Penalties

Reasonable excuse

A new penalties regime has applied from 1 January 2023 to the late submission and late payment of VAT returns. Under this regime, a taxpayer may not be liable to a penalty if they can establish a reasonable excuse for lateness, which was remedied without unreasonable delay. 

Reasonable excuse does not generally include lack of funds, or reliance on another person unless the taxpayer took reasonable care. In this case, the First-tier Tribunal (FTT) held that the taxpayer had a reasonable excuse: she had taken reasonable care to avoid the failings of her bookkeepers, and HMRC, and had rectified the failings without unreasonable delay when the excuse ceased. The FTT also considered that there were “special circumstances”, in particular HMRC’s incorrect advice, that would enable HMRC to reduce the amount of the late payment penalties. 

The FTT accordingly held that HMRC’s decision not to reduce the penalties to zero by virtue of the special circumstances was flawed “in the judicial review sense”, and reduced them to zero.

Sandra Krywald v HMRC [2024] UKFTT 895 

From the Weekly VAT News dated 21 October 2024, published by Deloitte