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V7: Special circumstances and suspension
SPECIAL CIRCUMSTANCES
General principles
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- Circumstances sufficiently special that it is right to reduce the amount of the penalty
"[57] Edwards ultimately confirmed that HMRC, and where appropriate the FTT, simply need to focus on the term used in the legislation. Beyond being relevant to the issue under consideration, the circumstances must be "special” – no more and no less. There is nothing special about the term “special”. Although the test HMRC used was expressed in different terms, we consider it reflected the substance of the applicable test. HMRC referred to the circumstances being “uncommon or exceptional”. Those terms, as pointed out by the FTT in Advanced Scaffolding, did not “really take the debate any further”. In other words those terms did not add anything; neither did they detract from the term “special”. In so far as HMRC referred, by reference to Hesketh, to the circumstances not being ones which amounted to a reasonable excuse, that was not relevant as HMRC had not accepted that any of the circumstances amounted to a reasonable excuse. To the extent HMRC had in mind the suggestion in Hesketh that to be special the circumstance had to render the penalty “…in whole or part significantly unfair and contrary to what Parliament must have intended when enacting the provisions” we would note that there is plainly a great deal of overlap between that and the circumstances which HMRC or the tribunal might consider to be special. The appellant does not identify in what respect this imposed a more stringent requirement." (Harrison v. HMRC [2022] UKUT 216 (TCC), Judge Raghavan and Judge Andrew Scott)
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“[73] The FTT then said this at [101] and [102]:
“101. I appreciate that care must be taken in deriving principles based on cases dealing with different legislation. However, I can see nothing in schedule 55 which evidences any intention that the phrase “special circumstances” should be given a narrow meaning.
102. It is clear that, in enacting paragraph 16 of schedule 55, Parliament intended to give HMRC and, if HMRC’s decision is flawed, the Tribunal a wide discretion to reduce a penalty where there are circumstances which, in their view, make it right to do so. The only restriction is that the circumstances must be “special”. Whether this is interpreted as being out of the ordinary, uncommon, exceptional, abnormal, unusual, peculiar or distinctive does not really take the debate any further. What matters is whether HMRC (or, where appropriate, the Tribunal) consider that the circumstances are sufficiently special that it is right to reduce the amount of the penalty.”
[74] We respectfully agree. As the FTT went on to say at [105], special circumstances may or may not operate on the person involved but what is key is whether the circumstance is relevant to the issue under consideration.” (Edwards v HMRC [2019] UKUT 131, Nugee LJ and Judge Herrington)
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Detailed reasons not required
"[58] As to the allegation that HMRC’s reasons were inappropriate, in that they left Mr Harrison in the dark as to why his case on special circumstances had been rejected, we consider there was little – and Ms Montes Manzano could not identify anything specific - that could meaningfully be said by way of additional explanation beyond explaining, as HMRC did, that they did not consider the circumstances put forward to be sufficiently special to warrant a reduction. It was clear from the communications between Mr Harrison’s representative and HMRC what the circumstances were that fell to be considered. There were none in addition to those he had put forward in respect of his case on reasonable excuse which HMRC had already rejected earlier in the review conclusion. In those circumstances it would have served little useful purpose to repeat these in the special reduction section of the review letter. HMRC appreciated the need to give the matter due consideration and did so. The consideration of whether the circumstances advanced were sufficiently special to warrant a reduction was a straightforward matter of judgment entrusted to HMRC which they duly carried out. In the particular context of this case we consider the reasons HMRC gave were adequate." (Harrison v. HMRC [2022] UKUT 216 (TCC), Judge Raghavan and Judge Andrew Scott)
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HMRC not required to consider special circumstances before issuing penalty
"(1) While “special circumstances” are not defined, the courts accept that for circumstances to be special they must be “exceptional, abnormal or unusual” (Crabtree v Hinchcliffe [1971] 3 All ER 967) or “something out of the ordinary run of events” (Clarks of Hove Ltd v Bakers Union [1979] 1 All ER 152).
(2) HMRC's failure to consider special circumstances (or to have reached a flawed decision that special circumstances do not apply to a taxpayer) does not mean the decision to impose the penalty, in the first place, is flawed.
(3) Special circumstances do not have to be considered before the imposition of the penalty. HMRC can consider whether special circumstances apply at any time up to, and during, the hearing of the appeal before the tribunal.
(4) The tribunal may assess whether a special circumstances decision (if any) is flawed if it is considering an appeal against the amount of a penalty assessed on a taxpayer.
(5) The special circumstances must apply to the individual and not be general circumstances that apply to many taxpayers: Collis, at [40] and Bluu Solutions Ltd v Commissioners for Her Majesty's Revenue & Customs [2015] UKFTT 95." (Matrix Rental Limited v. HMRC [2022] UKFTT 286 (TC), Judge Manyara)
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Disproportionate penalty may be special circumstance​
"[138] It follows that although Barry Edwards states that proportionality cannot be a special circumstance in cases where there is no liability and a minimum penalty is levied, proportionality might, where a tax-geared penalty is levied, be a special circumstance depending on the particular facts of that case.
