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Daily penalties batted back

18th Jun 2013
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John Flood highlights the recent penalty co-decision of Morgan v HMRC and Donaldson v HMRC [2013] UKFTT 317 which has important implications for taxpayers fighting daily penalties raised under schedule 55 of the Finance Act 2009.

On 22 May 2013 the decision in this case turned on schedule 55 of the Finance Act 2009.

Schedule 55 imposes penalties for failure to render a return. If a deadline is not met then a fixed penalty of £100 becomes due. If the default continues for a further three months after the initial penalty date HMRC can impose a daily penalty of £10 and if it gives notice of this the penalty can be for up to 90 days from the date given in the notice. Other penalties arise for further defaults but are not discussed further.

Here Morgan accepted a fixed penalty of £100 but fought the daily penalties totalling £870. Donaldson appealed a £100 penalty, daily penalties totalling £900 and a £300 penalty for continued default.

HMRC has to “decide” whether to impose daily penalties. Given penalties were generated by a computer how could it be said that there was any decision properly made?

The tribunal considered evidence that prior to the implementation of the FA 2009 it had been decided at a senior level, and as a general policy, to impose daily penalties where there’s a default, and accordingly the HMRC computers were programmed to deal with this. To do otherwise would have meant up to a million individual decisions - a completely impractical exercise. The tribunal, by the chairman's casting vote, therefore found that there had been a HMRC decision which met the requirements of schedule 55.

As the material decision was before the act commenced, the tribunal relied on s13 Interpretation Act 1978. This allows for the use of anticipatory powers where it will assist in the implementation of an act.

To impose daily penalties HMRC must give a date from when they apply [para 4 (1) c Sch 55].

Here HMRC relied on a SA tax return and reminder which stated, “If we still haven’t received your online tax return by 30 April (31 January if you’re filing a paper one) a £10 daily penalty will be charged every day it remains outstanding. Daily penalties can be charged for a maximum of 90 days, starting from 1 February for paper tax returns or 1 May for online tax returns.” Second, HMRC relied on wording contained in the assessment for £100 penalty which indicated that HMRC could impose daily penalties from 1 February or 1 May.

Importantly, the tribunal felt the statutory requirement was not met. The documents merely indicated, that HMRC could impose daily penalties. Even applying a purposive construction the terms of either document were not clear enough to impose a penalty from a particular date. The fact that two dates were mentioned was not the point; the vagueness of the documents was their downfall. Accordingly the appeal on the daily penalties was allowed.

Given the importance of this decision and the regularity with which HMRC uses the procedure, we can expect to see further challenges by taxpayers and perhaps an appeal to the upper tier tribunal by HMRC.

John Flood is a retired barrister and was formerly a deputy head of specialist investigations at HMRC.


Replies (20)

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By Donald6000
24th Jun 2013 11:23

We can do what we like, er hum....

This latest mess is typical of the HMRC approach to things; rather than sort out an exact date from which penalties are due, which would mean an Inspector decision, here we are letting the HMRC computers decide the matter for us. No doubt the HMRC computer system has been erroneously programmed.


Can you imagine the perils of allowing a senior surgeon to say, in the case of the removal of an appendix "Well I will cut him from his throat down to his groin". It just would not be done and I fear that the HMRC just have this slipshod attitude to pretty well most things. What they do in HMRC is rely on the fact that they are servants of the Crown and play on the prerogative powers that this gives the officers. They don't worry about the law because they just simply think they are above it.


Its only in decisions like this or operations like this that we discover that in HMRC there are no rules. It's Vodafone all over again.  Tell you what, let's give them all knighthoods. Then they can be in good company with the bankers.

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By Mister E
24th Jun 2013 12:24

Apepal all daily penalties?

Does this mean based on this ruiling we can now appeal all daily penalties on the same basis?


Most of the ones I have come across will now be out of date but the 2011/12 late daily penalties are running and once confirmation of those received the 30 days appeal period will start.

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By The Rogue
24th Jun 2013 12:27


Of course, taxpayers could always file on time ...

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By Tom 7000
24th Jun 2013 13:43

Appeal all penalties?

WHat Mister E said above.


Should we now appeal them all?


Because I have a few clients that would cheer up.


