Penalty suspension – compliance with conditions

Les Howard
VAT Consultant
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I was surprised at the decision of one Tribunal to uphold a decision NOT to suspend a penalty, given that the nature of the errors was such that simple procedures might have been introduced to prevent them recurring.

The company was a wholesaler of promotional goods, it sourced some items from China, and was also registered for VAT in Germany. There was quite an involved back story of corporate problems, which seem to have contributed to poor accounting information.

The Directors of the company were frequently absent leaving day-to-day responsibility in with the in-house Accountant. It seems that pressure of work and ill-health led to significant errors on a number of VAT Returns, including incorrect recording of cross-border transactions. Errors were treated as ‘careless.’

During one of the VAT inspections, the Officer decided not to recommend that penalties should be suspended. He indicated that the Accountant was “not too bothered” about the errors, and he formed the opinion that she would not comply with any conditions put in place (paras 34, 40).

The Officer did not notify the company Directors of his decision, assuming the Accountant would do that. Further, the Accountant deleted relevant emails, destroyed correspondence about penalties, broke down VAT assessment and penalty payments so as to avoid suspicion, leaving the Directors ignorant of the VAT issues. The Accountant did not personally gain from this subterfuge.

There were several inter-related issues to be decided, but the one that attracted my attention was whether the penalty should have been suspended. The discussion on this issue is at paras 134 to 157 of the decision. An Appeal against HMRC’s decision not to suspend a penalty is only allowed if HMRC’s decision is “flawed.” Case law refers to the Wednesbury principle. A decision is flawed, or unreasonable when the decision maker must have taken account of some irrelevant matter, or not taken account of a relevant matter or his decision must be one which no reasonable decision maker could have taken.’ The decision of the Tribunal refers to a series of cases which develop the principle.

In my opinion the Officer gave too much weight to the Accountant’s “lax attitude to compliance.” He admitted that there were suitable suspension conditions, but chose not to apply them in this case. The Tribunal held that the o was justified in doing so. I disagree. The “lax attitude” of a company employee, albeit a senior one, should not have prevented the Officer suggesting appropriate conditions. The company could have declined to accept them.

The decision is here:

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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