[139] We find therefore that the FTT was incorrect on the basis of Barry Edwards to dismiss the size of the penalties as a factor to be taken into account in determining whether special circumstances existed." (Marano v. HMRC [2023] UKUT 113 (TCC), Fancourt J and Judge Tilakapala)
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“[66] We agree with Mr Ripley that the reasoning of Bosher is not applicable in relation to the question as to whether a penalty imposed pursuant to Schedule 55 to FA 2009 is disproportionate. Under paragraph 16 of that Schedule, the FTT has, in contrast to penalties imposed under s 98A TMA 1970 in respect of the CIS scheme, been given a limited power to consider whether there are special circumstances which would justify a reduction in the amount of the penalty. It is in the context of that specific jurisdiction that the question of proportionality must be considered. We did not take Mr Carey to argue to the contrary. It is therefore clear that the FTT erred by determining that it had no general power to reduce a penalty on the grounds that it is disproportionate on the basis of the reasoning of the Upper Tribunal in Bosher.
[67] We therefore turn to the question as to whether the amount of the penalty imposed in this case for failure to file self-assessment returns on time in circumstances where no tax is payable is a relevant circumstance that HMRC should have taken into account when considering whether there were special circumstances in this particular case which justified a reduction in the penalty." (Edwards v HMRC [2019] UKUT 131, Nugee LJ and Judge Herrington)
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"[28] In Edwards the UT also considered the relationship between special circumstances and proportionality, and took the view that, shortly stated, if a penalty was found to be disproportionate, that would comprise special circumstances..." (Pougher v. HMRC [2022] UKFTT 86 (TC), Judge Nigel Popplewell)
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Must be plainly unfair
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"[40] The test is whether the penalty is "not merely harsh but plainly unfair" (see Simon Brown LJ in International Transport Roth GmbH v Home Secretary [2003] QB728 at [26])." (Pougher v. HMRC [2022] UKFTT 86 (TC), Judge Nigel Popplewell)
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Penalty for late return proportionate even though no tax due
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"[87] Therefore, in this particular case, HMRC’s decision as regards special circumstances was not flawed. As Mr Edwards’s contention that it was disproportionate to impose penalties concerned in circumstances where no tax was due does not amount to a special circumstance, HMRC did not fail to take into account a relevant matter in making its decision. Since that was the only basis on which Mr Edwards contended that there were special circumstances justifying a reduction in the penalty, the proportionality issue must be determined in this case in favour of HMRC." (Edwards v HMRC [2019] UKUT 131, Nugee LJ and Judge Herrington)
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Reliance on adviser
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Adviser devoting less attention due to family death
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"[32] In my view, the illness of Mr James’ father, causing Mr James to devote less time to his clients than he normally would have, was a special circumstance. I have also accepted as a fact that, due to this circumstance, Mr James did not send his clients the reminders he would ordinarily have sent prior to the time when “daily” penalties started to accrue. Although this does not, in my view, provide a reasonable excuse for the appellants’ late-filing, I nevertheless find that, if such reminders had been sent by Mr James, the appellants would in all likelihood have provided the necessary information to Mr James in time to avoid the “daily” penalties; and the reason this did not happen, was the special circumstances surrounding the appellants’ accountant and his dying father. I therefore think it right, because of these special circumstances, to reduce the “daily” penalties to nil." (Stokes v. HMRC [2020] UKFTT 357 (TC), Judge Citron)​
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Late return
- Little or no tax due​ not a special circumstance
"In view of what we have said about the legitimate aim of the penalty scheme, a penalty imposed in accordance with the relevant provisions of Schedule 55 FA 2009 cannot be regarded as disproportionate in circumstances where no tax is ultimately 20 found to be due. It follows that such a circumstance cannot constitute a special circumstance for the purposes of paragraph 16 of Schedule 55 FA with the consequence that it is not a relevant circumstance that HMRC must take into account when considering whether special circumstances justify a reduction in a penalty." (Edwards v. HMRC [2019] UKUT 131 (TCC), Nugee J and Judge Herrington)
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"[67] Lastly, the Appellant submits that no tax liability was due. In Edwards v R &C Commrs [2019] BTC 516, the Upper Tribunal considered whether the fact that significant penalties had been levied for the late filing of returns where no tax was due was a relevant circumstance that HMRC should have taken into account when considering whether there were ‘special circumstances’ which justified a reduction in the penalties. The Upper Tribunal concluded that the penalty regime set out in Schedule 55 establishes a fair balance between the public interest in ensuring that taxpayers file their returns on time, and the financial burden that a taxpayer who does not comply with the statutory requirement will have to bear.
[68] Accordingly, the Upper Tribunal determined that the mere fact that a taxpayer has no tax to pay does not render a penalty imposed under Schedule 55 for failure to file a return on time disproportionate and, as a consequence, is not a relevant circumstance that HMRC must take into account when considering whether special circumstances justify a reduction in a penalty." (Matrix Rental Limited v. HMRC [2022] UKFTT 286 (TC), Judge Manyarara)
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- Early payment of tax is a relevant factor
"[121] In refusing permission to appeal on this point, the FTT emphasised that the penalties were for late filing and so the question of payment or non-payment was irrelevant. Although it is clear that the penalties are for late filing and so the payment of tax is (as we have held) irrelevant to the quantification of the penalty under paras 5 and 6, it does not follow that it is irrelevant to a different issue, namely the question of whether special circumstances exist to justify a discretionary reduction of that penalty under para 16. The relevance of early payment of the tax due must be considered in the light of the fact that the penalty is imposed for late or non-filing of the return, but that does not mean that the FTT should have refused to take it into account at all.
[122] We note also the additional reason given by the FTT for dismissing early payment as a factor, which is that Mr Marano only paid the tax early in order to obtain a US tax benefit. We cannot determine what weight was put on this fact by the FTT. We agree, however, with Mr Gordon that this fact cannot be sufficient to justify dismissing early payment as a factor if it is otherwise relevant. The motive for early payment is of no consequence to HMRC and does not alter the fact that early payment was made.
