Tribunal highlights need to question late tax return penalties

A recent tribunal has highlighted the need for businesses to be mindful of late tax return penalties.

The tax tribunal case (Hok Ltd V HMRC) confirmed that HMRC had been unreasonable by delaying the issuance of penalty notices for four months, until the tax payer had accumulated £400 worth of fines.

If HMRC had issued the penalty notice in the first month, the penalty would have been a much lower £100. The tribunal judge Geraint Jones QC found that HMRC had neither acted fairly nor in good conscience, and ruled that no penalty above the first £100 is recoverable, unless HMRC can prove that even if a penalty notice had been issued in the first month, the default would have continued.

Jones criticised HMRC, stating: “In our judgement there is nothing fair or reasonable in setting a computer system so that it does not generate a penalty notice until four months have gone by from the date of default, thereby ensuring that a penalty of not less than £500 will be due. We are in no doubt that the computer system could easily be set to generate a single £100 penalty notice immediately after the 19 May in each year. That is the course that a fair organ of the State, acting in good conscience towards the citizens of the State, would adopt.”

Commenting on the case, Rob Durrant-Walker at UHY Hacker Young said: “Many employers fail to submit their return through genuine mistake or oversight, and are not trying to evade their obligations. These higher penalties are disproportionate when an earlier reminder is often enough to tell them of their error. The tax profession has been pointing out the injustice of this to HMRC for some time.