excuse any claim that the customer failed to file on time because HMRC did not make available free software appropriate to their circumstances.
Reasonable excuse for late partnership returns
The nominated partner is responsible for sending HMRC the partnership return. If the return is not sent to HMRC on time, the nominated partner may have a reasonable excuse for the return being late. The circumstances of the other partners are not normally relevant but you should consider the facts of each case on its own merits.
Disability
Ordinarily, the existence of a disability will not, on its own, present a barrier to customers in meeting their tax obligations. However if a customer claims that they have not been able to comply with a tax requirement because of a disability, you should fully consider how the effects of any disabling condition could have prevented them from complying with that obligation.
Every failure should be considered on its own facts. We would not usually accept the same reasonable excuse on more than one occasion. This is because we would expect any customer who knows he will find it difficult to meet a requirement because of an existing disability, to make every reasonable effort to anticipate this and make alternative arrangements. If a customer is subject to an irregularly fluctuating condition which they know might recur, you should consider whether or not there are reasonable contingency measures they could plan in the event their condition recurs, to try to ensure they comply with their obligations.
The following scenarios are examples used to help you understand the factors to consider when making a decision about reasonable excuse.
Scenario 1
Mr A is blind. He is unable to use the HMRC website and so decides to submit his SA return on paper. He asks an agent to compile and submit the return for him, but, before the filing date, the agent is taken ill. He returns the paperwork to Mr A shortly before the filing date, but as he is blind, Mr A is unable to complete the return himself and has no opportunity to make alternative arrangements before the filing date. He immediately arranges for another person to complete and submit his return by 14 November.
He receives a £100 filing penalty but it is cancelled on appeal because we accept that he had a reasonable excuse for missing the deadline date and had remedied the failure without delay.
We would not accept that every blind person who fails to submit his return by the due date has a reasonable excuse. In this case, the customer had taken steps to comply with his obligation but circumstances outside his control left it too late for him to make alternative arrangements and his disability prevented him from doing it himself.
Scenario 2
Mr X is an unrepresented self-employed builder without any family. He is diagnosed with a post-traumatic stress disorder in July 2011. He has to stop working and is incapable of taking any decisions. He is therefore unable to complete his returns and calculate the tax due for 2010-11 on 31 January 2012 or to appoint an agent. Following treatment, he is able to return to work in May 2012. He completes his tax return in May and pays the remaining tax due shortly thereafter.
Having received medical evidence of his condition, weaccept that the customer has a reasonable excuse. No penalties are due as he fulfils his tax obligations after the excuse has ceased.
Applying reasonable excuse at the date penalty arose (for tax years 2010-2011 onwards)
A customer who does not have a reasonable excuse for failing to submit their return by the filing date will have to pay the initial fixed £100 late filing penalty unless (exceptionally) they are eligible for ‘special reduction’. However, the same customer may have a reasonable excuse for not submitting the return by the date that a subsequent penalty arises. Circumstances including serious illness, bereavement, disruption to the postal service and issues with HMRC Online Service may prevent the customer from filing their return in time to avoid a later penalty.
Example 1
Ms B did not have a reasonable excuse for failing to file her 2010-11 return by 31 January 2012 and has paid the £100 fixed penalty. To avoid having to pay daily penalties of £10 a day from 1 May 2012, she registered to use the online service on 27 April and received her activation PIN on 4 May. She filed her return online on 6 May. You can accept that Ms B had a reasonable excuse which she remedied without unreasonable delay and that no daily penalties arise.
Example 2
Mr Y did not have a reasonable excuse for failing to file his 2010-11 return by 31 January 2012 and has been charged the fixed penalty, daily penalties and the first tax-geared late filing penalty. It is now December 2012 and his return is 11 months late. He engages an accountant to prepare his return so he can submit an online return before the 12 month tax-geared penalty applies on 1 February 2013. He has an appointment with his accountant to sign off his return on 29 January. However, on the day of the appointment his wife is taken seriously ill and is rushed to hospital. He has to cancel the appointment and is unable to authorise his accountant to submit the return until early February. You can accept that Mr Y had a reasonable excuse which he remedied without unreasonable delay and that the 12 month tax-geared penalty does not arise.
Special reduction (for tax years 2010-2011 onwards)
HMRC has discretion to reduce a penalty because of special circumstances. This discretion can only be considered if there was no reasonable excuse for the failure to file on time. You should consider ‘special reduction’ if you decide not to allow the appeal. For guidance on special reduction, see CH170000.
