Late filing penalties and reasonable excuse
February is the month when HMRC issue most £100 penalty notices for late filing of self-assessment tax returns. For 2010/11 tax returns, the £100 fixed penalty is charged if HMRC have not received your tax return on time, even if you have no tax to pay or if you have already paid all the tax you owe.
Penalty notices are issued automatically, based on the system’s records of when your tax return was received. Errors do occur and you need to take action promptly if you think the penalty is not appropriate.
If you have not yet submitted your tax return, it is important that you do so as soon as possible. We strongly recommend that you file online as 3 months have passed since the filing deadline for paper returns, and penalties of £10 per day are now clocking up on late paper returns.
We have provided links below for easier navigation to the various issues we raise in this article
- If you receive a penalty notice for a late 2010/11 tax return but thought you had met the deadline, either because you submitted a paper tax return by 31 October 2011 or filed online by 02 February 2012 (an extension for this year only from the normal online filing deadline of 31 January), make sure you lodge a written appeal by 31 March 2012, or, if later within 30 days of the date of the penalty notice. Explain on the appeal form (Form SA355) how and when you filed your tax return.
- If you consider that you should not be in Self Assessment at all, you should contact HMRC by phone or letter. If HMRC agree that you do not need to submit a tax return, HMRC will cancel any penalty you have already incurred, and tax returns will not be issued to you in future. (See our article ‘Did you miss the Self Assessment deadline?')
- If you missed either the 31 October 2011 deadline for paper tax returns or the 02 February 2012 deadline for online returns, but have good reasons as to why you did not meet these deadlines, then you may be able to appeal against the penalty on the grounds that you had a ‘reasonable excuse.’ You should lodge an appeal within 30 days of the penalty notice, giving full details of your ‘reasonable excuse.’ For all penalty notices issued in February 2012, HMRC will accept appeals up until 31 March 2012.
The law allows people who have a reasonable excuse to be excused a penalty for submitting their tax return late, but the law does not provide a detailed definition of what constitutes a reasonable excuse.
The basic test is that you behaved as any reasonably responsible person would have done in the circumstances. This means that you were aware of the need to give time to preparing and submitting your tax return but, despite trying to meet your responsibilities, you were prevented by events or circumstances from meeting the deadline. It is important that you filed your tax return as soon afterwards as you were able to.
HMRC give guidance on their interpretation of reasonable excuse, including some examples, on their website: and also on Form SA355. HMRC will not consider whether you have a reasonable excuse until after you have submitted your tax return.
In the past HMRC have been reluctant to use their discretion in cases which did not fit within their published guidance, and frequently taxpayers have had to take their appeals to the tax tribunal for consideration. However, HMRC’s recent guidance as to their policy on SA penalties suggests that they wish to be more flexible in future in interpreting reasonable excuse.
The guidance says that they want to treat people fairly, and will use their utmost discretion to ensure that they are even-handed and treat people with sensitivity. HMRC say they propose to be as supportive and flexible as legislation permits. In particular, they say they will be sympathetic in exercising discretion where you are prevented by circumstances outside your control from filing on time.
The tax tribunals have heard numerous cases over the past few years, where people have appealed against HMRC’s refusal to agree that there was a reasonable excuse. The tax tribunals have shown a willingness to take an overall view of all the facts contributing to the delay and, where the individual circumstances justify it, to agree that there was a reasonable excuse. Tribunals are also willing to take account of delays by or misinformation from HMRC.
The following list indicates the type of reasons which may be accepted as a reasonable excuse, but it is not an exhaustive list and you should not be put off if your circumstances do not fit neatly into one of these categories. A combination of factors could have combined to make an overall reasonable excuse, rather than a single difficulty.
- Illness: you must have been ill at the time that you would have been preparing and submitting your tax return, and your illness must have prevented you from dealing with your tax affairs. It is advisable to have available medical evidence of your illness, such as a letter from a doctor or a copy of a sick note, in case this is asked for. HMRC cite serious illnesses such as 'coma, major heart attack, stroke or other serious or life threatening illness' but many other incapacitating health problems may prevent the reasonable person from submitting tax returns on time.
- Illness or death of a close relative or domestic partner: you will need to show that the illness or bereavement was the cause of the delay in submitting your tax return. You should be prepared to give details of the nature and timing of the relative’s illness or death, and how it impacted on you and your time.
