HMRC have successfully appealed against the decision of the first tier tribunal in the case of Hok Ltd v HMRC.
In the original case (see our blog, Hok Ltd claimed that HMRC’s practice of delaying sending out penalty notices for the late submission of form P35 (PAYE end of year return) by 4 months was unfair as they had already built up penalties of £500 before they knew they had to submit the return.
Following the decision in Hok Ltd and a number of similar cases being found against them, HMRC changed their practice such that employers will now receive earlier correspondence regarding the late submission and penalties.
The upper tier tribunal found that the first tier tribunal erred in its judgement on the basis that the company (Hok Ltd) did not deny that the return was late nor attempt to argue that they had a reasonable excuse, as such the first tier tribunal did not have the jurisdiction to mitigate the penalty.
The upper tier tribunal considered that the first tier tribunal has no statutory power discharge or adjust a penalty because of a perception that it is unfair. Thus in the absence of a statutory route of appeal, the only option available to the taxpayer is to seek a judicial review.

UPDATE:  The verdict in the case of Hok Limited v HMRC has now been overturned by the Upper Tier Tribunal in favour of HMRC.  See our blog on the case for more details.

We recently posted a case where the tribunal found that HMRC’s policy of waiting 4 months before issuing a penalty notice for late P35s was unfair.

This finding was also confirmed in the recent case of Hok Limited v HMRC. The judgement stated that HMRC’s practice was, “unfair and falling very far below the standard of fair dealing and conscionable conduct to be expected of an organ of the state”.

The tribunal went further than in the previous case by stating that “the statute does not provide that the penalty or any part of it must be levied.”

They go on to assert that merely being ‘liable’ to a penalty does not mean that the penalty stated is the minimum penalty but rather the maximum and therefore it is possible to impose a lower penalty.

It will be interesting to see if this principle could be applied to other ‘fixed’ penalties which had previously not been seen as mitigable.