Guidance on Revenue Scotland’s Discretionary Powers for Penalty Reductions and Excuses

Revenue Scotland’s discretion to reduce tax penalties

Revenue Scotland can sometimes cancel or reduce a tax penalty, but only in limited cases. The three main routes are reasonable excuse, special circumstances, and disclosure. These are separate legal tests, and the outcome depends on the facts, the relevant legislation, and the more detailed guidance rather than the overview page alone.

• Revenue Scotland’s penalty rules are not always automatic, and a penalty may be reduced or disapplied in some cases.
• The three recognised routes are reasonable excuse, special circumstances, and reduction for disclosure.
• Reasonable excuse usually looks at whether the failure happened for a legally acceptable reason, so the penalty may not apply at all.
• Special circumstances focus on unusual features of the case that could make the normal penalty unfair or inappropriate.
• Disclosure looks at whether the taxpayer told Revenue Scotland about the problem, how complete the disclosure was, and when it was made.
• The overview guidance is only a signpost, so each case must be checked against the specific penalty rules and detailed guidance.

Scroll down for the full analysis.

Revenue Scotland’s discretionary powers over penalties

This page explains the limited circumstances in which Revenue Scotland may reduce or disapply a tax penalty using its discretionary powers. The source material is only an overview page, but it points to three important areas: reasonable excuse, special circumstances, and disclosure. These matter because a penalty is not always fixed in practice. In some cases, the law allows Revenue Scotland to take account of what happened and reduce the amount charged.

What this rule is about

Penalty rules in the Scottish tax system do not operate in a completely mechanical way. Although a penalty may arise under the legislation, there are situations where Revenue Scotland has a power to decide that the full penalty should not apply, or should be reduced.

The overview page identifies three routes by which this may happen:

• where the taxpayer had a reasonable excuse
• where there are special circumstances
• where a reduction is justified because of disclosure

These are different concepts. They should not be treated as interchangeable. Each one addresses a different question about why the penalty arose and whether it should be reduced.

What the official source says

The official source is an overview of Revenue Scotland guidance on discretionary powers in relation to penalties. It directs readers to three separate guidance pages:

• RSTP3022: Reasonable excuse
• RSTP3023: Reduction of a penalty for special circumstances
• RSTP3024: Reduction of a penalty for disclosure

The overview itself does not set out the detailed legal tests. Its main function is to show that Revenue Scotland recognises three distinct bases on which a penalty position may be reconsidered.

That means the page is best understood as a signpost rather than a full statement of the law. The detailed effect depends on the underlying legislation and the more specific guidance referred to.

What this means in practice

If a penalty has been charged, or may be charged, the key practical point is that the amount may not be the end of the matter. A taxpayer or adviser should consider whether one of these three routes is relevant.

A reasonable excuse argument usually goes to whether the penalty should apply at all, because the failure happened despite a genuine and acceptable reason.

Special circumstances are different. This usually concerns whether something unusual about the case makes the normal penalty result unfair or inappropriate.

Disclosure is different again. This concerns whether the taxpayer’s own conduct in revealing the issue can justify a reduction in the penalty.

In practice, this means that when reviewing a penalty, you should not just ask, “Was the tax return wrong?” or “Was there a late filing?” You should also ask:

• Was there a legally recognised excuse for the failure?
• Is there anything unusual about the facts that could justify a reduction?
• Did the taxpayer disclose the problem in a way that could reduce the penalty?

These questions can be relevant in Scottish devolved taxes such as LBTT and SLfT where the Revenue Scotland and Tax Powers Act framework applies.

How to analyse it

A sensible way to approach a penalty case is to separate the analysis into stages.

First, identify exactly what penalty is in point. Different penalties may have different statutory rules, and the extent of any reduction power may depend on the legislation behind that penalty.

Second, consider reasonable excuse. Ask what caused the failure, when the problem arose, whether it was outside the taxpayer’s control, and what the taxpayer did once the problem ended. The issue is not simply whether the taxpayer had a difficult time. The question is whether the facts meet the legal standard for a reasonable excuse.

Third, consider special circumstances. Ask whether there is anything out of the ordinary that means the standard penalty outcome would not properly reflect the case. This is usually a narrow and fact-sensitive area.

Fourth, consider disclosure. Ask whether the taxpayer came forward with information about the failure, how complete that disclosure was, and whether it happened before or after official intervention. The detail matters because not every admission has the same effect.

Fifth, keep the categories separate. A weak reasonable excuse argument does not automatically become a special circumstances case, and disclosure does not necessarily prove reasonable excuse.

Example

This is only an illustration of how the framework works.

A taxpayer incurs a penalty connected with a devolved tax filing failure. On review, three different arguments might be considered:

• If the failure happened because of an event that may amount to a reasonable excuse, the taxpayer may argue that the penalty should not apply.
• If the case involves unusual facts that make the standard penalty outcome disproportionate, the taxpayer may ask Revenue Scotland to consider special circumstances.
• If the taxpayer identified the problem and informed Revenue Scotland fully, that disclosure may support a reduction even if the penalty is not cancelled altogether.

The correct outcome depends on the detailed rules for the penalty and the facts of the case. The overview page does not itself resolve those details.

Why this can be difficult in practice

The main difficulty is that the overview page is very brief. It tells you that discretionary powers exist, but not how far they go in any particular case.

There are also important legal distinctions hidden behind short labels:

• “Reasonable excuse” is a legal standard, not a general fairness test.
• “Special circumstances” does not mean any sympathetic fact.
• “Disclosure” does not automatically remove a penalty; it may only reduce it, depending on the rules.

Another difficulty is that discretionary powers do not replace the legislation. The legislation creates the penalty framework. Guidance helps explain how Revenue Scotland approaches its powers, but the statutory rules remain central.

So the real task is to match the facts to the correct legal route, rather than making a general plea for leniency.

Key takeaways

• Revenue Scotland recognises three main discretionary routes in penalty cases: reasonable excuse, special circumstances, and disclosure.
• These are separate concepts and should be analysed separately.
• The overview page is only a signpost, so the detailed result depends on the underlying legislation and the specific guidance for each route.

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Useful article? You may find it helpful to read the original guidance here: Guidance on Revenue Scotland’s Discretionary Powers for Penalty Reductions and Excuses

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