HMRC issued over 11 million late filing and late payment penalties last year. Many are legally challengeable. If you have a genuine reason for missing a deadline or underpaying tax, the reasonable excuse defence can cancel the penalty entirely – but it has to be argued correctly.
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What is a reasonable excuse?
A reasonable excuse is a genuine, objectively justifiable reason why a taxpayer failed to comply with a tax obligation on time. If HMRC accepts that you had a reasonable excuse, it must cancel any penalty that arose from that failure.
The defence is available for most of HMRC’s automatic penalty regimes, including:
- Late filing penalties for self-assessment returns (Schedule 55, Finance Act 2009)
- Late payment penalties for income tax, capital gains tax and corporation tax (Schedule 56, Finance Act 2009)
- Late filing and payment penalties for VAT returns (Schedule 24, Finance Act 2007; the new VAT penalty regime from January 2023)
- PAYE late payment penalties
- Penalties for failure to notify HMRC of a new taxable activity
Critically, “reasonable excuse” is not defined anywhere in tax legislation. Parliament has deliberately left it as a flexible standard, to be determined on the facts of each individual case.
The legal test
The leading test was set out by Judge Medd in The Clean Car Company Ltd v CCE [1991] VATTR 234 and has been consistently applied by tribunals ever since:
This objective formulation has two important consequences. First, the fact that you genuinely believed you were complying is not, by itself, enough. Second, the test is not the standard of a perfect taxpayer with unlimited knowledge; it is the standard of a reasonable person in the same circumstances who genuinely wanted to comply.
The Upper Tribunal in Perrin v HMRC [2018] UKUT 156 (TCC) confirmed the correct approach in four steps:
- What obligation was the taxpayer required to fulfil and when?
- Did the taxpayer fulfil that obligation?
- If not, did the taxpayer have a reasonable excuse throughout the period of default?
- If there was a reasonable excuse, did the taxpayer remedy the failure without unreasonable delay once the excuse ceased?
Failing any of those four steps means the penalty stands. The most commonly overlooked is step 4: even a genuine excuse will not save you if you then took months to comply once the obstacle was removed.
Circumstances HMRC accepts
The following types of circumstances have been accepted as reasonable excuses by HMRC or the First-tier and Upper Tribunals:
Serious illness or disability
A sudden, serious or debilitating illness affecting the taxpayer directly or requiring the taxpayer to act as carer for a close family member, can amount to a reasonable excuse. The illness must be of a severity that genuinely prevented compliance; minor illnesses generally do not qualify. Mental health conditions are increasingly recognised, particularly where supported by medical evidence.
Bereavement
The death of a close family member or business partner in the period leading up to the deadline has been accepted in numerous cases. “Close” is interpreted flexibly: spouses, parents, children and close business partners have all qualified. The bereavement must have caused the failure; incidental family deaths some time before the deadline are unlikely to succeed.
HMRC’s own failures
Where HMRC gave you incorrect information or failed to send the relevant notice, it would be perverse to hold that you had no reasonable excuse. HMRC’s own published guidance (CH71500) acknowledges this. Examples include HMRC’s online portal being unavailable on the filing deadline or HMRC sending correspondence to an incorrect address despite being notified of the change.
Technical failure of HMRC’s systems
Documented outages of HMRC’s online filing systems on or close to the filing deadline are a well-established reasonable excuse. HMRC maintains logs of system outages and evidence of an outage on the day you attempted to file is compelling.
Theft, fire or natural disaster
The destruction or theft of records by events outside the taxpayer’s control has been accepted. The key is that the event was genuinely beyond the taxpayer’s control and directly caused the failure to comply.
Reasonable reliance on a professional
This is addressed separately below, as it is one of the most frequently argued and most nuanced grounds.
Circumstances HMRC rejects
The following are explicitly or consistently rejected as reasonable excuses:
Ignorance of the law or the obligation
Not knowing about a filing obligation is not a reasonable excuse. The law is assumed to be known. This applies even to relatively new or complex obligations, such as the requirement to notify HMRC of a new taxable activity or to register for Making Tax Digital.