[123] What weight is to be given to such a factor in determining whether special circumstances justify a penalty reduction is for HMRC or the FTT to decide. It clearly cannot justify rescinding the penalty, otherwise Sched 55 would have no effect separate from Sched 56, but what if any reduction is appropriate is a matter for properly exercised discretion." (Marano v. HMRC [2023] UKUT 113 (TCC), Fancourt J and Judge Tilakapala)
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- HMRC's awareness of quantum of tax long before tax return due is relevant factor
"[124] The FTT refused to take this factor into account on the basis that it was not raised during the hearing, and on the basis that:
"The penalty is for failing to file a return; merely informing HMRC of a liability by letter before the issuance of a return is not a special circumstance which would justify reducing a penalty imposed because the taxpayer subsequently fails to file the return" [31]
[125] We accept Mr Gordon's contention that this factor was raised in the original hearing and is not new. This is clear in extracted paragraphs from Mr Gordon's skeleton argument before the FTT, in which he asked the FTT to recognise that HMRC were expressly told about the CGT liability in December 2012 but failed to take that information into account.
[126] For the same reasons given in relation to the FTT's dismissal of the early payment of tax as a factor, we consider that the FTT was wrong to dismiss this fact in its entirety as being irrelevant, particularly as notification was followed by full payment." (Marano v. HMRC [2023] UKUT 113 (TCC), Fancourt J and Judge Tilakapala)
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Penalty contrary to compliance intention
"[86] I agree with HMRC that one of the situations in which it is appropriate to reduce penalties as a result of special circumstances is where imposing the full amount of the penalty would be contrary to the compliance intention of the penalty provisions.
[87] In this case, the clear purpose of schedule 55 is to encourage taxpayers to submit their tax returns on time. This is the case whether or not the taxpayer has any tax liability as it enables HMRC to confirm whether the right amount of tax has been paid.
[88] However, there is limited benefit in encouraging taxpayers to file tax returns in circumstances where no tax return is normally needed. This is of course the reason why a taxpayer is not normally required to notify HMRC of any liability to tax if their only income is employment income from which tax is deducted under the PAYE system (see s 7 Taxes Management Act 1970).
[89] Bearing all of this in mind, it is in my view appropriate for the penalties which have been charged for the tax years ended 5 April 2015 and 5 April 2016 to be reduced by 90% to reflect the fact that Mr McNaughton would not normally be required to file self-assessment tax returns for those years. He should still have to pay some penalty as he was told by HMRC that he needed to file a tax return and yet still failed to do so and to reinforce the fact that an individual who has been required to file a tax return should ordinarily expect to do so." (McNaughton v. HMRC [2020] UKFTT 332 (TC) , Judge Vos)
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Tribunal can only reconsider if HMRC's decision re special circumstances is flawed
"[100] B&M’s contention that ‘the penalty assessment was flawed’ is therefore not particularly helpful. The requirement for the Tribunal discretion to be engaged under paragraph 19(2) is that HMRC’s decision as to whether there are special circumstances is flawed, rather than that the original decision-making process was flawed.
[101] The penalty explanation letter stated that HMRC did not consider that there were any special circumstances which would merit a reduce in the penalty. B&M did not identify any flaw with that decision as to whether there were special circumstances and, considering the evidence before me, I do not consider that HMRC’s conclusion that there were no special circumstances is flawed.
[102] If the information provided by the appellant as to why they have a reasonable excuse does not establish on appeal to this Tribunal that they do have a reasonable excuse, a failure by HMRC to consider some of that information does not provide the Tribunal with a reason for reducing the penalty on the basis of special circumstances."(B&M Retail Limited v. HMRC [2023] UKFTT 34 (TC), Judge Fairpo)
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SUSPENSION
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Power to suspend inaccuracy penalty on conditions
(1) HMRC may suspend all or part of a penalty for a careless inaccuracy under paragraph 1 by notice in writing to P.
(2) A notice must specify—
(a) what part of the penalty is to be suspended,
(b) a period of suspension not exceeding two years, and
(c) conditions of suspension to be complied with by P.
(3) HMRC may suspend all or part of a penalty only if compliance with a condition of suspension would help P to avoid becoming liable to further penalties under paragraph 1 for careless inaccuracy.
(4) A condition of suspension may specify—
(a) action to be taken, and
(b) a period within which it must be taken.
(5) On the expiry of the period of suspension—
(a) if P satisfies HMRC that the conditions of suspension have been complied with, the suspended penalty or part is cancelled, and
(b) otherwise, the suspended penalty or part becomes payable.
(6) If, during the period of suspension of all or part of a penalty under paragraph 1, P becomes liable for another penalty under that paragraph, the suspended penalty or part becomes payable.
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- Purpose is to educate a trader who acted carelessly
"[32] We further bear in mind that the evident purpose of the suspension arrangements is to educate a trader who has acted carelessly giving rise to inaccuracies in his/her/its VAT returns by giving help to such a trader to avoid him/her/it becoming liable to further penalties for careless inaccuracy (cf. paragraph 14(3), Schedule 24, FA 2007).
