HMRC cancels 270,000 late penalty notices

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News of HMRC cancelling 270,000 late penalty notices in 2016 has been uncovered after a freedom of information request spurred on by a wrongly issued late tax return penalty.

Clifford Chance partner Dan Neidle, who specialises in UK finance and corporate tax, filed the freedom of information (FOI) request after he received a late filing notice at the end of January, despite submitting his self assessment tax return at the end of December.

The FOI revealed that due to taxpayers having a reasonable excuse HMRC withdrew 270,000 penalties in 2016, 610,000 in 2015 and 400,000 in 2014.

Speaking to AccountingWEB about the issue, Neidle criticised HMRC for not tracking the late penalty mistakes, and after the extent of incorrect late notices was revealed questioned whether there is an endemic problem with HMRC's systems.

“I was surprised at the number of successful appeals, given that quite a lot of people would just receive it, pay it and not make a fuss,” he said. “To have 400,000 successfully appeal two years ago seems a big number. You just wonder what is going on.”

Neidle told AccountingWEB that questions must now be asked about HMRC’s systems and why such late file notices are being incorrectly issued. “I think there must be a question as to whether there is an issue in the systems, whether it’s right to put out quite so many penalties on an automated basis and whether it is right that HMRC doesn't monitor whether in fact mistakes are made. How can HMRC possibly assess whether their systems are working if it doesn't monitor how many problems arise?”

The tax specialist pursued the freedom of information request as he hadn’t seen statistics on penalties issued in a while. However, HMRC didn’t actually have the figures Neidle requested, which was how many penalties were issued mistakenly, as it is not something the tax authority tracks.

“I was a bit disappointed that HMRC doesn't think it is important to monitor how many mistakes are made,” he said.

When the penalty was overturned by HMRC last month Neidle received an automated letter stating "if you file on time we won't charge penalties".

Email proof

In a similar case from March, AccountingWEB member MikeBrooks reported that he received a wrongly issued late filing penalty on the SA900 he submitted on 7 April 2017, and has HMRC’s email receipt as proof.

Deliberating his next steps on Any Answers Brooks said: “We’re reluctant to fill in SA370 Appeal form – it asks for “Other acceptable excuse” which implies we’re in the wrong and will doubtless put a black mark on our record.”

'We don't want penalties'

An HMRC spokesperson confirmed to AccountingWEB that hundreds of thousands of penalties are cancelled every year when taxpayers provide a reasonable excuse.

“We don’t want penalties, we just want tax returns,” said an HMRC spokesperson. "Taxpayers with a reasonable excuse for filing late or who have been taken out of SA do not have to pay penalties. Taxpayers who file on time are not issued with penalties.”

About Richard Hattersley

Richard Hattersley

Richard is AccountingWEB's practice correspondent. If you have any comments or suggestions for us get in touch.

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30th Apr 2018 10:54

Interestingly HMRC have not been doing too well in the tribunals recently re the late filing penalty cases below and one wonders if their systems are fit for purpose?

Inadequate evidence & HRA issues:
http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j10337/TC0...

Inadequate evidence allowing late appeal
http://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06427.html

Legislation misfiring:
http://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06339.html

Human decision needed:
http://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06317.html

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19th Apr 2018 13:36

I'm in the process of preparing an appeal for FTT for a fixed penalty for late CT600, having had an internal review.
I find it striking that, even on review, and despite my providing the correct legislative reference for the charging of the penalty in the first place (Sch 55), HMRC are using Sch 56 as their reason for "sticking to their guns", despite the fact the Sch 56 is not in point (no tax to pay).
This is not, of course, the grounds for appeal, but will be highlighted in my submission.

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By Supotco
19th Apr 2018 14:07

I have filed about ten appeals against penalties for late 2016/17 partnership returns. In all these cases, the partnership ceased during 2015/16 as was clearly noted on the return.

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to Supotco
20th Apr 2018 18:09

i was reduced to filing nil returns for 4 years for a partnership after cessation

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20th Apr 2018 10:19

One can only guess at the cost and time involved in appealing against wrong penalties! As if we did not have enough to do. I strongly believe if one does not have any tax to pay no penalties shoudl be imposed. Simple!
Given the mess the Revenue creates time and time again are they sure they want to proceed with MTD?

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20th Apr 2018 11:03

I seem to get less of these than many, even though I get my fair share of daft penalty notices. One thing that might explain why HMRC usually give up straight away is my proud history of pursuing Compensation Claim Cases with them over the years, with a few £000 having been paid out.

I commend this approach to anyone who feels that HMRC's incompetence in pursuing fines needlessly is taking the Mickey.

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20th Apr 2018 11:36

Yes there is something wrong with HMRC systems. I think it stems from too much automation with a lack of human intervention.
For the last three years I've submitted a return for a subbie and received the refund. Same subbie different UTR received penalties for not submitting. 3 years worth of letters explaining sending copies of submissions etc. Phone calls from myself and subbie to no avail. Letter from HMRC saying no need to do tax return followed by penalty letter. You can't make this stuff up. I'm not inclined to put an end to it purely for the "fun" factor that it has become.

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20th Apr 2018 12:46

I find the most frustrating thing about appealing late penalties isn't that you have to appeal, it's the inconsistency of HMRC's responses. I can appeal penalties for two clients on pretty much the same basis, the first one will be accepted by HMRC Minion 1 and then the second will be rejected by HMRC Minion 2.

It is this inconsistency with what HMRC views as a reasonable excuse which drives me mad, it completely depends on who at HMRC picks up the appeal.

