Avoiding penalties

You may have suffered a penalty from HMRC due to late filing of a tax form, and no doubt you will have felt aggrieved but at the same time realised that ordinarily there is little or no scope to get the penalty reduced or withdrawn.

A brave taxpayer took on HMRC recently and won!  It involved an employer who received a penalty notice of £400 for failure to file the employer annual returns by the due date, with the penalty being £100 per month for 4 months. Later on a further penalty notice for £100 was issued after the returns were properly filed, so overall the taxman wanted £500.

The company thought that it did not need to file the returns because its sole employee had left in the tax year.

They accepted that view was incorrect but complained that had HMRC been quicker to tell them of the error it would have been rectified far earlier with the result that the penalties would have been less. The Tax Tribunal decided that the penalty should be reduced to £100 and made the following criticisms of HMRC:

• The legislation does not provide that the penalty must be levied – rather that the person is liable to the penalty which means not that the specified penalty must apply, but may apply and may be demanded.


• Thus the employer was entitled to rely upon the common law duty of a public body to act fairly not just in its decision-making process but also in administering its statutory powers. The Tribunal said that it was in no doubt that a public body does not act fairly where it deliberately desists from sending a penalty notice, for 4 months or more, knowing that the effect will be to impose a minimum penalty of £500 upon somebody whose sin may be no more than oversight or forgetfulness.


• HMRC is an organ of the State. It is no function of the state to use the penalty system as a cash generating scheme.

That was a good read! We will make sure that the decision is used to fight a penalty whenever the circumstances fit.