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image of sparrow eating crumbs | accountingweb | HMRC pursues £248 SA late payment penalty
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HMRC went to tribunal over just £248 in penalties

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Pursuing late payment penalties of just £248 might not seem worth the expense. But HMRC decided chasing the crumbs was worth the effort – and ultimately recovered nothing for its trouble.

18th Jun 2024
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Should a taxpayer be penalised for doing exactly what they have been told to do by an HMRC notice? That was the seemingly straightforward question for the first tier tribunal (FTT) in Bezant vs HMRC [2024] UKFTT 400 (TC). 

The taxpayer, Gareth Bezant, was aware of the high-income child benefit charge (HICBC) but believed that it did not apply to him because his salary fell below the threshold. However, benefits in kind that he had received in the 2021/22 tax year meant that he had become liable to the HICBC without realising. 

HMRC was also late in realising, as it was not until 22 June 2023 that HMRC sent Bezant a notice to complete a tax return for the 2021/22 tax year (the paper notice).  That was 142 days after the tax for the 2021/22 tax year should have been paid. However, the notice stated: “You must make sure we receive your tax return and pay all the tax you owe for the 2021/22 tax year within three months of the date on this letter.”

Duly filed

In compliance with the terms of the notice, Bezant duly filed his return on 31 August 2023. Days later, on 5 September 2023, HMRC issued notices of a 30-day late penalty, for £124, and a six-month late payment penalty, also for £124.

The following day, Bezant appealed against the penalties to HMRC and, on 20 September, he paid the HICBC that was due under his self assessment. When HMRC upheld their decision to impose the late payment penalties, Bezant notified his appeal to the FTT, for just £248.

Do as I say

Schedule 56 of Finance Act 2009 provides for HMRC’s authority to impose late payment penalties where a taxpayer fails to pay tax by the date specified (in this case, 3 March 2023).  Paragraph 3 states that the penalty in such circumstances will be 5% of the unpaid tax and that, if the amount remains unpaid after a further five months, another penalty of 5% will be imposed. To impose a penalty, HMRC must satisfy the procedural conditions laid down in paragraph 11 of Schedule 56: HMRC must assess the penalty, notify the taxpayer and state in the notice the period in respect of which the penalty is assessed.

Bezant did not dispute that the tax for the year 2021/22 was due on 31 January, or that it was paid late. He also did not challenge that he had received the penalty notices which contained the necessary information. Therefore, the penalties had been validly assessed and issued. However, Bezant argued that, because he had complied with the notice that HMRC had sent, they should not levy penalties.

Erroneous wording

The FTT considered whether the wording of the paper notice provided a reasonable excuse for failing to pay. It concluded that the erroneous wording of the notice did not provide such an excuse, because he had received it several months after the January deadline had elapsed. It did not provide an explanation of why he had missed that deadline initially. The answer was that he had not known his income would incur a HICBC liability and had simply failed to notify HMRC of the necessary information. This alone could not amount to a reasonable excuse.

However, in such circumstances, HMRC has discretion under paragraph 9 of Schedule 56 to reduce any penalty if they think it right to do so because of the unusual circumstances. On appeal, the FTT has the power to substitute HMRC’s decision with another that HMRC had the power to make, including to exercise the same discretion under paragraph 9 if it considers that HMRC’s decision under paragraph 9 was flawed.

HMRC argued that there was no basis for a reduction in the 30-day late penalty, because the penalty date had already elapsed before the paper notice had been issued. The FTT disagreed. Both penalties had been issued on 5 September 2023, after Bezant had been told that penalties would be imposed only if he failed to file his return and pay within three months. Consequently, the FTT reduced the penalties to £0 and allowed Bezant’s appeal.

It’s the principle

This leaves one question unanswered: why did HMRC pursue Bezant for only £248? One would have thought that someone might have questioned whether this was a sensible use of HMRC’s notoriously stretched resources, given it must have incurred more than £248 in costs. It is to be hoped that HMRC might learn some lessons and reconsider its options in the future. Otherwise, it seems inevitable that HMRC will waste its own and taxpayers’ time on future litigation over crumbs, and ultimately recover nothing whatsoever.

Replies (24)

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By Justin Bryant
18th Jun 2024 17:15

I believe it's due to HMRC's very dumb and inflexible Litigation and Settlement Strategy.

Thanks (11)
Replying to Justin Bryant:
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By FactChecker
18th Jun 2024 22:11

I don't have the patience (at least tonight) to wade through it all, but I'm sure you're right that it's inflexible ... and unfortunately only dumb in the colloquial sense.

For those with a need to devour the detail, it starts at https://www.gov.uk/hmrc-internal-manuals/litigation-and-settlement-strategy

What's scandalous is not in itself the imbalance between what was sought and the costs/effort of chasing it (although it does indicate that the departmental brain-cell hadn't been plugged in recently) ... it's that I can count at least 5 distinct points at which they had the opportunity to step back from the brink and, with casual disdain, took none of those.

Thanks (8)
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By johnward
18th Jun 2024 20:24

If that client had an accountant to take this to FTT. It would cost more than £250 to pay the accountant so how any other sole practitioners how would you have dealt with this?

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Replying to johnward:
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By jonharris999
19th Jun 2024 07:29

It appears from the judgement that Mr Bezant represented himself. Nothing is said about costs, so presumably the normal rule would have been followed and Mr Bezant would have had to pay for his own train fare - I don't know where he lives, but you could easily drop £248 from many locations to get to London by 0900 these days - but in fact, it was a video call. I hope that if Mr Bezant works PAYE he does not try to claim a wfh allowance in respect of the hearing.