[33] We also bear in mind that the suspension arrangements envisage conditions of suspension which will assist the trader in the education referred to." (Shelfside (Holdings) Limited v. HMRC [2012] UKFTT 290 (TC), Judge Walters QC)
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- Can suspend later penalty even if earlier penalty of the same kind was suspended
"[36] Secondly, we consider that the fact that the penalties for the VAT periods 08/09 and 11/09 were suspended was itself not a relevant consideration in deciding whether to refuse suspension in relation to the VAT periods 08/10 and 11/10. We note that HMRC suspended a penalty for the VAT period 05/10 despite the previous suspensions. By this HMRC seem to us to have accepted implicitly that repeated careless inaccuracy is not a reason in itself for refusing a suspension on a later occasion." (Shelfside (Holdings) Limited v. HMRC [2012] UKFTT 290 (TC), Judge Walters QC)
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- But failure to follow earlier condition may justify refusal
"[37] Thirdly, we consider that the relevance of the fact that inaccuracies relating to the same area (partial exemption calculation) were repeated was the failure of Shelfside to operate T codes in accordance with the agreed listing in order to allocate the liabilities correctly for the application of the partial exemption calculation. If this had been a failure to undertake a specific action included as a condition of suspension we would have regarded it as a valid reason for refusing a subsequent suspension in relation to a careless inaccuracy of the same type.
[38] But we criticise the opacity of the condition to operate T codes in accordance with the agreed listing in order to allocate the liabilities correctly for the application of the partial exemption calculation. The agreed listing (included in this Decision at paragraph 10 above) was not much more than a paraphrase of the legal rules relating to the partial exemption calculation. It seems to us that it did not and could not have offered any real help to Shelfside in determining how, in any particular instance, those rules should be complied with." (Shelfside (Holdings) Limited v. HMRC [2012] UKFTT 290 (TC), Judge Walters QC)
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- Partial suspension
"[45] Before turning to apply those principles to the case of Mr Eastman, we should draw attention to the fact that the question of suspension is not necessarily a binary one; it is not a question of all or nothing. Paragraph 14 expressly envisages that part only of the penalty may be suspended. That, in our view, reflects the nature of the penalty which is at once a deterrent and punitive. The suspension of the penalty subject to a relevant condition or conditions may be seen as both an encouragement to alter behaviour so as to reduce the likelihood of further penalties for careless inaccuracy and as a deterrent against future carelessness within the specified period. But the punitive effect of a penalty should not be disregarded in the exercise of HMRC’s discretion, and it is open to HMRC reasonably to determine that the aim of suspension may be achieved by a partial suspension whilst preserving a punitive element of the penalty. We note, however, that it is HMRC’s published policy to suspend the full amount of the penalty in all cases." (Eastman v. HMRC [2016] UKFTT 527 (TC), Judge Berner)
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HMRC: SMART conditions
"Any condition of suspension that you set must be SMART. Setting SMART conditions ensures that the conditions are achievable for the person and that we can verify whether or not the conditions have been met once the suspension period has expired.
Specific - the condition must be directly related to the business or individual being penalised. The aim of suspension is to encourage better future compliance from the person. Unless a suspension condition is directly related to the person it cannot achieve that aim.
Measurable - the person needs to be able to show that conditions have been met. At the end of a suspension period the onus is on the person to satisfy HMRC that they have met the condition. Unless you set a condition that is measurable, the person will not be able to do this.
Achievable - the person must be able to meet the conditions. The aim is to encourage future compliance so there is no point in setting a condition which a person can never meet.
Realistic - we cannot set a condition that would be unreasonable for the person to comply with. Unreasonable here does not only mean unreasonable in terms of costs. But you must be especially aware that a condition might mean that the person may have to incur extra costs on professional fees, new accounting systems or training. It is for the person to decide how best to meet the suspension conditions. You must take care when setting a condition to make sure you act in a proportionate and reasonable way.
For example, in a small business with a limited number of transactions you cannot set a condition requiring a business to employ a full-time member of staff in order to manage, oversee or ensure the recording or identification of transactions. It would not be economically realistic for the business to do so.
Where the person agrees to a specific condition and associated expense there should be no problem. However, where the person does not agree to the specific condition, you cannot impose a condition that requires the person to incur costs.
Time bound - the conditions must be met by the end of the suspension period. The suspension period cannot exceed 2 years." (CH83153)
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- Condition should be linked to avoiding further penalties of the same kind
"[290] The tribunal agrees with the Testa Tribunal at [32] that the use of the word 'further' in paragraph 14(3) implies a link between the type of inaccuracy for which the original penalty has been levied and the type of inaccuracy which might give rise to further penalties and with the Fane Tribunal and the Webb Tribunal decisions that a 'one off' error would not normally be suitable for a suspended penalty." (Cox v. HMRC [2024] UKFTT 510 (TC), Judge Gemmell)
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"[31] ... In our view it would not be within the scope of paragraph 14 to impose a condition seeking to avoid careless inaccuracies in an inheritance tax return where the careless inaccuracy arose in relation to a completely separate matter in a VAT return. However, on the facts of the present appeal the error arose in relation to claiming an input tax credit. If a condition could be formulated which sought to avoid a similar error when claiming credit for the same or similar input tax in a DIY Builders claim then in our view it would fall within the scope of paragraph 14. The real question is whether an appropriate condition could have been formulated.
...
[34] If that is what Ms Lyddon meant, then in our view she was wrong. For the reasons given above if a condition could be formulated to avoid a similar error in a DIY Builders claim then the penalty could, at least in principle be suspended." (Mosque v. HMRC [2015] UKFTT 126 (TC), Judge Cannan)
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"[32] Although the legislation does not specify the nature or extent of the required linkage between the earlier default and the action required by the suspensive condition, the use of the word “further” in paragraph 14(3) seems to us to imply that there must be some such linkage.
