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HMRC internal manual

Compliance Operational Guidance

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HM Revenue & Customs
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Our Conduct and Behaviour: customer service to disabled people: how to help: examples of penalty decisions taking account of disability

The following examples help illustrate where the impact of a mental or physical impairment has been taken into account.

Example 1

JP Ltd failed to submit their VAT returns for periods 7/10 to 4/13. HMRC started a compliance check on 5 July 2013.

HMRC had issued central assessments for each of the periods where returns were outstanding and all of these had been paid. John Peterson was the sole director and shareholder of the company and, following the initial contact from HMRC, he appointed an agent who submitted all the outstanding returns by 5 September 2013.

For each period the VAT liability shown on the return was higher than the central assessments. HMRC issued Schedule 24 para 2 penalty assessments to JP Ltd because the company had not notified them about the under-assessments within 30 days.

The agent appealed against the penalty assessment stating that in 2010, John, the director, had been diagnosed with a mental illness. Since then he has been receiving treatment. John’s doctor provided evidence that from May 2010 he had been unable to work, rarely left his home and left the day to day running of the business to an employee. Since May 2013 John’s condition had gradually improved.

You must consider what reasonable steps John, as sole director, should have taken, given his circumstances at the time each assessment was issued.

HMRC accepted that John’s illness adversely affected his ability to carry out normal day to day activities throughout the whole period. This included his tax affairs. His illness prevented him from knowing that the central assessments under-assessed the company’s liability to VAT. Once John’s health began to improve he took steps to bring his VAT up to date.

As a result, HMRC concluded that the Schedule 24(2) penalties were not due as John’s condition had prevented him from taking steps to notify HMRC about the under-assessment. Once his condition improved he was quickly able to take steps to comply with his obligations.

Example 2

James was diagnosed with severe dyslexia while at school and this affected his reading ability. He recently started in business as a second hand car dealer. Before starting his business, James looked at HMRC’s published guidance in an attempt to understand his VAT obligation. James makes sure his business records are up to date and kept in good order.

Despite this, James’ return contained numerous errors. The errors included transposed figures and a failure to understand the requirement of one box. James explained the errors were due to his dyslexia.

When considering what steps James had taken to understand his tax obligations, HMRC concluded that he had taken reasonable care and that his dyslexia had a direct effect on the accuracy of his return. In these circumstances, HMRC decided that James had taken reasonable care and there was no penalty due.

Example 3

Mr Smith had not declared income from an off-shore bank account on his self assessment tax return for the year ended 5 April 2011. He said that he had been diagnosed with lung cancer and so HMRC asked for evidence of this and the date it was diagnosed. Mr Smith produced a letter from a consultant at his local hospital confirming that he had been diagnosed with lung cancer in July 2013 and was receiving treatment for the condition.

Although cancer is covered by the Equality Act 2010 from the date of diagnosis, at the time Mr Smith made the inaccuracy he had not been diagnosed with cancer. He had not provided any evidence that this had affected his ability to exercise due care at the time he submitted an inaccurate return and therefore this was not taken into account when establishing the penalty behaviours.