© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
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V6: Mitigation of penalties
HMRC opaque approach to mitigation criticised
"[77] Equally surprising to us is the manner in which the Respondents have dealt with the reduction in the penalty for the quality of disclosure. Officer Henderson initially determined that the quality of the Appellant's disclosure merited a reduction in the penalty which was equal to 70% of the difference between the maximum and minimum penalty figures. That conclusion was adjudged by Officer Noble on review to be too harsh, with the result that the reduction was increased to 85% of the difference between the maximum and minimum penalty figures. However, when Officer Henderson reduced the penalty on 24 January 2024 to take into account the change in the status of the penalty from deliberate but not concealed to non-deliberate, she awarded no reduction whatsoever for the quality of disclosure. Moreover, there was no way that the Appellant or its representative could have realised from the information that was sent to them by Officer Henderson on that date that that was the case.
[78] We do not understand why the conclusions reached by Officer Henderson and Officer Noble in relation to the quality of disclosure at the time when they considered that the Appellant's act or failure was deliberate but not concealed should not have stood when Officer Henderson subsequently concluded that the act or failure was non-deliberate. As we have said in paragraph 51(4) above, Mr Holt was unable to shed any light on this at the hearing. It seems to us that, at the very least, the revised penalty on 24 January 2024 should have reflected that discount and should therefore have been 21.5% and not 30% of the excise duty in question - 20% plus 15% of the 10% difference between the maximum and minimum penalty figures - to take account of the 85% reduction which the Respondents had previously agreed to be due for the quality of disclosure." (Kent Couriers Limited v. HMRC [2024] UKFTT 145 (TC), Judge Beare)
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Failure to make return mitigation
"(1) Paragraph 15 provides for reductions in the penalty under paragraph 6(3) or (4) where P discloses relevant information that involves a domestic matter or 11(3) or (4) where P discloses relevant information.
(1A) Paragraph 15A provides for reductions in the penalty under paragraph 6(3) or (4) where P discloses relevant information that involves an offshore matter or an offshore transfer." (FA 2009, Sch 55, para 14)
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Domestic matters
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"(1) If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure.
(2) But the standard percentage may not be reduced to a percentage that is below the minimum shown for it—
(a) in the case of a prompted disclosure, in column 2 of the Table, and
(b) in the case of an unprompted disclosure, in column 3 of the Table." (FA 2009, Sch 55, para 15)
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Standard 70%
Minimum for prompted: 35%
Minimum for unprompted: 20%
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Standard: 100%
Minimum for prompted: 50%
Minimum for unprompted: 30%
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Lower limits
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"(5) But HMRC must not under this paragraph—
(a) reduce a penalty under paragraph 6(3) or (4) below £300, or
(b) reduce a penalty under paragraph 11(3) or (4) below the amount set by paragraph 11(3)(b) or (4)(b) (as the case may be)." (FA 2009, Sch 55, para 15)
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Offshore matters/transfers
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"(1) If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure.
(2) But the standard percentage may not be reduced to a percentage that is below the minimum shown for it—
(a) in the case of a prompted disclosure, in column 2 of the Table, and
(b) (b) in the case of an unprompted disclosure, in column 3 of the Table." (FA 2009, Sch 55, para 15A)
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See table here
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Lower limit
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"(3) But HMRC must not under this paragraph reduce a penalty below £300." (FA 2009, Sch 55, para 15A)
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- Relevant information
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"(A1) In this paragraph, “relevant information” means information which has been withheld by a failure to make a return." (FA 2009, Sch 55, para 14)
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- Disclosing information re domestic matter
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(1B) Sub-paragraph (2) applies where—
(a) P is liable to a penalty under paragraph 6(3) or (4) and P discloses relevant information that involves a domestic matter, or
(b) P is liable to a penalty under any of the other provisions mentioned in sub-paragraph (1) and P discloses relevant information.
(2) P discloses relevant information by—
(a) telling HMRC about it,
(b) giving HMRC reasonable help in quantifying any tax unpaid by reason of its having been withheld, and
(c) allowing HMRC access to records for the purpose of checking how much tax is so unpaid." (FA 2009, Sch 55, para 14)
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- Disclosing information re offshore matter/transfer
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"(2A) Sub-paragraph (2B) applies where P is liable to a penalty under paragraph 6(3) or (4) and P discloses relevant information that involves an offshore matter or an offshore transfer.
(2B) P discloses relevant information by—
(a) telling HMRC about it,
(b) giving HMRC reasonable help in quantifying any tax unpaid by reason of its having been withheld,
(c) allowing HMRC access to records for the purpose of checking how much tax is so unpaid, and
(d) providing HMRC with additional information." (FA 2009, Sch 55, para 14)
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Additional information
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(2C) The Treasury must make regulations setting out what is meant by “additional information” for the purposes of sub-paragraph (2B)(d).
(2D) Regulations under sub-paragraph (2C) are to be made by statutory instrument.
(2E) An instrument containing regulations under sub-paragraph (2C) is subject to annulment in pursuance of a resolution of the House of Commons." (FA 2009, Sch 55, para 14)
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- Prompted v. unprompted
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"(3) Disclosure of relevant information—
(a) is “unprompted” if made at a time when P has no reason to believe that HMRC have discovered or are about to discover the relevant information, and
(b) otherwise, is “prompted”." (FA 2009, Sch 55, para 14)
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- Quality
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"(4) In relation to disclosure “quality” includes timing, nature and extent." (FA 2009, Sch 55, para 14)
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Direct tax: HMRC power to mitigate
"The Board may in their discretion mitigate any penalty, or stay or compound any proceedings for a penalty, and may also, after judgment, further mitigate or entirely remit the penalty." (TMA 1970, s.102)
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VAT: power to mitigate
VATA 1994, s.70