[33] It therefore seems unlikely that paragraph 14(3) is intended to cover a situation where, for example, a taxpayer carelessly gives inaccurate information in a Construction Industry Scheme return and then seeks to have the penalty suspended on the basis of a promised improvement in his PAYE record keeping processes." (Testa v. HMRC [2013] UKFTT 151 (TC), Judge Poole)
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- No suspension of VAT penalties where deregistered
"[157] HMRC has refused to suspend the penalties. The penalties imposed for 02/15 to 11/15 were ineligible to be suspended under paragraph 14 as only penalties for careless inaccuracies can be suspended. On the basis of our decision, all five of the penalties are potentially eligible to be suspended. However, we agree with HMRC that as the Appellants' VAT registration number has been cancelled, the power should not be exercised as paragraph 14(3) provides that HMRC may suspend a penalty only if compliance with a condition would help the taxpayer to avoid becoming liable to further penalties for careless inaccuracy. There will be no further VAT returns and therefore no possibility of inaccuracy or careless inaccuracy." (Rai v. HMRC [2024] UKFTT 511 (TC), Judge Zaman)
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- Need not be exactly the same error
"[14] When I look at the letter of 22 June 2011 it is plain beyond doubt that the respondent's decision is flawed. That is because the writer of the letter has proceeded on the basis that he must set a condition “that is specific to the careless inaccuracy”. That is not a statutory requirement; nor is it implicit in the statutory regime set out in Schedule 24. The fact that the decision maker thought that a condition would have to relate to future redundancy payments becomes very clear from the following paragraph in which he/she says “Under the circumstances I do not see that a specific condition can be set to enable you to show that you are able to correctly declare a redundancy payment and claim the correct reliefs against any such payments.”
[15] It is clear from the foregoing that the decision maker proceeded on the erroneous legal basis that any condition of suspension must be designed to ensure that, in the future, the appellant correctly declared the receipt of any redundancy payments. That was far too narrow a view and discloses a highly material error of law." (Boughey v. HMRC [2012] UKFTT 398 (TC), Judge Geraint Jones QC)
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- Link to avoiding similar inaccuracies just a factor
"[39] We have to say that this emphasis on the type of the inaccuracy remains vulnerable to the criticism that it unreasonably fetters the discretion of HMRC. All that para 14(3) requires is that the conditions or conditions would help the taxpayer avoid further penalties for careless inaccuracy. There is no necessary link between the type of inaccuracy and the possibility of further penalty. We respectfully disagree with the tribunal in Testa to the extent that it was suggesting, at [32], that the use of the word “further” in para 14(3) implies a link between the type of inaccuracy for which the original penalty has been levied and the type of inaccuracy which might give rise to a future penalty. In our view, the word “further” does no more than describe another penalty for careless inaccuracy that might arise in the future.
[40] Whilst the nature of the inaccuracy in respect of which the penalty has been levied is a relevant factor for HMRC to consider in the exercise of their discretion, we do not consider that it should constrain the nature of the inaccuracies available to be considered for the purpose of determining whether conditions may be imposed which will help avoid penalties for carelessness in those respects as well as those related to the original inaccuracy. Paragraph 14(3) does not differentiate between types of careless inaccuracy any more than the provisions imposing the penalty do." (Eastman v. HMRC [2016] UKFTT 527 (TC), Judge Berner)
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- What could taxpayer reasonably have done differently to avoid original inaccuracy?
"[43] In considering whether any appropriate conditions may be imposed, the acid test, in our view, is to ask what the taxpayer could reasonably have done differently that would have avoided the original inaccuracy. That, in different words, is a similar approach to that adopted most recently by the tribunal in Paul Ronald Steady v Revenue and Customs Commissioners [2016] UKFTT 473 (TC) where it said, at [28], that it could be argued that the purpose of the suspension conditions is to bring the standard of compliance up to the level of a prudent taxpayer. Having ascertained what could have been done in that respect, the question is whether, educated by that answer, a condition may be imposed which would help avoid future careless inaccuracies. As a penalty would not differentiate between types of inaccuracy, the condition must encompass all risks of future careless inaccuracy that can reasonably be identified.
[44] Thus, a condition that leaves open an identified risk would not be a suitable one to be imposed. That, we consider, is the true reason why, in an example given by the tribunal in Testa at [33], a penalty for a careless inaccuracy in relation to a Construction Industry Scheme return would not normally be capable of being suspended by reference to a condition in relation to improved PAYE record keeping processes. It is not because there needs to be a link between the nature of the original inaccuracy and the condition, but because a condition that fails to address deficiencies in the CIS accounting would not help avoid liability to penalties, and so could not satisfy para 14(3)." (Eastman v. HMRC [2016] UKFTT 527 (TC), Judge Berner)
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- Condition must be more than requiring accurate tax returns to be submitted
"[61] If the condition of suspension was simply that, for example, the taxpayer must file tax returns for a period of two years free from material careless inaccuracies, paragraph 14 (6) would be redundant.
[62] Moreover, it is difficult to see how a taxpayer could satisfy HMRC that the condition of suspension, if it contained no requirement other than a condition not to submit careless inaccuracies in future tax returns, had been satisfied as required by paragraph 14 (6). This would, effectively, require the taxpayer to prove a negative will require HMRC to conduct a detailed review of the taxpayer's tax returns.
63. For these reasons we do not agree with Mr Lever's suggestion that a suitable condition of suspension would be a requirement that the Appellant correctly returned other income (e.g. rental income) on his tax return for the next two years." (Fane v. HMRC [2011] UKFTT 210 (TC), Judge Brannan)
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- Not to be interpreted so widely that suspension becomes effectively automatic
"[272] The tribunal rejects an interpretation of paragraph 14 that if conditions are general and wide enough, they will always and necessarily avoid suspension of a penalty for further careless inaccuracies if they amount to more than ' a basic requirement'.