On the other side if we dont appeal them...then we are negligent and the clients sue us?

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By User deleted
24th Jun 2013 14:47

I would always appeal ...

... and then get a review if necessary - takes moments and as Tom says, you have covered your behind. Whether to go to tribunal is another matter!

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By Tom 7000
24th Jun 2013 15:11


Well I dont usually appeal. Well not unless we sent the return in and have proof. If the clients  are buffoons and havent done it...whats the point. But now  I fear all must be appealed

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By GuestXXX
17th Mar 2015 15:56


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By carole.businessheads
26th Jun 2013 08:40

Good news!

Thanks to John for bringing this to our attention.

I've always thought the 'automatic' penalties were heinous.  We'll now be appealing everything until there is a decision that they stand.


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By nogammonsinanundoubledgame
26th Jun 2013 12:50

A temporary reprieve, methinks

All that will happen now is that HMRC will correct the wording of their warning notices so that they do not meet the deficiency noted by the tribunal.

Back to square one.

With kind regards

Clint Westwood

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Replying to Montrose:
By Mister E
27th Jun 2013 12:46

HMRC appeal

nogammonsinanundoubledgame wrote:

All that will happen now is that HMRC will correct the wording of their warning notices so that they do not meet the deficiency noted by the tribunal.

Back to square one.

With kind regards

Clint Westwood


Until then though send the appeals in (until HMRC appeal the decision and it gets overturned.....)

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Should Be Working ... not playing with the car
By should_be_working
28th Jun 2013 14:09

Worth a punt

I'm going to put an appeal in today on one - as said above it only takes a minute, and if you don't try...


Frankly the daily penalties system is wrong in principle. If someone is late with their return, then make a determination for last year plus x% - that usually gets them moving.

I mean, it's not as though the penalties are about raising extra revenue, rather than ensuring returns are filed on time is it? *innocent face*

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By JCresswellTax
03rd Jul 2013 11:35

mention this case

Just wondering, will you guys be quoting the above case, or just arguing on the basis that the legislation at [para 4 (1) c Sch 55]. ?

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By User deleted
03rd Jul 2013 12:57

The whole thing stinks ...

... that you get fined more for being late with a nil tax return than you do for mugging an old lady (often even before daily penalties).

They need to change it so that the penalties can be no more than the larger of £100 or the tax due.

A £900 penalty on a £300 tax bill is a higher penalty (as a %age) than if you were delibrately understating tax due on a return submitted on time.


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By school63
13th Jul 2013 13:25

On what grounds do you base the appeal.

I have just been approached by a client who was issued with SA from 3 years back that she had not submitted.

We have since submitted the returns, but off course she was hit with £1100 daily penalties.

If I am to put in appeal on her behalf, on what grounds will i base the appeal.

i would appreciate some help with the wording.

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By youngloch
15th Jul 2013 12:34

The wording I have used (tailor to individual circumstances):

Following seeing this article I have actually now submitted three letters of appeal along the following lines:

".....The appeal is further to the decision in the recent Morgan v HMRC and Donaldson v HMRC (2013) UKFTT 317 in regards to daily penalties raised under Schedule 55 of the Finance Act 2009.

We do not believe that a proper “decision” was communicated to our client that penalties of £10 per day would be levied against him.

To impose daily penalties HMRC must decide that a penalty should be payable (para 4 (1) b Sch 55) and also give a date from when they apply (para 4 (1) c Sch 55).

However, HMRC are, we believe, relying on a SA tax return and reminder which would have stated, “If we still haven’t received your online tax return by 30 April (31 January if you’re filing a paper one) a £10 daily penalty will be charged every day it remains outstanding. Daily penalties can be charged for a maximum of 90 days, starting from 1 February for paper tax returns or 1 May for online tax returns”.

As the tribunal mentioned above concluded, such wording is deemed vague and merely indicates that HMRC could impose penalties........"

We then elaborate further based upon specific client circumstances

I actually issued another appeal letter this morning stating the above and also adding in a handy quote HMRC provided me in a letter they sent us last week which advised that our client needed to file a 2012 return but no further returns would be required. The handy comment they made was: “You can file overdue tax returns online to minimise any late filing penalties that we might charge your client”.