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By Ajtms
20th Apr 2018 12:48

It appears that I have been beaten to it as only a couple of weeks ago did I make a Freedom of Information request to ask how many penalties were issued unlawfully. In the main I was referring to HMRC's unlawful penalties for SA900 returns lodged early. This is now the 6th year that they have been breaking the law by issuing £100 penalties to trustees who file electronically on time. I never appeal as it is HMRC's error and not my client's so instead HMRC get a written complaint from me every time and then when I get a pathetic reply saying an unmeant "sorry" I take it to Tier 2. I then took a number of cases to the Ombudsman, but she rejected my application as it was made in bulk and said I would have to resubmit each case to her on an individual basis. That is what I am now having to do. This time last year I got just £150 compensation out of HMRC which naturally did not cover my costs for the many trusts affected. This year it is going to have to be rather more.

With 270,000 unlawful penalty notices at £100 a time is this not Fraud on an enormous scale? and should we be making a money laundering report in accordance with our statutory obligations?

Also as taxpayers ourselves I think we need to be concerned as to how long HMRC spend dealing with each appeal and/or complaint about each penalty notice. Let's say it takes them 15 minutes to process each, that's 67,500 hours which is 1,928 weeks and with a 46 week working year that is 42 person years. At say a £25,000 salary, that is a cost to us of £1,050,000. Then there's the postage, one stamp for the unlawful penalty and one for the agent's copy and then at least one for the reply to the appeal / complaint. Allowing for business discounts on postage, that is still £1-50 a time multiplied by £270,000 is £405,000. So there it is HMRC have wasted £1,455,000 of our money. It is about time the cost of their mistakes were taken from their pay, just like ours is for us running our own businesses.

It is no wonder that HMRC are pushing for MTD so that they can get 5 fines a year rather than just one. However, we in the profession must keep the complaints flowing into HMRC until they get it right so staffing costs in their complaints department will escalate

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20th Apr 2018 13:05

Another approach which I have found closes down silly cases really quickly is to get personal quickly. Get the name and tax office address of the Case Worker.

Then follow up your next letter with a paragraph that "I consider any further letters on this matter other then closure and full refund to be a needless and incompetent waste of taxpayers' money on your part, Mr. / Mrs. X.

Should you fail to do so, my next letter will be a formal complaint, which will be copied to the head of your tax office, John Thompson, Philip Hammond and the Treasury Select Committee. It will identify you personally as being responsible for the incompetent waste of taxpayers' money."

The idea here is that HMRC people, like Home Office people, like to sit safely and annonymously on their backsides writing their nasty letters. This makes it crystal clear to them that this is not going to happen in this case.

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20th Apr 2018 13:46

Extract above
'We don't want penalties'
An HMRC spokesperson confirmed to AccountingWEB that hundreds of thousands of penalties are cancelled every year when taxpayers provide a reasonable excuse.

To be honest........ to be honest HMRC do cancel a lot of penalty notices, some have reasonable excuses...and some do not, always appeal.

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20th Apr 2018 13:59

If we get it wrong , an automatic slap of £100 is appropriate ; possibly increasing if our 'negligence' persists.
I do hope, if the Revenue get it wrong that practitioners are following my suit . Bill the client £100 for the additional work involved and present the receipted bill to HMRC to reimburse client for work created by their error, not to mention the anxiety and stress caused.
By my reckoning , that's £27,000,000 that HMRC should have shelled out for wrong penalty notices alone in 2016.
That's quite a hefty wage bill to engage a few more competent HMRC staff to obviate the blunders in the first place , rather than p###### it down the drain with call centre imbeciles.

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20th Apr 2018 15:38

Didn't HMRC adopt a policy a few years ago where if self-assessment returns weren't required other than for the fact that notices were issued, they would cancel the penalties? That may explain the 400K and in those circumstances I wouldn't hold it against them.

What does bug me is that HMRC insist on rigid deadlines for their customers but can take literally months to respond to routine correspondence.

Regarding automation, that's the only logical option with the inadequate staffing levels they work with. Trouble is that their skills in that field are grossly inadequate. We all have the MTD nightmare waiting in the wings...

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20th Apr 2018 16:07

I feel that our goverment is trying it on because majority of people would have paid. It has been going on since 2014. We have this week received late filing penalty for 2017, in fact the tax return was submitted in May 2017. A few penalties has arrived this week where the tax payers submitted their returns on time.

I believe HMRC is just being dishonest.

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20th Apr 2018 17:54

My client appealed a correctly charged late filing penalty for 2018, after deciding to file it themselves instead of me and then forgetting to file it. The appeal was successful.

Mind boggling.

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21st Apr 2018 21:17

Surely there should be a lot of high quality data on penalties etc, HMRC has a new unified data system. See https://hmrcdigital.blog.gov.uk/2016/10/06/the-hub-of-all-knowledge/

This must allow them to answer many more FOIs than in the past. Get asking folks!

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By djtax
26th Apr 2018 13:04

From many years experience it is clear that HMRC systems are riddled with weaknesses. I have tried to draw them to their attention - giving specific examples, often by way of formal complaint - but they do nothing to improve the situation. All you get is a bland reply claiming the case is 'not their usual standard of service' with no mention of any concern to see if it is illustrative of a wider problem. HMRC bosses seem to have no interest in constructive feedback any more.

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26th Apr 2018 14:06

Mr Neidle inthe article must have been very cross that the final letter after his appeal was wrong instead of saying we made a right mess and are very sorry; it will not happen again; instead had a letter saying he should get it right in future (even though of course he had got it right)

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