[273] The tribunal considered that the conditions put forward by PDC are no more than a basic requirement and the decision to preclude suspension was justified and not flawed on those grounds.
...
[296] This suggests that anyone required to make future tax returns and who sets out conditions which may amount to the actions of a reasonable and prudent taxpayer, or little more than that, should have a penalty suspended and brings into question the purpose of having a system of penalties, rather than suspensive penalties, for careless inaccuracies.
[297] The tribunal considered that it cannot have been Parliament's intention that the construction of paragraph 14, sch24 should be such that it becomes, as HMRC put it, a "get out of gaol/jail free card" and results in negating HMRC's ability to exercise its discretion.
[298] The tribunal considered that there has to be some connection between the careless error and the source of the error; and not none at all." (Cox v. HMRC [2024] UKFTT 510 (TC), Judge Gemmell)
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- Must be practical and measurable, e.g. improvement in systems
"[64] A condition of suspension, therefore, must contain something more than just a basic requirement that tax returns should be free from careless inaccuracies. This suggests, therefore, that the condition of suspension must contain a more practical and measurable condition (e.g. improvement to systems) which would help the taxpayer to achieve the statutory objective i.e. the tax returns should be free from errors caused by a failure to exercise reasonable care." (Fane v. HMRC [2011] UKFTT 210 (TC), Judge Brannan)
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- Not likely appropriate for one off errors/transactions
"[20] We are not satisfied that the decision of HMRC in relation to suspension in the present appeal was flawed. It was an isolated error, caused by the Appellant not carefully reading the return or the Notes describing how to fill in the return. In the circumstances it was reasonable for HMRC to conclude that there were no conditions that would help the Appellant avoid future penalties and that it was not appropriate to suspend the penalty." (Havercroft v. HMRC [2015] UKFTT 389 (TC), Judge Cannan)
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"[43] The fact that there is no certainty or even likelihood that another return, claim or document within paragraph 1 will be submitted in the suspension period is a relevant factor in the exercise of our discretion. We cannot be satisfied that any condition would help to avoid an error because unless a claim is made there is no prospect of an error. The position is similar to the “one-off” errors mentioned above." (Mosque v. HMRC [2015] UKFTT 126 (TC), Judge Cannan)
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"[43] However, we were referred by Ms Weare to the decision of the tribunal (Judge Brannan and Ms O’Neill) in Anthony Fane v Revenue and Customs Commissioners [2011] UKFTT 210 (TC) in which the tribunal concluded that it was clear from the statutory context of Schedule 24 that a condition of suspension must be more than an obligation to avoid making further returns containing careless inaccuracies over the period of suspension (a maximum period of two years). The tribunal held that an important feature of para 14(3) is the link between the condition and the statutory objective, in that there must be a condition which would help the taxpayer to avoid becoming liable for further careless inaccuracy penalties. We agree with the tribunal’s reasoning on this point. In particular, the power to suspend a penalty must be seen in the context of influencing future behaviour; it is not applicable as a general mitigation of the penalty." (Collis v. HMRC [2011] UKFTT 588 (TC), Judge Berner)
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"[65] Bearing these considerations in mind, HMRC's guidance indicating that a one-off error would not normally be suitable for a suspended penalty is understandable and, in our view, justified.
[66] We are fortified in this view by reference to the Explanatory Notes published together with the Finance Bill 2007 in respect of the provisions which were eventually enacted as Schedule 24 Finance Act 2007. The relevant extract from the Explanatory Notes reads as follows:
" Suspended penalties will not be appropriate for one off inaccuracies in returns such as a capital gain or a one off transaction. They are more likely to be appropriate for accounting system or record keeping weaknesses, where the money that may have been spent on the penalty could be used to remedy the defective processes ensuring future returns are accurate."
[67] For these reasons, we consider that Mr Woodroff did not mis-direct himself when deciding that he could not suspend the penalty in this case." (Fane v. HMRC [2011] UKFTT 210 (TC), Judge Brannan)
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- Can be appropriate if conditions would help avoid other one off errors
"[34] On the other hand, consider a case in which the original inaccuracy had arisen, say, because of a particular weakness in the taxpayer’s system for distinguishing between CIS payments for materials and construction services in certain unique circumstances. Let us assume the taxpayer, alarmed by the problem, had instructed an external professional firm to carry out a full review of its whole CIS reporting process and obtained a report giving recommendations for its improvement (including the elimination of the weakness that gave rise to the particular error, even though it was unlikely to recur). If the taxpayer offered to agree a condition requiring it to implement those recommendations, that would surely meet the underlying purpose of the legislation and fall within paragraph 14(3), even if the circumstances giving rise to the particular error were a “one off” and unlikely ever to be repeated.
[35] HMRC’s policy (as referred to in their letters referred to at [11] and [13] above) sits uneasily with the above example. If their stance were correct that “one-off” inaccuracies (or inaccuracies arising from “one off” events) could never benefit from the suspension regime, then they would refuse to allow the suspension. This must in our view be wrong. Instead in such a case they should simply consider whether the implementation of the external report would help the taxpayer to avoid future inaccuracies in its CIS returns.
