When Can HMRC Suspend a Penalty?
Date Published
Where a taxpayer is subject to a penalty from the tax year 2008/09 onwards, HM Revenue & Customs (HMRC) have the power to suspend a penalty for a careless inaccuracy.
However what many people may not be aware of is that in addition to HMRC granting a suspension it is also possible for the taxpayer to request that they do so.
If HMRC refuse to suspend a penalty it is possible to appeal to the First-tier Tribunal, but the tribunal can only allow your appeal if it thinks that the HMRC decision is flawed.
A complete failure to exercise the discretion, i.e. not to consider a suspension in light of the taxpayer’s circumstances, is generally considered a flawed decision.
There is however nothing which prevents HMRC adopting policies or practices which indicate factors it may take into account when exercising its discretion; so long as they do not prevent consideration of individual circumstances.
HMRC’s instruction to staff is to only consider a suspension where they can set at least one condition that, if met will help the taxpayer to avoid a further penalty.
Some officers claim that HMRC cannot suspend a penalty for errors involving capital gains tax (CGT). This is incorrect as there is no reason that HMRC cannot suspend a penalty in relation to CGT providing at least one condition can be set.
Case law however has proved inconclusive. In Fane v HMRC the tribunal accepted HMRC’s view that a one-off error was not suitable for a suspended penalty, however in Boughey v HMRC the tribunal disagreed and overturned the decision not to suspend. Both tribunals said that the suspension conditions need not relate to the specific error.