Penalties are more negotiable than they look
A penalty notice states a figure, which makes it read as settled. In many cases the behaviour category, the reduction for disclosure and the availability of suspension are all still open.
Three separate arguments
People tend to treat a penalty as a single number to accept or dispute. It is usually better understood as three questions, each of which can be argued independently.
1. Which behaviour applies
The penalty range for an inaccuracy depends on whether HMRC treats the position as arising despite reasonable care, from carelessness, or from deliberate conduct. The difference between categories is substantial, and the category HMRC opens with is not always the one the facts support.
2. The reduction for quality of disclosure
Within the applicable range, HMRC reduces the penalty according to the quality of disclosure — telling, helping and giving access to records. These are scored, and a case that is presented deliberately against those headings frequently attracts a larger reduction than one that is not.
3. Whether the penalty can be suspended
A penalty for a careless inaccuracy can in some circumstances be suspended against conditions. It is not available for deliberate conduct. Where it is available, it is often simply never requested.
Reasonable excuse, review and tribunal
Some penalties can be set aside altogether where there is a reasonable excuse for the failure. Where a penalty is disputed, there is normally a right to a statutory review by an HMRC officer not previously involved, and a right of appeal to the First-tier Tribunal. Both carry time limits.
A statutory review is free and often worth using. It is not a formality: reviews do result in penalties being reduced or withdrawn where the original decision was not well founded.
What we do
- Protect the position by appealing within the statutory time limit
- Test the behaviour category HMRC has applied against the actual facts
- Present the disclosure case deliberately against telling, helping and giving
- Request suspension where it is available and conditions can realistically be met
- Argue reasonable excuse where the facts support it
- Take the matter through statutory review, and to tribunal where that is right
Common questions
How are tax penalties calculated?
For inaccuracies in a return, the penalty is a percentage of the tax understated. The range depends on the behaviour involved — reasonable care, carelessness, or deliberate conduct — and on whether the disclosure was prompted or unprompted. Where within that range the penalty falls depends on the quality of the disclosure.
What does "telling, helping and giving" mean?
HMRC reduces a penalty within its statutory range based on the quality of disclosure, assessed across telling HMRC about the inaccuracy, helping it work out what is owed, and giving access to records. Each is scored, and the reduction is often larger than people assume when the case is properly presented.
Can a penalty be suspended?
A penalty for a careless inaccuracy can in some circumstances be suspended against conditions designed to prevent it happening again. Suspension is not available for deliberate conduct. Where it is available it is frequently not requested, which is a straightforward loss.
What is a reasonable excuse?
Some penalties can be set aside where there is a reasonable excuse for the failure. What qualifies is fact-specific and has been considered extensively by the tribunals. It is a narrower concept than the everyday meaning of the words, but it is not as narrow as HMRC correspondence sometimes implies.
Is it worth going to tribunal?
Sometimes, and sometimes not. It depends on the strength of the position, the amount at stake and the cost and time involved. We will tell you when we think a matter should be settled rather than litigated.
Start with the letter
Send a photo of page one on WhatsApp. We will tell you what it is, what the deadline means, and what a fixed fee would look like — within one working hourduring monday to friday, 9am to 5pm.
We only need the letter. Please do not send bank statements, identity documents or your UTR at this stage.