Are HMRC's fines legal?

How HMRC’s penalty system for filing tax returns is implemented has come under fire in a recent Tax Tribunal case. For those of you who are lucky enough not to know, at midnight on deadline day the computer spits out penalty notices for everyone who has missed the deadline. Several billion pounds is collected each year in this way.

But now a Tribunal judge has knocked back a fine for late filing on the basis that it is a requirement “for a tax officer to review such notices before they are sent out”. The judge basically has said to HMRC that in his view all penalties which are spat out with no human check on correctness are invalid.

Before all readers who have ever had a fine like this rush off to your lawyers, there are some important caveats. First of all, Tax Tribunals do not set a legal precedent. On the other hand, HMRC decided not to appeal this ruling. I suspect at least part of the reason for that is that if a higher court were to agree with the Tribunal judge, this would create legal precedent and all the lawyers looking for work now that PPI claims are dying off could move across on to tax penalty reclaims.

A second problem is that other Tribunal judges are clearly fine with the existing interpretation of the Taxes Management Act, and HMRC are OK to just spit out fines willy nilly without human double checking. For now I am keeping a watching brief on this situation, as there are bound to be a few more Tribunal cases to test the waters.

HMRC is the least ethical and most cynical organisation I deal with, and considering I am in the accountancy profession – run by the guys behind most tax dodging scandals and dodgy large company audits – that is really saying something! So I am not going to lose any sleep over their evident discomfort – or they would have appealed – at this Tribunal ruling.

Thursday 1 March 2018