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Replying to jonharris999:
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By johnward
19th Jun 2024 12:11

I said "If" I didn't say he did.

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By OrmeGoat
19th Jun 2024 08:05

And despite this Harra is still given a knighthood.

Thanks (23)
Replying to OrmeGoat:
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By HMRC Escapee
19th Jun 2024 09:18

Alas the position of HMRC head always attracts a Knighthood/Dameship.

There are likely no individuals upon which the honour has been bestowed, that have actually earned it.

Thanks (3)
Replying to HMRC Escapee:
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By Simon_GNR
19th Jun 2024 10:11

"Gongs" for civil servants routinely come through with the pay and rations, so to speak. A knighthood is effectively part of the remuneration package for the head of HMRC. A civil servant of my acquaintance received an OBE for, it seems to me, doing nothing more than the job for which she was already receiving a good salary and DB pension entitlements.

Thanks (5)
Replying to OrmeGoat:
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By Rgab1947
19th Jun 2024 11:06

They should have given him a Lordship.

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By anneaccountant
19th Jun 2024 08:21

It is obviously this careful use of HMRC funds that helped Jim Harra get his knighthood.

Thanks (1)
Stepurhan
By stepurhan
19th Jun 2024 08:24

Where a taxpayer has wilfully avoided paying tax in a way that many other taxpayers do, I see the value in pursuing a small amount. That is because a small amount multiplied by a large number of people becomes an amount worth pursuing. A test case can be waved at other taxpayers with the view to collecting without having to resort to legal action for them all.

However, this doesn't appear to be that sort of case. HMRC need a department of common sense to stop things like this at an early stage.

Thanks (10)
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By hyper10
19th Jun 2024 08:25

Never underestimate the individual officers ego, I fell out with an officer on CT related to my company, he was rude and aggressive and I asked him to leave.
That started a chain of events whereby both my wife and me had personal aspect enquiries and eventually these schedule 36 notices.
The officer on the CT side had a linkdin page and his contacts showed less than 30 people but one of those was of the officer on our personal enquiry. I wrote to both officers and asked what was the likelihood of across the whole HMRC this happening. No reply except the schedule 36 notice.
I appealed and 2 weeks before the Tribunal date they were withdrawn, I then complained to HMRC but got the useful pointless reply.
Like any organisation there's good and bad I'm sure but many are very thin skinned bullies who actually enjoy the power

Thanks (15)
Dave Chaplin
By Dave Chaplin
19th Jun 2024 08:27

HMRC officers hands are sometimes unreasonably tied by the LSS, resulting in no other routes other than to adopt a prima-facie unreasonable path.

We need a Taxpayers Bill of Rights with a Statutory set of codes (partially codifying parts of the LSS), overseen by an independent Taxpayer Advocate.

Any review of existing powers needs to be done by a group wholly independent of HMRC, consisting a wide range of stakeholders, including lawyers and barristers.

Thanks (4)
Replying to davechaplin:
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By HMRC Escapee
19th Jun 2024 09:20

They need to follow their own strategy and allow Alternate Dispute Resolution wherever possible. I suspect they didn't offer this, assuming that the taxpayer would capitulate.

Perhaps it's time there were penalties for HMRC where they don't follow their own guidelines?

Thanks (2)
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By sammerchant
19th Jun 2024 08:55

Why did HMRC pursue a penalty of £248? All part of the strategy to get Harra a knighthood! Next, the House of Lords.

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By listerramjet
19th Jun 2024 09:08

In the real world this simple error could have been fixed without fuss. HMRC had the necessary information from employer returns. And as you say, the amounts were small. To busy pretending to be important?
But we should perhaps be challenging the absurdity of the HICBC. Pointless complexity in an already absurdly complex system.

Thanks (3)
Replying to listerramjet:
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By Mr J Andrews
19th Jun 2024 09:47

Agreed. Perpetual tinkering with complicated, ill thought out, vote pulling changes to the already creaking tax legislation will continue to detract from the proper Care, Management and Administration as originally inended by the Taxes Management Acts 1970..
Did a few A.W. contributors mention Harra ? Yes -incompetents in charge are the cause of such deterioration.
I think Charles was confused - believing he was awarding a night hood to stick over his shiny pate.

Thanks (1)
By SteveHa
19th Jun 2024 09:37

I've done it the other way around, and notified an appeal to the FTT in respect of a £100 penalty charged to a client.

It cost us way more (that we didn't charge to the client) to prepare and notify the appeal, but there was a principal to uphold.

In that case, HMRC caved before the hearing.

Thanks (3)
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By towat
19th Jun 2024 10:27

HMRC were obviously afraid that a precedent would be set, how many other taxpayers have been charged, and paid, a penalty in the same circumstances?

Thanks (1)
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By Rgab1947
19th Jun 2024 11:03

Give Harra a Lordship.

Thanks (1)
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By Mikesch
19th Jun 2024 15:16

HMRC learning its lesson?
*doubling over with laughter*

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By Silver Birch Accts
19th Jun 2024 19:44

Sir Jim of the Bath should tell us why slender resources were wasted.

Thanks (1)
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By Paul Crowley
20th Jun 2024 02:11

Yet another stupid tribunal decision
He paid late and did did not declare.
Why should he be treated more favourably than the honest taxpayer?

If we all appeal small penalties should the HMRC cave in to all of us?

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By Brw1
25th Jun 2024 09:29

No doubt Zahawi got tea and cakes.

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