IF THERE’S ONE thing the tax man loves more than collecting tax, it’s dishing out penalties. But where you have forgotten to file your tax return or have made a mistake giving rise to a HMRC penalty, and you or a family member were ill with coronavirus, you may have a get out clause via the ‘reasonable excuse’ route.

In today’s note we explain what reasonable excuses are and how coronavirus might fall into this category.

Generally, HMRC may allow an appeal against a penalty if the taxpayer has a ‘reasonable excuse’ for failing to comply with an obligation, i.e. you filed a return late or paid your tax late.

A ‘reasonable excuse’ is something that prevented a taxpayer from meeting a tax obligation despite the fact that they took reasonable care. HMRC usually take a hard line as regards what they constitute as a ‘reasonable excuse’; providing the following examples of ‘acceptable’ reasonable excuses:

• the taxpayer’s partner or another close relative died shortly before the tax return or payment deadline;
• an unexpected stay in hospital that prevented the taxpayer from dealing with their tax affairs;
• a life-threatening illness;
• the failure of a computer or software just before or while the taxpayer was preparing their tax return;
• service issues with HMRC;
• a fire, flood or theft which prevented the completion of a tax return;
• postal delays which could not have been predicted; or
• delays relating to a disability.

By contrast, HMRC cite the following example of excuses that they will not accept as a valid reason for failing to meet a tax obligation:

• relying on someone else to send the return and they failed to send it;
• a cheque or payment bounced due to insufficient funds;
• the taxpayer found HMRC’s online system too complicated;
• the taxpayer did not receive a reminder from HMRC; or
• the taxpayer made a mistake on their return.

Impact of coronavirus

HMRC have confirmed that they will consider coronavirus as a reasonable excuse. Where claiming this, the taxpayer should explain in their appeal how they were affected by coronavirus. As a rule of thumb, HMRC are more likely to accept it as a reasonable excuse where the virus led to one of the circumstances listed above as ‘acceptable reasonable excuses’. Thus, the contention that the taxpayer had a reasonable excuse for failing to meet a tax obligation would be strong if a partner or close relative (such as a parent) died of Coronavirus around the tax deadline, the taxpayer was seriously ill with the virus or was in hospital unexpectedly.

Where the taxpayer appeals on the grounds that they had a reasonable excuse for failing to file a return or pay a tax bill, they should file the return or pay the bill as soon as they are able after the reason for the reasonable excuse has been resolved.

If you have been hit with HMRC penalties or an HMRC enquiry, call our Specialist Tax Investigation Team on 0114 272 4984.