When is paying your tax late excusable?

Paying your taxes is one of the most fundamental obligations you have as a citizen of any country. It goes without saying, then, that not paying your taxes will result in a penalty. In the case of the UK, the HMRC has been aligning penalties for most taxes ever since 2008. Among the regulations established was the fact that there was a “reasonable excuse” clause dedicated to late paid taxes. It’s not all clear cut, however – in 2017, the First-Tier Tribunal (FTT) turned down an appeal against penalty for late tax payment, commenting that the HMRC’s argument is wrong. How, then, can being late with tax payment be excused?

Lack of money – a reasonable excuse?

The case mentioned above occurred when NSF Unities didn’t pay its VAT on time, which prodded HMRC to charge a penalty, called a default surcharge. NSF decided to make an appeal, as they claimed to have a reasonable excuse – which, as mentioned earlier, by HMRC’s standards, should be reason enough to remove the penalty. The reason given was that HMRC owed NSF money due to excess CIS deductions. However, to that HMRC replied that NFS was in a position to make other arrangements to pay VAT. Additionally, according to  VAT rules, a lack of money is not a reasonable excuse. On the other hand, the Court of Appeal stated some years ago that it can play the part of a reasonable excuse, as long as there are extraordinary circumstances around that lack of money. It’s worth pointing out that in any other types of late payment penalty, a lack of money may also be an excuse under exceptional circumstances.

HMRC’s argument – why was it wrong?

In the end, the FTT ruled that NFS had to be penalised, but it wasn’t because of how HMRC argued their case. According to the HMRC, in order for the reason for not paying to be reasonable, it must be both unforseeable and inescapable. The courts, however, noted that the payment only has to be inescapable. This is the only criteria necessary for the excuse for paying late being reasonable. The NFS lost the case only due to the fact that they had no evidence to support the fact that the delay was unavoidable.

So what can you do?

In order to avoid any unpleasantness in the future, while the law is on your side as long you can support your claim that your delay was reasonable, it is always a good idea to let HMRC know as soon as possible that you might miss the deadline due to unavoidable circumstances. This gives you room for peaceful settlements and negotiations, such as instalment payments, which will help you avoid late payment penalties despite the fact that you cannot pay on time.