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A Welcome Suspension

by Contractor Weekly

contractor weekly

Tribunal orders penalty suspension taxpayer never asked for

Where a tax return contains an inaccuracy that was due to the taxpayer failing to take reasonable care, then that error is deemed to be ‘careless’ but HMRC have the power to suspend such penalties where the conditions allow them to.


Suspension of penalties is seen as a way of encouraging taxpayers to improve their systems and procedures and a careless penalty can be suspended for a maximum of 2 years provided the person complies with a number of conditions. These conditions relate to eradicating further problems. Provided the conditions are adhered to, then the penalty is cancelled at the end of the suspension period.


Before HMRC agree to suspension of a penalty a taxpayer must be able to satisfy SMART conditions:


• Specific – the condition must be directly related to the taxpayer.

• Measurable – the taxpayer needs to be able to demonstrate that the conditions have been met. At the end of the suspension period the onus is on that person to satisfy HMRC that they have met the condition.
• Achievable – the taxpayer must be able to meet the conditions. The aim is to encourage future compliance so there is no point in setting a condition which can never be met.
• Realistic – which means HMRC can realistically expect that a taxpayer will meet the condition.

The acid test is to ask what the taxpayer could have reasonably done differently that would have avoided the original inaccuracy, then to ask the question whether, educated by that answer, a condition may be imposed which will help avoid future errors.


Patrick Miller failed to disclose employment income on his 2014 tax return which led to underpaid tax of nearly £6,000. This led to HMRC imposing a penalty of £862 for careless behaviour. Mr Miller, however, disagreed and appealed against the penalty assessment in January 2016 stating:


“I have lived outside the UK from September 2008 – January 2013 and have always completed the property section of the Self-Assessment form for my property. I continued to do so on joining Aerotek in 2013 and Loganair in 2014 not realising that the income details should have been included in the additional sections of the Self-Assessment form along with my pension details. This was because I truly believed that I was already paying the correct amount of tax on those accounts.”


HMRC rejected Mr Miller’s appeal but invited him to request a review of their decision which he accepted in a letter in March 2016, stating:

“Having read the guidance on the Self-Assessment form, I misunderstood the requirements due to the fact that I had been a non-resident taxpayer for a number of years and was only required to complete the property sections of the form…”

This was in vain however, as HMRC’s decision was upheld. So, Mr Miller appealed to the First Tier Tax Tribunal in July 2016. During the hearing the taxpayer was not present nor was represented, as he was working abroad at the time.


Although Mr Miller had not raised the possibility of the penalty being suspended the tribunal decided to review HMRC’s decision not to do so. Although a tribunal cannot substitute its own decision for that taken by HMRC, if it finds that HMRC’s decision not to suspend the penalty is flawed, then it can order HMRC to do otherwise.


It was conceivable that, having read the tax return guidance, Mr Miller thought there was no need to complete the employment page because he was, and had been, a non-resident taxpayer for a number of years. HMRC, on the other hand, argued that a taxpayer who is in two minds such as this should indicate in the ‘Any other information’ box why they have not included employment income in their return. Furthermore, HMRC’s guidance titled, ‘Tax on your UK income if you live abroad’ clearly says that, “You usually have to pay tax on your income if you live abroad even if you are not a UK resident……income includes things like…..wages.”


Whilst the judge accepted that Miller had made a genuine and honest mistake it was, nevertheless, careless. All was not lost however, as the judge then considered that HMRC had applied the wrong legal test when considering whether there were sufficient conditions to allow the penalty to be suspended. The Revenue had focused on the general obligations of taxpayers to complete accurate returns rather than on Mr Miller and what might be done to help him avoid a future careless inaccuracy. If they had applied the correct test, HMRC might have concluded that Miller could have:


• Made a disclosure in the ‘Any other information’ box;

• Undertaken a more detailed research by reviewing HMRC’s published materials; and
• Contacted HMRC.

The judge therefore found that HMRC’s decision not to suspend the penalty was flawed and ordered the department to suspend the penalty.


When faced with a penalty for careless inaccuracies, taxpayers should not just accept these as being final. Genuine errors and mistakes do happen, it’s a fact of life and in these instances the merits of a penalty suspension should always be explored before accepting the Revenue’s decision.