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HMRC internal manual

Compliance Handbook

Special Reduction: First Tier Tribunal case guidance on the meaning of proportionality: prompted careless inaccuracy 15% minimum penalty

This page gives additional detail for review officers and appeals teams.

In the income tax careless inaccuracy penalty case of David Collis (TC01431) the First Tier Tribunal (FTT) said:

‘48. It has nonetheless been recognised that it is implicit in the concept of proportionality that, not merely must the impairment of the individual’s rights be no more than necessary for the attainment of the public policy objective sought, but also that it must not impose an excessive burden on the individual concerned (International Transport Roth GmbH v Home Secretary [2002] 3 WLR 344 at [52]). In Roth Simon Brown LJ formulated the relevant question (at [26]) as: “Is the scheme not merely harsh but plainly unfair so that, however effectively that unfairness may assist in achieving the social goal it simply cannot be permitted?

  1. Applying these principles we conclude that the application of a penalty under Schedule 24 on each occasion of a careless or other relevant inaccuracy, even if it is the first occasion on which the taxpayer has submitted an inaccurate return, is well within the margin of appreciation which Parliament has in this respect. In our view such an application of the penalty regime is neither harsh nor plainly unfair.

  2. In reaching this conclusion we take into account the protections afforded by the statutory provisions to a taxpayer. The inaccuracy must be careless or deliberate. The maximum penalty is lower for lesser culpability (careless) than for greater degrees (deliberate but not concealed, and deliberate and concealed). In each case HMRC must reduce the maximum penalty to reflect the quality of disclosure, potentially down to a minimum percentage depending on the nature of the inaccuracy. A further reduction may be made by reason of special circumstances. A penalty may, in appropriate circumstances, be suspended subject to conditions. Finally, a taxpayer has a number of avenues to appeal to the tribunal.

  3. There are many ways in which a state may choose to impose penalties for failure to comply with tax obligations, and many ways in which those provisions may seek to protect the fundamental rights of a taxpayer subject to those provisions. The choice of such protections and the way in which the fair balance is maintained between those fundamental rights and the general interest of the community is for the state to determine, within its margin of appreciation. It would of course have been open to Parliament to have provided for a warning for a first occasion on which a penalty might otherwise have been levied, but in the context of the overall protections available under Schedule 24 it was well within its margin of appreciation not to have done so.

  4. Accordingly, in the context of the provisions of Schedule 24 taken as a whole we do not consider that the penalty imposed on Mr Collis was over-penal or disproportionate.’