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Tax credits – penalties – proper approach when imposing non-fixed penalties
The claimant was awarded child tax credit (CTC) for the financial year 2012/2013 assessed on the basis of her declared income of £11,000. Her Majesty’s Revenue and Customs (HMRC) wrote to her in October 2013 to say that her actual income had been £22,797 and later in December 2013 to say that it would amend her award of CTC accordingly. In February 2014 HMRC wrote to the claimant again to say that in its view she had been negligent when making her claim and that it had therefore decided to impose a penalty of £1,360. The claimant’s appeal against that decision was dismissed by the First-tier Tribunal (F-tT). Among the issues before the Upper Tribunal (UT) was whether a penalty was appropriate and if so the amount, given that the prescribed maximum for the offence was £3,000 and the general legal approach, when imposing non-fixed penalties, of reserving the maximum penalty for the worst offences.
Held, allowing the appeal, that:
the F-tT had failed to consider whether, and how, to exercise its discretion as to whether a penalty should be imposed nor had it given any consideration as to how the penalty was to be calculated, nor any indication that it had considered whether there had been any mitigating (or aggravating) factors (paragraph 22);
it was proper for HMRC to adopt guidance both to explain its actions and to help ensure consistency in its decisions and for the First-tier Tribunal to adopt that guidance as its starting point, provided that it had understood and explained that that was what it was doing. It was not reasonable (or lawful) for it to follow slavishly the decision of HMRC as to the amount of the penalty (paragraphs 23).
The judge provided detailed propositions summarising the correct approach for the HMRC and tribunals to adopt when considering cases involving tax credit penalties (paragraph 25). He set aside the decision of the F-tT and remitted the appeal to a differently constituted tribunal to be re-decided in accordance with his directions.