Mark McLaughlin warns that appeals against some penalties from HMRC could have unexpected and unwelcome outcomes.
Penalties can be imposed by HM Revenue and Customs (HMRC) for a variety of offences, such as failing to comply with self-assessment compliance obligations (e.g. failure to file a tax return by the due date). Some penalties are fixed in amount; others are tax-related.
Can HMRC decide?
In some instances, HMRC may decide on the level of penalty to be imposed, within statutory limits. For example, if the taxpayer is more than 12 months late in filing a tax return with a view to deliberately withholding information to prevent HMRC accurately assessing their liability, a tax-related penalty can be imposed of 70% (or higher, in cases involving offshore matters or transfers) of any tax liability which would have been shown in the return (FA 2009, Sch 55, para 6), subject to a possible reduction depending on the nature and extent of any disclosure by the taxpayer (para 14).
There is generally a right of appeal against penalties, in respect of HMRC’s decision to impose a penalty; and the amount of the penalty (e.g. where penalties are tax-related, or where HMRC may set the level of a daily penalty).
Taxpayers might be tempted to appeal against penalties in the hope that the First-tier Tribunal (FTT) will cancel or at least reduce them. However, in some cases the appellant may be shocked to end up paying higher penalties than if they had not appealed.
Higher or lower?
For example, in Wheeler v Revenue and Customs [2018] UKFTT 572 (TC), HMRC issued the taxpayer with an information notice. The taxpayer failed to comply and HMRC issued an initial penalty of £300. HMRC subsequently imposed daily penalties of £1,600 (i.e. 160 days at £10 per day) due to the taxpayer’s continued failure to comply. The taxpayer appealed against the daily penalties, on the grounds (among others) that if HMRC thought he owed any income tax they should assess him, and that HMRC was invading his private life.
The First-tier Tribunal (FTT) noted that the taxpayer’s grounds of appeal sought to ‘go behind’ the information notice. However, on an appeal against a penalty for failure to comply with a notice under FA 2008, Sch 36, para 1, the tribunal was not entitled to go behind the notice to see if it was imposed in accordance with the law. Such arguments could only be dealt with in judicial review proceedings. In addition, the taxpayer’s human rights argument (i.e. invasion of private life) was dismissed.
The FTT noted that the daily penalty was charged at £10 per day, whereas the maximum was £60 per day. The FTT considered that the appellant’s behaviour towards HMRC given the information that HMRC possessed about his personal and business affairs was to simply “cock-a-snook” at HMRC and, to an extent, the tribunal. The FTT therefore decided to increase the penalty to £30 per day (i.e. £4,800 in total).
Handle with care
Where a penalty potentially applies, always check the relevant legislation carefully, in terms of potential penalty exposure, mitigation possibilities, and appeal rights.
