HMRC Penalty Appeals

The penalty regime under FA 2009 Schedule 55 and subsequent legislation is the main framework. Late filing penalties: £100 fixed at day 1 late, then daily penalties of £10 from day 90 (capped at 90 days = £900), then 5% tax-geared at 6 months, then 5% again at 12 months. Late payment penalties: 5% of unpaid tax at 30 days late, 5% again at 6 months, 5% again at 12 months — plus interest accruing throughout. The accumulated cost of a 12-month-late SA can run into thousands.

Reasonable excuse is the main appeal ground. Acceptable: serious illness or hospitalisation of the responsible person, bereavement of a close family member, fire or flood destroying records, an HMRC system outage you can document via service status logs or SAR. Not acceptable: pressure of work, the bookkeeper being away, software trouble that wasn't HMRC's, finding the rules confusing, "I forgot." The appeal goes in within 30 days of the penalty notice. HMRC's first response usually decides the matter; escalation to internal review or first-tier tribunal is occasionally needed.

Special circumstances is a broader appeal ground covered by FA 2009 Sch 55 para 16. Where there are unusual circumstances making the standard penalty disproportionate, HMRC can reduce the penalty (sometimes to zero). The bar is higher than reasonable excuse but the relief is broader. Specialist accountants identify special-circumstances arguments that generalists frequently miss.

Inaccuracy penalties under FA 2007 Sch 24 apply where a taxpayer's return contains an inaccuracy resulting in lost tax. The penalty rate depends on behaviour: careless (failure to take reasonable care) — 0%-30% of the tax; deliberate but not concealed — 20%-70%; deliberate and concealed — 30%-100%. Disclosure quality (prompted vs unprompted) and cooperation level affect the rate within each band. Specialist accountants negotiate the behaviour classification carefully — moving from "deliberate" to "careless" can halve the penalty.

Surcharges on payments-on-account-related issues, partner notifications, and similar peripheral penalties have their own appeal mechanisms. Specialist accountants handle these alongside the headline penalties; generalists frequently miss the smaller penalty appeals while focusing on the obvious one.

The 30-day appeal deadline — most penalty notices have a 30-day appeal window from the date of the notice (not the date of receipt). Missing the deadline severely limits future appeal options. Specialist accountants file the appeal immediately on receipt; generalists frequently delay while trying to gather full evidence, blowing the deadline.

Reasonable excuse vs special circumstances confusion — the two grounds have different evidence requirements and different success rates. Reasonable excuse is narrower and the bar is high (must be outside the taxpayer's control); special circumstances is broader but requires articulating why the standard penalty is disproportionate. Specialist accountants choose the right ground for each case.

Pre-occurrence cause vs ongoing cause — for late filing, the reasonable excuse must have been operative throughout the period of failure. A two-day hospitalisation in October doesn't excuse a January-deadline failure unless the consequences extended through the deadline. Specialist accountants articulate the temporal nexus carefully.

Inaccuracy penalty behaviour classification — the difference between "careless" and "deliberate" can halve the penalty. HMRC tends to classify aggressively as deliberate; specialist accountants negotiate the classification down where the evidence supports careless. The classification also affects naming-and-shaming risk for businesses where deliberate inaccuracies are publicly published.

Suspended penalties — for first-time inaccuracy penalties classified as careless, HMRC can suspend the penalty for up to two years subject to specific conditions (improving record-keeping, attending training, etc.). If conditions are met, the penalty falls away. Specialist accountants negotiate suspension terms; generalists frequently accept the cash penalty without exploring suspension.

Time-limit for HMRC to assess — HMRC has 4 years from end of tax year for innocent error, 6 years for careless, and 20 years for deliberate. Specialist accountants check whether HMRC's assessment is within the time limit; out-of-time assessments can be challenged on procedural grounds alone.