Spot the handy word “might”.

I looked closely at the Sch 55 wording and included (over and above John's fantastic original post) para 4 (1) b . The full wording of Schedule 55 of the Finance Act 2009 paragraph 4 (1) is: (note that “P” is person):

“(1)P is liable to a penalty under this paragraph if (and only if):

(a)P's failure continues after the end of the period of 3 months beginning with the penalty date,

(b)HMRC decide that such a penalty should be payable, and

(c)HMRC give notice to P specifying the date from which the penalty is payable.”


Surely if HMRC are issuing letters saying they “might” charge penalties for a 2012 return where the return was issued on 6 April 2012 and the letter saying “might” is issued in July 2013 then you have to hope that this argument has some legs?Certainly if you don’t try then you won’t succeed and it goes down well with clients that you try (even if we don’t really want clients who get themselves into such situations!)

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By tazmaniandevil
30th Jul 2013 16:30

HMRC can't decide ...

Have submitted a small number of appeals.  The first response rec'd from HMRC states that HMRC has yet to decide their response to the FTT decision and therefore cannot respond to the appeal until such time as they make a decision! Penalty currently held over until further notice as is client's payment!

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By youngloch
30th Jul 2013 17:27

In the meantime then....

For now then we continue to put the appeals in as otherwise we risk finding that the FTT decision holds water and face the prospect of clients complaining that they were stuck with penalties because we didn't appeal............. I'm putting the 4th appeal in today actually - no responses from HMRC yet........ I am however being careful to make sure clients know the chances of success are likely to be slim although, as already mentioned, it will delay them chasing payment.

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06th Sep 2013 13:26

Appeal to Upper Tribunal/ Request for information

I see that the Appeals site has recorded a receipt of an appeal notice from HMRC in connection with a Keith Donaldson. I think it is the Keith Donaldson in the case discussed here. It was received on the 30 August. It is not clear whether the appeal, if it is the right Donaldson,  also involves the other case, though a success for HMRC in the one case would answer the issue in all cases.


Meanwhile I am sure readers would be interested  to learn if daily penalties in the context of the case still continue to be issued and secondly, whether HMRC have changed the wording of the notices the subject of the case.

John Flood

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By Rollingpinboy
31st Oct 2013 02:04

Late Filing Penalties and daily penalties
 Daily penalties appeal Posted by JCresswellTax PM | on Wed, 21/08/2013 - 16:07  711  10 comments

#edit-field-aa-comment-comp1 div{margin:0;}
 | report printMore social links Linkedin Google+ 

Has anyone had a response from HMRC regarding daily penalties, citing the recent tax cases shown on accounting web?

A few of us were going to try.  I have had not had a response in 6 weeks, was wondering if anyone had been successful?

inShare Post a comment» Stop receiving updates» Jump to the most recent comment 

-->Commentsive had a responseNed Ludd PM | Wed, 21/08/2013 - 16:14 | Permalink

literally opened this post today from hmrc.


word for word the relevant bit says:


"In your reasons for appealing you mentioned judgement in the First Tier Tribunal case of Donaldson & Morgan v HMRC.

Hm Revenue & Customs are still considering the judgement on this case and have not yet decided on further action.

Because of this I cannot consider your appeal yet. We will write to you again about your appeal when we have decided what action we will be taking following the judgement."



so no joy as of yet! 

replyquotethanks  report@nedThe Innkeeper PM | Wed, 21/08/2013 - 16:18 | Permalink

and I assume that the hounds will still try and collect !!

replyquotethanks  report6 weeks - pah ...Old Greying Acc... PM | Wed, 21/08/2013 - 16:30 | Permalink

I sent paperwork in for a tribunal hearing in January and have heard diddley squat.

I thought they had to respond in a certain time either accepting the appeal or denying it and informing you how to get the decision reviewed.

Looking at the HMRC site, I can't see this - you have 30 days to appeal, they have 45 days to review therir decision but I can't see anything saying how long they have to make their decision.

The appeal above was declined within 10 days!


replyquotethanks  reportAppeal to Tribunaljulian.sims PM | Wed, 21/08/2013 - 16:54 | Permalink

If @OldGreying.. has submitted paperwork notifying an appeal to the Tribunals Service (at Birmingham) in January and not heard anything from them, I suggest contacting them urgently to make sure it was received. 

