Why is it so difficult for taxpayers to win penalty appeals before the tribunal?
Research by Tolley has emphasised just how difficult it is for taxpayers to successfully challenge penalties imposed by HMRC at the tribunal. In a sample of the last 50 reported appeals to the First-tier Tribunal in income and corporation tax cases, the taxpayer was successful in only seven with HMRC winning 35. The remaining eight had a split outcome: the taxpayer still had to pay a penalty but managed to get the amount reduced. The figures for appeals against VAT penalties are remarkably similar: six wins for the taxpayer, with 36 for HMRC and 8 split decisions.
Why is this? Shouldn’t the balance be more like 50/50? After all, the tribunal is a neutral arbitrator. What these figures point to is the very narrow scope for challenging penalties for failures to submit returns or pay tax on time. The law does allow an escape clause where there is a ‘reasonable excuse’ but, as these figures clearly show, the tribunals interpret this in a very narrow way and many people who feel that they have been hard done by find to their cost that the tribunals take a hard line and confirm the penalty.
Penalties are a major part of the work of the tax tribunals. Since 2009, when the current system started to replace the old system of separate appeal routes for income tax and VAT, there have been something like 4,500 reported decisions. Of those, about 1,500 – a third – have involved penalties (this probably underestimates the number as the data is not recorded consistently and there are almost certainly penalty aspects of cases reported in other categories). So, if the 100 most recent cases are typical (and there is no reason to suppose they are not) and only 13% of cases are decided wholly in favour of the taxpayer, that does suggest that huge amounts of the tribunal’s resources are being taken up in dealing with cases where the taxpayer has no realistic chance of success.
Is this a problem? We think that it is. Appeal rights are important, but if the reality is that most appeals will have no realistic chance of success there comes a point where the reality is that the appeal right is no more than an illusion. We don’t think that we are quite there yet, but the danger is clear. HMRC is looking at how penalties will work in the digital area: let’s hope that proper consideration is given to giving taxpayers appeal rights which have real substance.
Why is it so difficult for taxpayers to win penalty appeals before the tribunal?
Research by Tolley has emphasised just how difficult it is for taxpayers to successfully challenge penalties imposed by HMRC at the tribunal. In a sample of the last 50 reported appeals to the First-tier Tribunal in income and corporation tax cases, the taxpayer was successful in only seven with HMRC winning 35. The remaining eight had a split outcome: the taxpayer still had to pay a penalty but managed to get the amount reduced. The figures for appeals against VAT penalties are remarkably similar: six wins for the taxpayer, with 36 for HMRC and 8 split decisions.
Why is this? Shouldn’t the balance be more like 50/50? After all, the tribunal is a neutral arbitrator. What these figures point to is the very narrow scope for challenging penalties for failures to submit returns or pay tax on time. The law does allow an escape clause where there is a ‘reasonable excuse’ but, as these figures clearly show, the tribunals interpret this in a very narrow way and many people who feel that they have been hard done by find to their cost that the tribunals take a hard line and confirm the penalty.
Penalties are a major part of the work of the tax tribunals. Since 2009, when the current system started to replace the old system of separate appeal routes for income tax and VAT, there have been something like 4,500 reported decisions. Of those, about 1,500 – a third – have involved penalties (this probably underestimates the number as the data is not recorded consistently and there are almost certainly penalty aspects of cases reported in other categories). So, if the 100 most recent cases are typical (and there is no reason to suppose they are not) and only 13% of cases are decided wholly in favour of the taxpayer, that does suggest that huge amounts of the tribunal’s resources are being taken up in dealing with cases where the taxpayer has no realistic chance of success.
Is this a problem? We think that it is. Appeal rights are important, but if the reality is that most appeals will have no realistic chance of success there comes a point where the reality is that the appeal right is no more than an illusion. We don’t think that we are quite there yet, but the danger is clear. HMRC is looking at how penalties will work in the digital area: let’s hope that proper consideration is given to giving taxpayers appeal rights which have real substance.
