HMRC Penalty Appeal Solicitors — Inaccuracy Penalties, Failure to Notify, Late Filing, and Reasonable Excuse

Under FA 2007 Sch 24, an inaccuracy is: careless where the taxpayer failed to take reasonable care (a lower standard of behaviour than "deliberate" but still a failure — for example, failing to check a return before filing, failing to seek advice on a known uncertain point); deliberate but not concealed where the taxpayer knew the return was inaccurate but did not take steps to conceal it; and deliberate and concealed where the taxpayer both knew the return was inaccurate and took active steps to conceal it (falsifying documents, destroying records). The penalty rates increase significantly between careless (0–30%) and deliberate (20–70%). HMRC frequently classifies failures as deliberate where they are, at most, careless — a solicitor challenges the classification on the specific facts.

Under Sch 55 para 23, a taxpayer has a reasonable excuse for a filing failure if a reasonable person exercising reasonable care, in the taxpayer's specific circumstances, would also have failed to file on time. Perrin v HMRC [2018] UKUT 156 confirmed this is an objective test. Circumstances that may constitute a reasonable excuse: serious illness of the taxpayer or a close family member; death of a close family member shortly before the filing deadline; loss of business records through fire, flood, or theft; reliance on incorrect advice from HMRC; reliance on a professional adviser (where the reliance was itself reasonable — the taxpayer must show they acted reasonably in relying on the adviser). Circumstances that do not constitute a reasonable excuse: ignorance of the filing obligation (in most cases); cashflow difficulties; reliance on an adviser where the taxpayer failed to provide the adviser with the necessary information. A solicitor analyses the specific facts and advises on whether a reasonable excuse is arguable.

Yes — a taxpayer can appeal HMRC's refusal to suspend a Sch 24 inaccuracy penalty (or HMRC's imposition of conditions that are unreasonable) to the First-tier Tribunal (Tax Chamber). The Tribunal can substitute its own decision for HMRC's on suspension — including imposing suspension conditions that HMRC refused to apply. HMRC frequently refuses suspension on the grounds that no conditions exist that would reduce the likelihood of a future inaccuracy — courts have found this approach to be too restrictive. A solicitor identifies whether suspension conditions are available (for example, improving accounting records, adopting specific internal control procedures, or implementing professional review processes) and challenges HMRC's refusal at the Tribunal.

Reliance on incorrect professional advice may constitute a reasonable excuse under the Perrin test — but only where the reliance itself was reasonable. The Upper Tribunal in Perrin confirmed that the test is: would a reasonable person, in the taxpayer's specific circumstances, have relied on the advice in the way that the taxpayer did? Relevant factors: whether the taxpayer provided the adviser with all relevant information; whether the adviser was qualified and experienced in the relevant area; and whether the advice received gave the taxpayer grounds to believe the return was correct. An agent's error is treated as the taxpayer's own error for penalty purposes — but the fact that the error was the agent's (and the taxpayer reasonably relied on it) may mean the inaccuracy is "careless" rather than "deliberate", attracting a lower penalty rate. A solicitor advises on whether the reliance was reasonable and challenges the culpability classification.

Potential lost revenue (PLR) is defined in FA 2007 Sch 24 para 7 as the additional tax due or payable as a result of correcting the inaccuracy in the document. PLR is calculated net of tax already paid on related transactions and reliefs — but HMRC's calculation of PLR is frequently incorrect. Common HMRC errors: failing to account for reliefs that reduce the additional tax liability; calculating PLR on the gross understatement rather than the net additional tax; and applying the wrong year's tax rates. The penalty rate is applied to the PLR — so a reduced PLR reduces the penalty proportionally. A solicitor challenges HMRC's PLR calculation, reduces it by identifying reliefs and corrections that HMRC has overlooked, and appeals the penalty to the First-tier Tribunal where HMRC's PLR calculation is incorrect.