[36] This example highlights the danger of taking too narrow a view of the legislation. It has been drafted deliberately broadly and HMRC should not be placing unwarranted limits on it by reference to general policies which exclude whole classes of case which, in our view, would have been intended to be covered by it."(Testa v. HMRC [2013] UKFTT 151 (TC), Judge Poole)
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- Does not matter that condition is something taxpayer should be doing anyway (e.g. record keeping)
"[28] Mr Steady’s case is not on all fours with Fane. In Fane, the suspension condition being considered was merely that Mr Fane file accurate self-assessment returns in future. In Mr Steady’s case, it is proposed that a detailed schedule of his savings accounts is kept, and that this will help him to ensure that his tax returns are accurate in future. It matters not that a prudent taxpayer might keep such a schedule (although we would question whether a typical prudent taxpayer would keep such a schedule) – indeed it could be argued that the purpose of the suspension conditions is to bring the standard of compliance of the careless taxpayer up to the standard of a prudent taxpayer. We are satisfied (and find) that a requirement to maintain a schedule of the sort described by Mrs Foyle, would be a practical and measurable condition (e.g. improvement to systems) which would help Mr Steady to achieve the statutory objective that his tax returns should be free from errors caused by a failure to exercise reasonable care." (Steady v. HMRC [2016] UKFTT 473 (TC), Judge Aleksander)
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- Carrying out a reconciliation not measurable
"[34] Mr Durrant complains that this is too narrow an approach. His argument is that it is not the nature of the payment that was the problem but the P60 omission. Mr Durrant maintains that his suggestion that he reconciles his payslips to his P60 each year before submitting a return would prevent this error from happening again and would therefore be a suitable condition of suspension. This, we reject. First it is not measurable and secondly we would have thought that to do this was quite simply a basic pre-requirement of submitting your return – you check that it is correct." (Durrant v. HMRC [2014] UKFTT 513 (TC), Judge Mitting)
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- Must be more than is already being done
"[302] The tribunal agreed with HMRC's submission that the proposals to meet with a partner and go through the tax return did little more than transfer what had been carried out electronically to a face-to-face meeting.
[303] HMRC said in respect of the proposals, that they could identify "no underlying weakness in your record keeping etc. and therefore suspension does not appear to fit in your case." (Cox v. HMRC [2024] UKFTT 510 (TC), Judge Gemmell)
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- Engaging adviser/accountant to submit future returns valid condition
"[41] We can envisage that a condition might have been formulated which required the appellant to have a DIY Builders claim prepared and submitted or perhaps certified in some way by a suitably qualified person. As appears in the Original Decision it was the absence of competent advice at the time of the initial claims which at least contributed to the penalty in the first place." (Mosque v. HMRC [2015] UKFTT 126 (TC), Judge Cannan)
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"[37] In the present case, the Appellant has suggested the imposition of a suspensive condition to the effect that his self-assessment tax returns for the next two years should be submitted on his behalf by an appropriate professional adviser. He says, quite rightly in our view, that compliance with such a condition would help him to avoid becoming liable to further “careless inaccuracy” penalties in relation to his self-assessment tax returns. Such a suggestion having been put to HMRC, it seems to us that it should be considered on its merits in accordance with the terms of the legislation by reference to whether or not it will help the Appellant to avoid future careless inaccuracies in his self-assessment tax returns; it should not be simply ignored or discarded as a result of a policy which says that “there can be no suspension of penalties for one-off errors”." (Testa v. HMRC [2013] UKFTT 151 (TC), Judge Poole)
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"[16] The appellant has proposed a condition to apply during any period of suspension being that during that period his tax returns should be prepared by a qualified accountant. That is not a generic condition but it is a condition that would be designed to or would assist in the submitting of accurate returns, so as to avoid any penalty arising based upon any of the various possible defaults set out in paragraph 1 of Schedule 24." (Boughey v. HMRC [2012] UKFTT 398 (TC), Judge Geraint Jones QC)
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- Contacting HMRC for advice can be condition
"[39] Finally, we regard the fact that Shelfside did not contact HMRC for further advice regarding the transactions that have resulted in the underdeclaration and the subsequent penalties as a relevant consideration in that this was an eminently sensible and appropriate course of action to provide the education referred to in paragraph 32 above and should, as it seems to us, have been a condition of suspension for the penalties imposed for the periods 08/09 and 11/09. It was not, however, and in our judgment it was unreasonable of HMRC to rely on failure to contact them in this way as a reason for refusing a suspension in relation to the periods 08/10 and 11/10 when this had not been imposed as a condition of suspension in relation to the periods 08/09 and 11/09." (Shelfside (Holdings) Limited v. HMRC [2012] UKFTT 290 (TC), Judge Walters QC)
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- No condition possible where inaccuracy was omitting employment income and T now knows to include it
"[28] Ms Bartup for HMRC said that the legislation and HMRC’s guidance on when a penalty can be suspended is quite clear and does not include a case where a careless inaccuracy had occurred and there is no longer an underlying cause for the inaccuracy for which HMRC could set a specific suspension condition. There is no condition that could be imposed to prevent a further similar inaccuracy as the Appellant and his advisors are now aware that the taxpayer’s employed income must be included in his return.
...
