Challenging tax penalties: Reasonableness

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When HMRC were formed in 2005, they inherited a vast patchwork of penalty provisions relating to the various taxes previously administered by the Inland Revenue and Customs & Excise. 

In 2007 they embarked on a programme to establish a unified system of penalties across the tax system. The main pillars of this system are penalties for: 

  • Inaccuracy in a document (Schedule 24, FA 2007)
  • Failure to notify HMRC of a liability (Schedule 42, FA 2008)
  • Failure to make a return on time (Schedule 55, FA 2009)
  •  Failure to pay on time (Schedule 56, FA 2009)

The provisions on inaccuracy in a document establish...

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24th May 2013 15:49

Remedying failure to notify

"We are also told that where the taxpayer has discovered a careless error, .., the taxpayer will still have a defence if he remedies the error or failure within a reasonable time thereafter"

Could you point me to where this is in the legislation please?


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29th May 2013 11:40



I am not sure of the nature of the error you seek help upon and therefore cover both inaccuracies and failure to notify mistakes.


I think what you may be after is paragraph 3 (2) of Schedule 24 Of The Finance Act 2007. 

If an inaccuracy is in a document is submitted to HMRC which was originally not careless or deliberate and a taxpayer discovers the error then the error is treated as careless unless the taxpayer takes reasonable steps to inform HMRC of the error. If steps to inform are reasonable taken then this prevents a penalty from arising.

You however say that the error was a careless error. If this is in fact the case then the taxpayer may make an unprompted disclosure to HMRC and provided 

full assistance and help is given by way of a disclosure this likely to result in a minimum penalty being imposed.( Sch 24 generally FA 2007). The penalty can be reduced to nil.

I would however look carefully the nature of the mistake. HMRC have indicated they do not expect perfection. Was this a difficult area legally?  What was the level of skill of the taxpayer.. Was there an understandable cause for confusion.? These are just some of the questions to be asked.

These comments are based on a useful note published by HMRC "Compliance Check Series. Penalties for inaccuracies in returns and documents" which you can find by entering the above in the search box on the HMRC web site.

Failure to notify 

This covered in Schedule 41 of the Finance Act 2008.. As above ,if the taxpayer takes the initiative and makes an unprompted disclosure and provides full assistance then the penalty can be reduced to nil. You must consider whether there is a reasonable excuse for the error. This includes such matter as as difficult area of law, misled by HMRC advice, misled by agent's advice and reasonable care taken otherwise, illness causing errors in the completion of documents which would have not otherwise occurred. (George's later articles will give a taste of the way the Tribunal works in these areas)

Sometimes errors with a failure to notify will give rise to other errors. The relevant Fiance Act require adjustment in the overall penalties so that there is no doubling up for the same misconduct.

John Flood.


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25th May 2013 10:24

Failure to submit returns

I am currently dealing with a client who failed to submit returns over many years. The root cause was partially illness. HMRC have cancelled the earlier penalties but 2010/11 he was suffering from severe depression and as many of us do he threw himself into work. HMRC have said they want the penalties to stand because even though he was ill he was still able to work. I would welcome input from other colleagues on this delicate situation

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29th May 2013 12:05

Illness Cases :HMRC and the Tribunal

Dear Colleague

Obviously you must decide what advice to finally give but I hope it helps to highlight the attitude usually shown by HMRC and the Tribunal in cases of illness.

Both HMRC and the Tribunal  seem to be helpful when dealing with this area and sometimes are generous in the time given to the taxpayer to correct a difficult situation. I note that HMRC have cancelled the earlier penalties and this can be viewed as a very good result. The Tribunal have shown they are sensitive  to difficulties but in terms of cases of long term arrangement expect alternative arrangements to be made. That HMRC have not raised this has resulted in a situation of benefit to your client.

In relation to the last year I can see things have changed. To your client's credit he has returned to work and I feel a Tribunal would expect that the question of returns should have been picked up. If,notwithstanding the return to work, the illness genuinely caused ongoing difficulties which meant the returns were not dealt with I anticipate that the Tribunal would say that alternative arrangement should have been made if the matter proceeded as a contested issue.

I hope this assists.


John Flood

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28th May 2013 11:19

Careless whispers


According to

'If an inaccuracy by a person (P) was neither careless nor deliberate at the time the document was sent to [HMRC], it will be treated as careless if P

discovers the inaccuracy at some later time, anddoes not take reasonable steps to inform [HMRC].

That echoes Para 3(2) Para 24 FA 2007, and it seems reasonable enough.  I think that what you're getting at is that there is no way to expunge completely an error that is careless or worse (unless someone out there knows better) simply by informing HMRC quickly.  So the article seems to be marginally inaccurate to that extent.


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28th May 2013 12:40

Thank Andrew

Oh well, it did seem to be too good to be true...


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10th Jun 2013 14:06

New Business Wizard - unless HMRC wants to rely on penalties ?

It would help if the various bodies/webistes would help the end-user by prompting for automatic registrations, thereby avoiding penalties for "faikure to notify" etc.

Example: new company; new VAT registration - "do you want to register a new business .... PAYE scheme ... employee ..." etc.

Also/instead the websites could show a checklist for new businesses, letting them make applications for all necessary items at the same time - kind of "New Business Wizard" by analogy with desktop software setup.

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