I've had a couple of appeals along these lines accepted but they did have other circumstances too.
I now have a sub contractor who started self employed income in Feb 17 but failed to file the 2016/17 return until he came to me to complete the 2017/18 and therefore it was only filed in the last month. He now has penalties of £1300 despite there being no tax due and a refund of the CIS tax deducted of nearly £600.
I've put in an appeal which has been declined but is it worth requesting a review on the decision along the lines of the penalty being excessive compared to the tax due. Ultimately it is the clients fault as he would have received the notice to file but I would like to give it a try.
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When was the return issued?
Did he receive it and just stick his head in the sand?
You'll likely be on a hiding to nothing
I've had penalties overturned in a similar situation by writing a letter with a bit of a sob story and asking for discretion but I always advise clients that there are no grounds for appeal and it's just a hit and hope effort, HMRC are perfectly entitled to refuse and I imagine they usually will.
There usually has to be more of a reason than your client has, even if it still falls short of reasonable grounds for appeal.
The penalties are not tax-geared, so the fact that the penalty exceeds the tax due will not, by itself, give you a defence.