Which of the following can lead to a penalty being reduced to £nil?

Unexpected hospital stay is a valid reason that can lead a penalty being reduced to £nil. In tax practice, authorities often recognize that genuine circumstances beyond a taxpayer's control can impede compliance, especially when it comes to filing deadlines. An unexpected hospital stay represents a significant health-related event that would make it physically difficult or impossible to meet tax obligations on time. Tax authorities generally consider the personal circumstances of taxpayers, and in cases where medical emergencies are documented, the penalty may be waived or substantially reduced as a show of compassion and understanding.

On the other hand, lack of funds to pay taxes is typically not regarded as a valid excuse for falling behind on filing or payment. Tax obligations must be fulfilled regardless of the taxpayer's financial situation. Being late on filing taxes due to simple tardiness also doesn't qualify for penalty relief; it often indicates a lack of diligence rather than an unforeseen circumstance. Additionally, choosing not to file at all suggests a willful failure to comply with tax obligations, which is unlikely to be forgiven under any circumstances. Therefore, while unexpected hospital stays can demonstrate an inability to fulfill tax duties due to unforeseen circumstances, the other options do not reflect similar justifications that would lead to a penalty reduction.