HomeHMRCDeliberate penalties: HMRC’s unacceptable approach?

Deliberate penalties: HMRC’s unacceptable approach?

Words matter, says Ben Chaplin, especially when it comes to HMRC dishing out penalties for ‘deliberate’ tax return failures


The Daily Telegraph published an article detailing a freedom of information request that resulted in the disclosure that 8,000 more people received a penalty for deliberate failures relating to their tax return than in the previous 12 months.

At Croner Taxwise we are, unfortunately, not surprised by the Telegraph’s statistic since many of our consultancy clients have been affected by HMRC’s more aggressive approach to levying penalties on the ‘deliberate’ scale over the past two years.

The penalty regime starts with consideration of why the error arose and ranges through four levels:

Innocent error: 0% penalty

Failure to take reasonable care: 0 – 30% penalty

Deliberate: 20 – 70% penalty

Deliberate with concealment: 30 – 100% penalty


There are variations in the amounts chargeable dependent upon whether the error relates to offshore assets or income but it is clear that if HMRC can argue that a taxpayer has acted deliberately, the penalty loading can be significant.

Our consultants’ regular argument on the subject when responding to HMRC on behalf of clients is that no matter how HMRC may wish to mangle the English language on this point, the definition of ‘deliberate’ does not embrace a situation where a person does not know that they have done wrong. In various cases our clients have maintained throughout that if they had known or suspected that there was an error they would have raised it with their advisers or HMRC. Where they were unaware, under any definition, we consider that they cannot have acted ‘deliberately’.

HMRC’s manual at CH81150 includes a reference that is HMRC’s main justification for taking this route: “Deliberately failing to take action that they know is necessary to ensure a return is accurate.”

The two key words here are ‘deliberately’ and ‘know’ and in many cases the client would not have known that there was a problem. In one particular case recently, an item of income was missed off a return because the client had relied on previous guidance from her (now deceased) husband. The officer asserted that because they ask the question as to whether the return is complete and correct, and the client did not raise any issues, it must mean that she was acting deliberately.

The same officer went on to say that our assertion that “with the benefit of hindsight, our client now considers that she should have sought guidance” indicates that there was a conscious decision not to seek guidance. To aid the officer in his understanding of the ridiculousness of his contention, we provided him with the dictionary definition of ‘hindsight’… Hindsight – recognition of the realities, possibilities, or requirements of a situation, event, decision etc., after its occurrence.

There is also evidence that officers are rather uncomfortable with having to justify the use of deliberate penalties to the taxpayers. One officer recently decided to explain to a client that when they use the word deliberate it merely means a higher level of culpability than ‘careless’. Of itself, this is true, but of course the word deliberate is enshrined in legislation (Sch. 24 FA 2007) so it is clear that officers aren’t always comfortable with the position they are being asked to take. This case is still ongoing, but we confidently predict that the case officer will continue to ignore our representations and we will need to elevate the case to internal review before HMRC drops this issue.

The First-Tier Tribunal has also had a say in clarifying this issue, and while they rightly consider that clients who choose not to include material aspects of their income on returns should be asked as to why, a blanket presumption of culpability on the basis that a client signs his return as being complete and correct, and then HMRC finds errors, is certainly not acceptable.

In a slightly different context the case of Tooth v HMRC involved consideration of extended time limits relating to the issue of discovery assessments, but since both penalties and discovery assessment time limits involve consideration of the same language, the tribunal Chairman’s remarks are equally relevant to the issue of penalties: “In my judgment this cannot be right. The deliberate (or indeed careless) conduct necessary to enable the issue of a discovery assessment and extend the time limits for doing so must involve more than the completion of a tax return which, in itself, is a deliberate act. As a person completing a return must do so intentionally or knowingly, and can hardly do so accidentally, HMRC’s argument effectively eliminates any distinction between ‘careless’ and ‘deliberate’.”

We therefore now have some judicial support for arguing for a more common sense approach from HMRC. Unfortunately, our experience remains that officers make these spurious contentions and then leave an HMRC internal reviewer to consider any arguments. Obviously, this is time consuming and ultimately frustrating for the client and his advisers.

To conclude, HMRC’s position must be challenged when it is appropriate to do so. For more information or to request assistance with a particular case contact the Croner Taxwise Consultancy Line on 0844 728 0120 or email consultancy@cronertaxwise.com


  • Ben Chaplin is MD of Croner Taxwise

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