[34] As Judge Brannan said in Anthony Fane, a condition of suspension must contain something more than just a basic requirement that tax returns should be free from careless inaccuracies. The condition must contain a more practical and measurable condition (e.g. improvement to systems) which would help the taxpayer to achieve the statutory objective. HMRC’s guidance indicating that a one off error would not normally be suitable for a suspended penalty is justified, understandable and, in our view applicable in this case." (Webb v. HMRC [2016] UKFTT 364 (TC), Judge Connell)​
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- Or: illogical to refuse to suspend on grounds that T unlikely to it again
"[30] We checked the suggestion by HMRC that it was open to the Appellant to have had the penalty suspended by accepting suspension conditions but found that although the letter from Mrs Freeman might be classed as ambiguous, the letter from Ms Kay, the reviewing officer was absolutely unambiguous stating “I also concur with Mrs Freeman’s view that as the error appeared to be a one-off situation without the likelihood of it re-occurring, therefore we cannot put any relevant suspension conditions in place.” We found it somewhat illogical that HMRC refused to suspend a penalty on the grounds that the Appellant was unlikely to do it again." (The Athanaeum Club v. HMRC [2010] UKFTT 583 (TC))
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Appeal on ground that HMRC decision flawed in public law sense
"(4) On an appeal under paragraph 15(3)—
(a) the appellate tribunal may order HMRC to suspend the penalty only if it thinks that HMRC’s decision not to suspend was flawed, and
(b) if the appellate tribunal orders HMRC to suspend the penalty—
(i) P may appeal to the appellate tribunal against a provision of the notice of suspension, and
(ii) the appellate tribunal may order HMRC to amend the notice." (FA 2007, Sch 24, para 17(4))
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- Flawed to reject solely on the basis that error was a one off
"[51] Furthermore, for the reasons we have explained, we do not consider that it was relevant for HMRC to have had regard to a general exclusion of suspension for penalties for one-off inaccuracies. That exclusion, although suggested in the Explanatory Note to the Finance Bill 2007 which was considered by HMRC on review, amounts in our view to a fetter on the exercise of HMRC’s discretion, which is unwarranted by the language of para 14." (Eastman v. HMRC [2016] UKFTT 527 (TC), Judge Berner)
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"[38] In this case, however, HMRC have treated the Appellant’s suggestion in precisely that way. Although the suggestion was put to them twice, they did not give any indication as to why they considered it did not meet the requirements of the legislation, beyond their blanket statement that “one-offs” were not appropriate for the suspension regime. Not only have they taken into account matters that they should not have taken into account (in simply following their general policy of “no suspension for one-offs”), there is also no evidence (which could have been provided by, for example, a reasoned discussion and rejection) that they gave any proper consideration to the suggestion actually made by the Appellant." (Testa v. HMRC [2013] UKFTT 151 (TC), Judge Poole)
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- Unreasonable to focus on nature of inaccuracy rather than the reason for it
"[47] Turning first to the letter of 24 July 2015, this set out a three-stage approach. The first stage was to identify the underlying cause of the careless inaccuracy giving rise to the penalty. Were that to have been directed towards the behaviour giving rise to the inaccuracy, which we consider would be a natural way to ascertain the underlying cause in a behaviour-based penalty regime, we would have considered that a reasonable approach. But it is clear from the letter that the underlying cause was regarded as the omission of the capital gain on the business premises. It was the nature of the inaccuracy, rather than the reason for it, that was seen as the underlying cause.
[48] That was not the approach of a reasonable decision-maker. It directly affected HMRC’s consideration of the second stage, namely to identify future careless inaccuracies that would result from the underlying cause. By wrongly addressing the question of the underlying cause, HMRC unreasonably confined their examination of future risk to capital gains connected to a business or business premises. That is, we consider, evident from the conclusion set out in the letter of 24 July 2015, which was based on Mr Eastman no longer having a business or business premises subject to capital gains, and which discounted Mr Eastman’s future obligations to make accurate returns as straightforward and unlikely to give rise to error without having regard to the relevant factor of the deficiencies in Mr Eastman’s record-keeping that had led to his failure to spot the omission in his 2012-13 return." (Eastman v. HMRC [2016] UKFTT 527 (TC), Judge Berner)
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- Repeated error not a reason to refuse
"[35] Our reasons for this are, first, that the simple repetition of inaccuracies of the same sort should not of itself be a reason for refusing suspension if the inaccuracies are careless and not deliberate and they relate to an area which the trader bona fide finds confusing and difficult to deal with correctly. This seems to the Tribunal to highlight the need for the education referred to in paragraph 32 above (rather than penalisation) and therefore to make suspension more, rather than less, appropriate." (Shelfside (Holdings) Limited v. HMRC [2012] UKFTT 290 (TC), Judge Walters QC)
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- Not for the Tribunal to determine appropriate conditions
"[58] In accordance with FA 2007, Sch 24, para 17(4), we order HMRC to suspend the penalty. That does not, it seems to us, mean that HMRC are obliged by our order, as a matter of statute, to suspend the whole of the penalty, although we appreciate that it is HMRC’s policy to do so. The ability of a taxpayer, following an order of the tribunal that the penalty be suspended, to appeal by virtue of para 17(4)(b)(i) against any “provision” of the notice of suspension demonstrates that HMRC’s consideration following such an order is not confined to the conditions of suspension (contrast para 17(5)), but could therefore include a partial suspension.
[59] As the tribunals in a number of cases, including Testa, Steady and Ian Hall v Revenue and Customs Commissioners [2016] UKFTT 412 (TC), at [45], have noted, it is not for the tribunal to define the appropriate conditions. That, as Mr Sinclair himself observed, is a matter for discussion between the parties and, to the extent agreement is not reached, determination by HMRC subject to the right of appeal we have described above. We would say only that we have formed the view that a condition that provides Mr Eastman with an effective means of double-checking that what is comprised in his tax file represents all relevant material for the purpose of ensuring that he makes an accurate return, and that is capable of uncovering any deficiency before the return is filed, should be carefully considered as an appropriate condition for the purposes of para 14(3)." (Eastman v. HMRC [2016] UKFTT 527 (TC), Judge Berner)
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