Lack of funds
An inability to pay the tax is not a reasonable excuse for failing to file the return or pay on time. The two obligations are separate. You may be able to agree a time to pay arrangement, but this is distinct from reasonable excuse.
Pressure of work
Being busy is not a reasonable excuse. Even where the taxpayer can demonstrate significant business pressures, this does not generally meet the objective standard of a reasonable person who wanted to comply. The test is not whether you had time, but whether a reasonable person in your position could have made time.
A third party failed to act, without excuse
Statute provides that if a taxpayer relies on another person, that other person’s failure to act is not a reasonable excuse for the taxpayer unless the other person had a reasonable excuse for their failure (Schedule 55, paragraph 23(2)(b), Finance Act 2009). So if you relied on your bookkeeper to file and they simply forgot, you do not automatically have a reasonable excuse.
Unfamiliarity with online filing
This was rejected almost universally after 2012. Online filing has been mandatory for many taxes for well over a decade and claiming unfamiliarity is generally not accepted.
Reliance on a professional adviser
This is a nuanced area. Relying on a professional adviser (accountant, tax adviser, solicitor) can constitute a reasonable excuse, but only where specific conditions are met. The leading case is Rowland v HMRC [2006] STC (SCD) 536, confirmed in Perrin and many subsequent tribunal decisions.
Adviser reliance is most likely to succeed where:
- You provided the adviser with accurate and complete information
- You reasonably believed the adviser had the expertise to handle the matter
- You took reasonable steps to ensure the work was being done (this does not require active chasing if there was no reason for concern)
- The adviser then made an error that was genuinely outside your knowledge and control
It is most likely to fail where:
- You knew or should have known the adviser was not acting
- You provided incomplete or inaccurate information to the adviser
- You did not provide the information in time for the adviser to act
- The mistake was something you could reasonably have spotted (for example, a return you signed without reading)
Acting promptly once the excuse ceased
Even if HMRC or the Tribunal accepts that you had a reasonable excuse throughout the period of default, the penalty will not be cancelled if you then failed to comply without unreasonable delay once the excuse no longer applied.
The statutory formulation (Schedule 55, paragraph 23(1)) requires that the failure be remedied “without unreasonable delay” after the excuse ceases. If, for example, you claim your excuse was a three-week illness in January and the tribunal accepts this, but you then failed to file your return until June, the penalty for the period after your recovery is unlikely to be cancelled.
Practical guidance:
- File or pay as soon as the obstacle is removed, not at the next convenient moment
- If the obstacle continued for an extended period, document when it ceased as clearly as you document when it began
- Where an adviser takes over after a personal crisis, ensure they act immediately
Special reduction: an alternative route
Where a reasonable excuse does not fully apply, there is a separate discretion for HMRC (and the Tribunal on appeal) to reduce a penalty by reason of “special circumstances” (Schedule 55, paragraph 16; Schedule 24, paragraph 11). This is a distinct test from reasonable excuse: it requires circumstances that are out of the ordinary to a sufficient degree to justify a reduction.
HMRC’s guidance states that special circumstances must be “exceptional, abnormal or unusual.” Examples where reductions have been granted include:
- A sequence of unforeseeable events, each individually insufficient to amount to a reasonable excuse, that combined to cause the failure
- Cases involving genuine mistakes of exceptional complexity, where the taxpayer sought advice but the advice was wrong in a non-obvious way
- Where the tax at stake is genuinely nil (no tax due) and imposition of the full penalty would be disproportionate
Special reduction does not cancel the penalty; it reduces it. However, it is a useful fallback argument to run alongside a primary reasonable excuse case.
How to raise a reasonable excuse appeal
Reasonable excuse must be raised formally as part of an appeal against the penalty. The process is:
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Notice of appeal to HMRC
You have 30 days from the date of the penalty notice to appeal to HMRC in writing. The notice should set out the grounds, including the reasonable excuse, in as much detail as possible. Supporting evidence should be attached (medical letters, death certificates, correspondence, IT failure logs, etc.).
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HMRC review
HMRC will review the appeal and issue a view of the matter. They may accept the grounds and cancel the penalty, uphold the penalty in full or suggest a compromise. The review is carried out by a different officer from the one who raised the penalty.
