Tax is not a secret!
Anyone who runs a business knows that they have to pay tax. This includes VAT (if the company is registered), Corporation Tax (for limited companies), PAYE for businesses with staff and, of course, personal tax.
You'd need to be going around with blinkers and earmuffs on if you haven't twigged that tax is an inevitable responsibility. But tax deadlines still come and go - and some businesses haven't got their tax returns organised. The result is penalties applied by HMRC for missing a well-publicised deadline.
Exceptional circumstances
There are exceptions to every rule, but you need to know what HMRC is willing to consider as a 'reasonable excuse'.
Before we dig into this, let's be quite clear - this is not a list of ways to wriggle out of your tax obligations. This is to help people who have a genuine reason for not delivering their tax return (and the payment) on time.
HMRC have recently updated their guidance on this and this is based on a four step process (established by precedent).
- Find out what the taxpayer believes to be a reasonable excuse
- Decide if the facts and evidence provided support their case
- Assess whether their case is reasonable - and what timeframe the circumstances they describe actually cover (beginning and end dates)
- Review the promptness of their action once the end date has passed.
It's worth noting that the reasonable excuse can be a series of events; it doesn't have to be a single situation. The HMRC guidance says 'It is necessary to consider what a reasonable person with the same experience and attributes as the taxpayer, who wanted to meet their obligation, would have done in the same circumstances'.
What is reasonable?
The list of reasonable excuses includes:
Mental health: If the taxpayer is suffering from mental health problems and is unable to function as they usually would, this may be considered reasonable.
Physical health: If the person responsible for organising the tax return is so ill that they are unable to make the return on time, that may be accepted as a good reason. With so many people with severe illnesses resulting from the recent pandemic, that may constitute an excuse. However, that is also a good reason to prepare tax returns well ahead of the final deadline, as that would avoid last minute illness causing the deadline to be missed.
Ignorance of the law: This will be tougher to prove, simply because you have a responsibility, when running a business, to learn about your obligations. However, there may be some mitigating circumstances.
Reliance on another person: If you've delegated the task of preparing, submitting and paying the tax returns to someone else - an accountant, bookkeeper or a member of staff - and they have failed to carry out the task, that may be considered reasonable providing the taxpayer hasn't simply abdicated all responsibility, but has followed up and done all they can to enable the work to be done on time.
These are brief summaries - and there is much more detail to be found in the HMRC Compliance Handbook. It's not a 'one-size-fits-all' situation, HMRC assesses each case on its individual facts. If you're the taxpayer you'll need to convince them you're taken reasonable care to pay your tax on time.