Under Schedule 55, Paragraph 23 of the Finance Act 2009 (FA 2009), a taxpayer is not liable for a late filing penalty if they satisfy HMRC, or the relevant Tribunal on appeal, that a reasonable excuse exists for the failure to make a return.
The Finance Act 2026 (FA 2026) reinforces and updates the core statutory boundaries of this defence. Section 175 of FA 2026 explicitly mandates that:
- An insufficiency of funds does not constitute a reasonable excuse unless it is attributable to events entirely outside the person’s control.
- Relying on a third party (such as an agent or accountant) is not a reasonable excuse unless the taxpayer took reasonable care to avoid the failure.
- Reliance on legal advice automatically fails to constitute a reasonable excuse if the advice relied upon inaccurate facts or reached unreasonable conclusions.
The Objective Legal Test
Statute does not strictly define “reasonable excuse”. Instead, the tribunals apply an objective test established in The Clean Car Co Ltd [1991] BVC 568.
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?
When determining appeals, the First-tier Tribunal applies the structured four-step approach set out by the Upper Tribunal in Perrin v HMRC [2018] UKUT 156 (TCC):
- Establish the facts the taxpayer asserts give rise to the excuse.
- Decide which of those facts are proven on the balance of probabilities.
- Decide whether, viewed objectively, those proven facts amount to an objectively reasonable excuse.
- Decide whether the taxpayer remedied the failure without unreasonable delay after the excuse ceased.
What Constitutes a Reasonable Excuse?
HMRC considers a reasonable excuse to be an unexpected or unusual event that prevents a person from meeting a tax obligation despite having taken reasonable care. Each case turns on its unique facts, but HMRC’s Compliance Handbook outlines clear precedents for acceptable and unacceptable reasons.
Table: HMRC’s Application of Reasonable Excuse
| Category | Generally Accepted Excuses | Unacceptable Excuses |
|---|---|---|
| Personal Circumstances | Death of a partner or close relative; sudden and serious physical/mental illness; unexpected hospital stays. | General pressure of work; affairs being “too difficult” or complicated. |
| Third-Party Failures | HMRC online service failures (must provide error codes/dates). | Routine failure by an agent (unless the taxpayer proves they took reasonable care). |
| External Events | Fire, flood, or theft resulting in the accidental destruction of tax records; exceptional postal strikes. | Normal, unexceptional postal delays; routine cash flow problems. |
Remedying the Failure
Establishing the excuse is only part of the defence. If a taxpayer had a reasonable excuse, but that excuse has subsequently ceased, the law treats the taxpayer as continuing to have the excuse only if they remedy the failure without unreasonable delay.
Taxpayers must submit the outstanding return as soon as reasonably possible after the disruptive event (such as a hospital stay or IT failure) concludes. Failure to act promptly once the impediment is removed will invalidate the reasonable excuse defence for the entirety of the default period.
Consider reviewing the specific evidence required by HMRC when claiming exceptional postal delays or online service outages to ensure clients retain appropriate documentation prior to appealing penalties.
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