Jurisdiction(s):
United Kingdom

Key definition

Penalty definition

What does Penalty mean? In contract practice, a penalty (or penalty clause) is a term that, on breach, requires the defaulting party to pay money or suffer another detriment aimed at deterring non‑performance rather than providing a proportionate, pre‑agreed remedy. Across England & Wales, Scotland and Northern Ireland, the penalty rule is case law (not statutory), developed in Dunlop and refined in Cavendish v Makdessi/ParkingEye. A clause is penal and unenforceable if it imposes a detriment out of all proportion to the innocent party’s legitimate interest in performance or enforcement. The assessment is one of substance, not label, and is not limited to payments: forfeiture...

Reasonable excuse for late-paid tax: HMRC guidance, statutory framework and key FTT/UT/Court of Appeal decisions

Published by a LexisNexis Tax expert

Practice notes

Reasonable excuse

A taxpayer is not charged a penalty for late payment of tax where they can demonstrate a reasonable excuse for failing to comply with the legislation. For fuller guidance on late payment penalties—and specific updates for sole traders and landlords who will be required to use Making Tax Digital for Income Tax—see Practice Notes: Late payment penalties—income tax, capital gains tax and corporation tax; and Late payment penalties—PAYE, NICs and construction industry scheme. As legislation does not define reasonable excuse, its scope is continually reassessed by the courts and must be judged with regard to all the circumstances of the particular case. Historically, HMRC adopted a strict stance on what amounted to a reasonable excuse for the late filing of a tax return or the late payment of tax. During HMRC’s review of the implementation of powers introduced since 2012, stakeholders voiced concerns that the approach to penalties could sometimes be heavy-handed and that HMRC’s consideration of reasonable excuse might, in certain instances, have been applied inconsistently...

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Web page updated on 21/05/2026

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