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HMRC internal manual

Compliance Handbook

Special reduction: When special circumstances do not exist

We can only make a special reduction where there are special circumstances, see CH170600. You must not give a special reduction without authority from Tax Administration, Litigation and Advice (TALA) to do so, see CH175000.

Special circumstances do not include

  • the ability to pay, or
  • the fact that a potential loss of revenue from one person is balanced by a potential overpayment by another.

The law for each penalty provides

  • the penalty ranges for a given behaviour, and
  • the maximum reduction that can be allowed for the quality (timing, nature and extent) of any disclosure.

Only special circumstances allow us to use special reduction to reduce a penalty below a statutory minimum.

The headings below set out some matters that are not special circumstances.

Point covered by some other point of law

Special circumstances do not exist for the purpose of special reduction if the circumstances are covered by some other point of the penalty law, resulting in either no liability to a penalty or a reduction in the penalty permitted under the statutory scheme. So, for example,

  • for incorrect return penalties, if the person took reasonable care then they are not liable to a penalty and therefore there is no special reduction to consider.
  • where a set of circumstances constitutes a reasonable excuse there is no liability to a penalty and therefore there is no special reduction to consider.
  • where factors have already been taken into account in deciding the reduction allowed for the person’s quality of disclosure, those factors will not normally be reconsidered as special circumstances for the purposes of a special reduction.
  • where re-examination of the facts, or new facts provided to HMRC, result in HMRC changing our view and regarding a prompted disclosure as unprompted, the same facts will not normally also be special circumstances for the purposes of special reduction.

Even where the circumstances do not appear to be covered by another point of the penalty law, for example if we have not taken them into account when considering the behaviour or quality of disclosure, this does not automatically mean we can give a special reduction. We will only consider special reduction where one of the two types of special circumstances apply, see CH170600.

Items balanced out in other accounting periods

A potential loss of revenue for one prescribed accounting period being balanced by a potential overstatement of revenue in another prescribed accounting period is not, by itself, a special circumstance.

Behaviour is deliberate

It is unlikely that a special reduction will apply to a penalty where behaviour is considered to be deliberate, whether or not concealed. In that situation it would not normally be enough for the person to say their error or failure was only caused by uncommon or exceptional circumstances.

Size of penalty

On its own, the size of the penalty is not a special circumstance and therefore does not allow us to consider special reduction. This is because the structure and level of penalties were fully considered when legislated by Parliament, giving due consideration to all the likely practical effects across all regimes and types of taxpayer.

For example, we do not compare the amount of any fixed rate penalties for failure to file on time to the eventual tax liability of the return when considering whether to make a special reduction. The obligation to file even a nil liability return is an important one, and failure to comply with that obligation creates unnecessary burdens for both the person and HMRC.


A person may request a special reduction on the basis that a penalty is disproportionate, but the penalty regime is fully compliant with their rights under the ECHR to the peaceful enjoyment of their possessions.

All our legislation is required to comply with the Human Rights Act and to be proportionate. The tax geared penalty regimes in FA07, FA08 and FA09 are intended to be punitive and deterrent in nature and may sometimes result in a penalty that could in certain circumstances be considered harsh. These penalty regimes are, however, fully compliant with Protocol 1 of Article 1 of the ECHR which

  • protects a person’s right to the peaceful enjoyment of their possessions but
  • ensures the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.

The law ensures that the amount of a penalty is proportionate to the inaccuracy or failure by

  • taking into account the behaviour of the person
  • gearing it to the potential lost revenue, and/or
  • making it subject to statutory maximum and minimum levels that take account of the seriousness of the offence.

The size of the resulting penalty is therefore not, on its own, a special circumstance.

However, the specific circumstances that resulted in a person being charged a penalty of a specific size may constitute special circumstances that may qualify for a special reduction.

Example 1 - Ian

Size of the penalty set by law is not, by itself, unusual or uncommon and is not a special circumstance

Ian submitted his return five months late. He did not have a reasonable excuse. We assessed an initial £100 penalty and then a further £600 (a daily penalty of £10 per day for 60 days). The return showed a liability of £200.

Ian asks for a special reduction of the fixed rate penalties because he argues that it is unfair to charge a total penalty of £700 when he only has £200 tax to pay. The obligation to file, even where it relates to a small or nil liability return, is an important one, and failure to file creates unnecessary burdens for both the person and HMRC. So we do not consider the size of the penalties to be a special circumstance.

Example 2 - Alan

Alan submitted an inaccurate return by omitting a large termination payment. We carried out a compliance check and, based on the relevant facts, the behaviour was agreed to be careless. The penalty range for a prompted, careless inaccuracy is 15% - 30%. We agreed that full reduction for quality of disclosure was due, resulting in a penalty charge of 15%.

Alan agreed with our view of the behaviour but argued that the failure was not so bad as to justify the size of the penalty. Alan argued it was a simple oversight as he believed the correct amount of PAYE had been deducted at source. There were no other relevant facts in the case.

There were no special circumstances. The penalty is the statutory minimum for the penalty behaviour and special reduction is not appropriate.