Under the new penalty regime, which covers the majority of taxes, there are minimum and maximum penalty levels prescribed under the legislation based upon the behaviour and quality of disclosure made by a taxpayer.
However many are unaware that HMRC have the discretion to reduce a penalty below the minimum percentage if the failure (resulting in a penalty) arises as a result of ‘special circumstances’.
HMRC guidance states that this means the circumstances have to be “exceptional”. However a recent tax tribunal found that if this definition was used the results would be too restrictive. The judge said that special circumstances were more akin to “something out of the ordinary, something unknown” and therefore they did not necessarily have to be exceptional.
The effect of this was that HMRC had not correctly considered whether “special circumstances” applied. Upon considering the facts the tribunal found that ‘special circumstances’ did in fact apply and therefore the original penalty was reduced by 60%.
It will be interesting to see whether HMRC use their power of discretion to reduce a penalty more widely in light of this case.