Tax Penalties Special Reduction

HM Revenue and Customs (HMRC) may levy penalties for a variety of tax’ offences’ or failures to comply with the law, such as late filing of tax returns, late payment of tax, failing to disclose charge ability to tax, and in certain instances, failure to produce information and documentation.

The risk of penalties is always there for taxpayers who are obliged to file annual tax returns to HMRC. Penalties may be imposed not just for filing tax returns late but also for filing them incorrectly. Even individuals who are not required to submit a tax return individually may be subject to a penalty if they are responsible for a mistake on another person’s return! Unfortunately, errors in tax returns are common and challenging to prevent. Fortunately, not every mistake in a tax return results in a penalty.

Penalties for noncompliance with tax obligations may seem severe at times. Fortunately, the different penalty systems provide exclusions and “let-outs” from penalties in certain instances when tax compliance failure has occurred.

HMRC has a wide variety of powers that are constantly growing. Penalties for noncompliance for different statutory obligations by taxpayers and others are often used to support those powers.

On the other hand, some compliance programmes include exceptions so that penalties may be reduced or eliminated in specific situations. This section explores one of the provisions under that category, known as the “special discount’. As a result, penalties such as these may be applied to different kinds of mistakes, including errors in penalty returns, failure to provide proper notice, failure to make a return, and failure to pay on time.

The unique reduction guidelines provide that if HMRC believes it is appropriate due to “exceptional circumstances,” it may lower certain penalties. However, the legislation does not specify “exceptional circumstances,” just what they do not cover (i.e. the ability to pay or the fact that a potential overpayment balances a possible loss of revenue from one taxpayer by another).

A specific penalty reduction involves HMRC ‘staying’ a penalty (i.e. stopping or deferring a penalty) or ‘agreeing to a settlement (i.e. foregoing all or part of a penalty). The unique reduction facility is beneficial to taxpayers, but the fact that the reduction is at the discretion of HMRC is less encouraging! However, if HMRC does not contemplate a notable reduction, a taxpayer can appeal to a tribunal for a penalty reduction.

The question of whether or not a set of circumstances is “exceptional” will be based on the specific facts of each instance. Special circumstances, according to HMRC, are those that are either “uncommon or unusual, or in which the law is contrary to the compliance issue.

In some circumstances, HMRC may decide that a special reduction is not appropriate. However, it is critical to ensure that HMRC takes into account any exceptional circumstances. If HMRC does not do so or does so without explaining its decision, the tribunal may be able to provide a special reduction on appeal, depending on the facts of the case.