Where a person has become liable to a penalty for a careless inaccuracy in connection with their tax affairs, FA 2007 Sch 24 allows HMRC to suspend all or part of the penalty, subject to certain conditions. If the conditions are complied with the penalty is cancelled. This can be very helpful.
HMRC use the SMART criteria in deciding whether to suspend a penalty: Specific, Measurable, Achievable, Realistic and Time Limited.
This is a matter of administrative discretion by HMRC so you can’t complain about it too much – although their discretion has to be exercised reasonably on Wednesbury principles.
The recent FTT case of Cox v HMRC [2024] UKFTT 510 (TC) casts some doubt on the application of these rules – although it must be said that its conclusion was reached by rejecting the reasoning in a number of other cases on the subject.
For example, in Eastman v HMRC [2016] UKFTT 527 (TC) the tribunal had said that:
‘It does not matter that the disposal or that Mr Eastman no longer has business assets. Nor would it necessarily be a bar to a suspension condition if he had no other chargeable assets, so long as he had a continuing requirement to make self-assessment returns and thus a risk of a penalty for careless inaccuracy.’
But the FTT in Cox held that this was wrong; it said it could not have been the intention of Parliament.
It went on to say that the suspension of a penalty by reference to the SMART criteria did not apply when the conditions for the suspension were nothing more than the taxpayer promising that their tax returns would be free from careless inaccuracies in the future.
Why on earth not? That is exactly what a suspended penalty does and is supposed to do. It is the same for suspended penalties or sentences in other walks of life. If you offend again in the next [12] months the penalty becomes payable – but not if you don’t. As it says in FA 2007 Sch 24 para 14:
‘If, during the period of suspension … [the taxpayer] becomes liable for another penalty … the suspended penalty becomes payable’.
What else is the taxpayer supposed to do than undertake not to offend again – providing his promise is credible. And what is the problem anyway. HMRC say that the suspended penalty is intended as a punishment and a deterrent for carelessness. If it works, and there is no further default, the suspension is a conspicuous success. What’s not to like?
I would suggest that HMRC need more of this – rather than seek to curtail it.
Where a person has become liable to a penalty for a careless inaccuracy in connection with their tax affairs, FA 2007 Sch 24 allows HMRC to suspend all or part of the penalty, subject to certain conditions. If the conditions are complied with the penalty is cancelled. This can be very helpful.
HMRC use the SMART criteria in deciding whether to suspend a penalty: Specific, Measurable, Achievable, Realistic and Time Limited.
This is a matter of administrative discretion by HMRC so you can’t complain about it too much – although their discretion has to be exercised reasonably on Wednesbury principles.
The recent FTT case of Cox v HMRC [2024] UKFTT 510 (TC) casts some doubt on the application of these rules – although it must be said that its conclusion was reached by rejecting the reasoning in a number of other cases on the subject.
For example, in Eastman v HMRC [2016] UKFTT 527 (TC) the tribunal had said that:
‘It does not matter that the disposal or that Mr Eastman no longer has business assets. Nor would it necessarily be a bar to a suspension condition if he had no other chargeable assets, so long as he had a continuing requirement to make self-assessment returns and thus a risk of a penalty for careless inaccuracy.’
But the FTT in Cox held that this was wrong; it said it could not have been the intention of Parliament.
It went on to say that the suspension of a penalty by reference to the SMART criteria did not apply when the conditions for the suspension were nothing more than the taxpayer promising that their tax returns would be free from careless inaccuracies in the future.
Why on earth not? That is exactly what a suspended penalty does and is supposed to do. It is the same for suspended penalties or sentences in other walks of life. If you offend again in the next [12] months the penalty becomes payable – but not if you don’t. As it says in FA 2007 Sch 24 para 14:
‘If, during the period of suspension … [the taxpayer] becomes liable for another penalty … the suspended penalty becomes payable’.
What else is the taxpayer supposed to do than undertake not to offend again – providing his promise is credible. And what is the problem anyway. HMRC say that the suspended penalty is intended as a punishment and a deterrent for carelessness. If it works, and there is no further default, the suspension is a conspicuous success. What’s not to like?
I would suggest that HMRC need more of this – rather than seek to curtail it.