You would normally have received a letter acknowledging the appeal and then one explaining the category to which the case had been allocated.  There are no specific time limits for the Tribunal to deal with the case in, but no communication after seven months looks like they did not receive.


replyquotethanks  reportThanks NedJCresswellTax PM | Thu, 22/08/2013 - 09:17 | Permalink

Wonder how long this will take to be resolved!

Re collection, we must be able to request HMRC suspend collection of these until the outcome of our appeal against them?

replyquotethanks  report@JCresswell TaxThe Innkeeper PM | Thu, 22/08/2013 - 09:29 | Permalink

I don't think that there is any mechanism (formally or otherwise to 'holdover' collection - not like in the good old days pre sa

replyquotethanks  reportfurther infoNed Ludd PM | Thu, 22/08/2013 - 11:23 | Permalink

innkeeper and jcresswell;


regarding the payment of the penalties in the meantime the letter says:


"until your appeal is settled, any penalties we have charged you are still due, even if they are shown as 'suspended' on tour statement of account. If you have not paid your penalties you should do this as soon as possible."


replyquotethanks  reportAppeal Deadline.colinx PM | Mon, 23/09/2013 - 12:12 | Permalink

Can anyone clarify the trigger point for appealing against the daily penalties.

HMRC issued a Notice of Penalty assessment on 14th August 2013 for £1200, which we appealed under "reasonable excuse" and also under proportionality. However HMRC are stating that our appeal is out of time as the appeal date is linked to the original £100 late filing notice as issued 22nd February 2013. This seems very unfair. How can you appeal daily penalties when you don't even know if they will arise. P.S we only took over as agent in April 2013 so did not see the original notice. We and the clients were aware the £100 late filing penalty would apply.


replyquotethanks  reportI appealed a similar noticeTime for change PM | Mon, 23/09/2013 - 14:23 | Permalink

from 14 August 2013.

How could you appeal against a penalty of £1,200, having no knowledge of it,until it was raised on that date?

It really does beggar belief how riddled with stupidity HMRC has become.

replyquotethanks  reportLate Filing Penalties and daily penaltiesRollingpinboy PM | Thu, 31/10/2013 - 01:31 | Permalink

I have a letter here from HMRC. 22/10/2013. I appealed against penalties this month (oct 2013) for year 2010-2011. My total penalties added up to around £1,300 of which they pinched £400+ which i was due in rebates, even though i was not liable for any tax owed which was Nil. Firstly, they have accepted my appeal and cancelled the penalty for my late tax return under Section 54 of the Taxes Management Act 1970. However, on the next page it states  the complete opposite regarding the Daily Penalties and that i still owe £500+, abeit that this has now been suspended from (22/10/2013) due to HMRC appealing a decision from the First Tier regarding Morgan and Donaldson V HMRC who won their case regarding this. HMRC state that it could take months and  if they win, interest will be added to my outstanding penalties. Interesting that they do this to the unemployed on JS allowance as well! They have also farmed this out to AKINIKA Debt Collectors, who have been on my back for the last 2-3 months. They wont except less that £70 per Month!!

Surely, if HMRC accept the appeal for the late filing penalty, then they should/must cancel the Daily Penalties thereafter! Common Sense really!...I Hope. Will let you know what happens...eventually. 

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By frankie3
14th Nov 2014 12:11

received today

My case- daily penalties appealed for 2012/13

HMRC reply today as follows   " do not agree that penalty notice was not properly given.... The notice of the date that a daily penalty would be charged from (under para 4 (1)(c) of sch 55 fa 2009)was given in the tax return reminder sent to you.... The case your agent mentioned is one where the tribunal decided that HMRC had not given sufficient notice of the date a daily penalty would be charged from. This case applied to penalties for the tax year 2010-11. HMRC does not accept the tribunals decision in this case and have appealed it. In addition and to put the point beyond any reasonable doubt, the annual tax return reminders for the 2012-13 tax year have been amended to give notice of the date that a daily penalty would be charged from.....I have treated your appeal as settled under (1) TCA1970"


Any other updates / thoughts on this since anyone?

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