For an overview of the concept of reasonable excuse, see A4.568. In relation to failure to notify, failure to make a return and failure to pay on time, insufficiency of funds is not a reasonable excuse unless it is attributable to events outside the taxpayer's control1.
Insufficiency of funds does not arise in the context of inaccuracy in a document and hence is not mentioned in the penalty provisions relating to that area.
Where lack of funds is a reason why a taxpayer fails to file a return on time, this can be viewed as deliberately withholding information, exposing the taxpayer, after 12 month's delay, to much higher penalties 2.
Case law on insufficiency of funds as a reasonable excuse
The principles applicable in this area were set out by the Court of Appeal in Steptoe3. The case concerned surcharges under the then operative penalty regime for late payment of VAT. The relevant statute stated that insufficiency of funds could not amount to a reasonable excuse. Nonetheless, at first
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