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Statutory review (optional)
If HMRC upholds the penalty, you may request a statutory review by HMRC’s Review Team within 30 days of the view of the matter. This is an independent review within HMRC. It is optional; you can proceed directly to tribunal if you prefer.
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Appeal to the First-tier Tribunal
If HMRC’s review does not resolve the matter, you may appeal to the First-tier Tribunal (Tax Chamber). The appeal must be lodged within 30 days of the review decision (or, if you did not request a review, within 30 days of HMRC’s view of the matter).
Going to the Tax Tribunal
The First-tier Tribunal (Tax Chamber) hears reasonable excuse appeals as a factual matter. It is not bound by HMRC’s initial assessment of the excuse; it forms its own view on all the evidence.
Key points for tribunal appeals:
- Burden of proof: The taxpayer must establish on the balance of probabilities that they had a reasonable excuse. HMRC does not bear the burden of disproving it.
- Evidence: Documentary evidence is critical: medical records, death certificates, correspondence with advisers, IT error messages, bank statements showing financial pressure (if relevant to inability-to-file, not inability-to-pay). Witness statements are also important.
- Proportionality and Article 6: Tax penalties engage Article 6 of the European Convention on Human Rights (Jussila v Finland [2009] ECHR). This means HMRC’s decision-making process must be procedurally fair, the taxpayer must have a genuine opportunity to challenge the penalty and proportionality can be raised as part of the Tribunal’s assessment.
- Costs: The First-tier Tribunal does not generally award costs in tax cases, so the financial risk of proceeding is primarily your own legal representation fees rather than any risk of paying HMRC’s costs.
Upper Tribunal appeals are possible on a point of law only. Most reasonable excuse cases turn on facts, so Upper Tribunal appeal is relatively uncommon.
Late appeals: the Martland test
If you miss the 30-day deadline to appeal to HMRC or the subsequent deadline to appeal to the Tribunal, you will need the Tribunal’s permission to bring a late appeal. The framework for this was set out in Martland v HMRC [2018] UKUT 178 (TCC), which established a structured approach: the Tribunal considers the length of the delay, the reason for it and the merits of the underlying appeal. The Court of Appeal confirmed in HMRC v Medpro Healthcare Ltd [2026] EWCA Civ 14 that the Martland guidance is binding on the First-tier Tribunal and cannot be displaced simply because the relevant statutory provision gives an “unfettered” discretion. In practice, this means that even if your underlying reasonable excuse case is strong, a significant unexplained delay in bringing the appeal can result in it being refused.
The new MTD penalty regime: what is changing
The penalty landscape for income tax self-assessment is changing significantly as taxpayers are brought into Making Tax Digital (MTD). The new points-based late submission and percentage-based late payment penalty regime (Finance Act 2021) is replacing the existing regimes for those within MTD as follows:
- From 6 April 2026: those with business or property turnover above £50,000
- From 6 April 2027: those with turnover above £30,000
- From 6 April 2028: sole traders and landlords with qualifying income above £20,000
Under the new regime, late submission penalties are replaced with an accumulating points system. Late payment penalties follow a new structure: 3% of tax outstanding at day 15, a further 3% at day 30 and 10% per annum on the balance from day 31 (rates as uplifted by Spring Statement 2025). The reasonable excuse defence continues to apply under the new regime, though the precise mechanics of how it interacts with the points-based system are still being bedded in. Taxpayers who voluntarily joined MTD from 6 April 2024 are already subject to this regime.
How we help
Reasonable excuse arguments succeed or fail on how they are framed. The same facts can be presented compellingly or poorly. Our team reviews the circumstances of each penalty, identifies the strongest grounds available, drafts the appeal letter and, where necessary, prepares the case for Tribunal.
We also identify cases where special reduction applies alongside or instead of reasonable excuse, where multiple penalties arise from a single underlying cause and where HMRC has imposed a penalty incorrectly in the first place (which is more common than might be expected).
If you have received an HMRC penalty that you believe is unjust, contact us for a confidential review before the 30-day appeal window closes.