With help from people here, I appealed a penalty assessment raised under s. 29 TMA. HMRC agreed there was a reasonable excuse for errors in taxpayer's 2009/10 return, and reduced the penalty to nil. Subsequently HMRC issued a surcharge under TMA Section 59C(2) for late payment of the same tax. According to CH404525 HMRC can't impose a penalty and a surcharge in respect of the same tax. HMRC argue that as the penalty was discharged it is free to impose the surcharge.
Am I being a pedant in thinking that a penalty that has been reduced to nil is still a penalty and is something different to a penalty that has been discharged? The way I see it, HMRC went down the penalty route and have agreed that the appropriate penalty is zero. I don't think they have actually withdrawn the penalty.