- Problems with the post: it is possible that you posted the tax return but that it did not arrive at the tax office. HMRC guidance suggests that fire, flood or industrial action at the post office will be acceptable reasons but, if you posted the return in good time and it simply didn’t arrive, that too may be a reasonable excuse. The law deems a properly addressed and stamped item of post to have arrived in the ordinary course of post, unless the contrary is proved. If possible, produce evidence that you posted the return, such as a special delivery slip or a proof of posting certificate stamped by a Post Office. Otherwise, details of exactly where and when you posted the return may assist your case.
- Problems with on-line filing: HMRC guidance states that they do not want to penalise customers who have made a genuine attempt to file online before the deadline. If an activation PIN, replacement user ID or password were not received in time for filing by the deadline, this will be accepted as a reasonable excuse, provided the return was filed online very soon after receiving missing information. If an unsuccessful attempt is made to file online before the deadline, and a paper return is then filed, HMRC may well accept that you have a reasonable excuse. It will assist your case if you can provide details of the online error message and the date you attempted to file.
- Loss of records: HMRC guidance states that they will accept loss of records through fire, flood or theft as an excuse. A computer crash at a critical time is also likely to be an acceptable reason. You should be prepared to produce evidence of the loss or computer crash. In both cases you will need to show that you took steps to reconstruct your records as soon as practicable.
- Failure of an agent: HMRC guidance states that it will not normally be acceptable to rely on this an excuse, but there could be acceptable reasons why an agent failed to submit the return on time, including illness, or the death of the agent’s close relative or partner. If you have to pay a penalty because your agent failed in their duty, you may be able to claim the amount of the penalty from the agent.
- Pressure of work: HMRC guidance states that this will not normally be accepted as an excuse, unless the pressure of work occurred suddenly and was unexpected. Perhaps you were called abroad at the relevant time or your business partner died suddenly.
- Failure to understand the system or needing help: Whilst the general expectation is that you should understand the tax system yourself and comply with your obligations, HMRC should be sympathetic if you were struggling to deal with your tax affairs and needed to seek help from a voluntary organisation such as TaxAid or Tax Help for Older People.
- Disability: A progressive or fluctuating condition, affecting either your physical or mental capacity to comply with your tax affairs, should also be viewed sympathetically by HMRC when considering reasonable excuse. You should explain the situation to HMRC in writing with your appeal.
In all cases you should give information about the steps you took towards completing your tax return before the particular events arose and the steps you took afterwards to submit your return as soon as you were able.
Where a combination of different circumstances prevent timely filing, even though each individually might not be an adequate reason, viewed together the combined effect may amount to a reasonable excuse. In the past HMRC have placed undue emphasis on exceptional events and circumstances but tribunals have been prepared to uphold appeals where there are no exceptional circumstances.
The following are some of the points you should consider in determining whether you may have a reasonable excuse:
- Did you take steps to try to complete and submit your tax return on time?
- Were the circumstances or events which prevented you filing on time unexpected and outside your control?
- Did you send in your return as soon as possible afterwards?
- Would the ‘person next door’ agree that the penalty is unfair or unjust in your particular circumstances?
If the answer to all of these questions is yes, then you should appeal against the penalty. And even if you aren’t entirely sure if you meet all of the above, it may still be worth a letter of appeal to HMRC describing why you were late with the return. They may take a sympathetic view of your situation and, even if you do not have a reasonable excuse, they could consider using their ‘special reduction’ provisions to reduce or waive the penalty.
- Send in your written appeal against the penalty by 31 March 2012, or, if later, within 30 days of the date of the penalty notice. Explain clearly the grounds for your appeal, giving all the relevant factual details. As Form SA355 says, “state exactly what happened and when.”
- If you have not yet submitted your tax return, it is important that you do this as soon as possible. At this stage we recommend online filing because of the daily penalties for paper returns.
- If you have provided sufficient relevant information, it is to be hoped that HMRC will agree that you have a reasonable excuse for the late filing, and the penalty will be cancelled. However, if you are dissatisfied with the response, you should consider asking for your case to be internally reviewed by HMRC. (You can appeal directly to the Tribunal, but you might as well ask for HMRC to review their decision first.)
- If you remain dissatisfied after HMRC’s internal review, you can ask for your appeal against the penalty to be formally reviewed by the Tribunal. (You can see how the appeal system works by looking at our section on tax appeals.)
Contact: Robin Williamson (please use form at http://www.litrg.org.uk/ContactUs)