Marano: ‘Special Circumstances’ in penalty cases

There are many ways to incur a penalty under UK tax law.  These include failing to notify chargeability, filing an incorrect tax return, filing a return late or paying tax late.  The level of the penalty is set by reference to (broadly) the degree of culpability, whether there is an overseas element and the extent to which matters are disclosed to HMRC.  But after taking all those factors into account, HMRC must also consider whether there are any ‘special circumstances’ which warrant a further reduction.  HMRC caseworkers are not authorised to make a ‘special circumstances’ reduction: only ‘Head Office’ can do that.

The law provides that neither the ability to pay, nor the fact that a potential loss of revenue from one person is balanced out by a potential overpayment by another, can count as a ‘special circumstance’.  And the examples given in HMRC’s published guidance of cases in which they might consider a special reduction are not only highly fact-specific but describe scenarios in which many people would consider the charging of a penalty outrageous.  It’s fair to say that HMRC don’t fall over themselves in their enthusiasm to find opportunities to apply the ‘special circumstance’ reduction.

HMRC’s decision on what reduction (if any) to apply can be reviewed on appeal – but only if the decision or the decision-making process can be shown to be flawed in a judicial review sense: that is, if the decision is tainted by HMRC having taken into account irrelevant factors or having failed to take into account (or having given insufficient weight to) relevant ones.  So Tribunal appeals on ‘special circumstances’ are relatively uncommon, and those reaching the Upper Tribunal more so.

One such recent appeal was by Peter Marano in [2023] UKUT 113 (TCC).  He didn’t file his 2012/13 tax return until 2017, and as result incurred late filing penalties of nearly £600,000.  HMRC had not considered that there were any ‘special circumstances’ justifying reduction.  The First-tier Tribunal (‘FTT’) had found HMRC’s decision-making process to be procedurally flawed; but nonetheless could find no ‘special circumstances’.

The Upper Tribunal (‘UT’) held that the FTT had itself got it wrong by declining to take into account three factors.

  • Mr Marano had notified HMRC of the gain in December 2012.  HMRC were thus aware of the gain long before the tax return in question was due to be filed.
  • Mr Marano had paid the tax in December 2012.  The fact that he had done this for reasons connected with obtaining double taxation relief against US tax (Mr Marano was a US citizen) was irrelevant and the FTT had been wrong to dismiss it.
  • The size of the penalty and whether it was proportionate to the offence.  Here, the UT observed that although ‘proportionality cannot be a special circumstance in cases where there is no liability and a minimum penalty is levied’, it remained a possibility that ‘proportionality might, where a tax-geared penalty is levied, be a special circumstance depending on the particular facts of that case.’

It’s important to be aware that the UT did not rule that there were ‘special circumstances’ and remake the decision: it merely ruled that these factors should have been taken into account by the FTT (and, before that, by HMRC) in deciding the issue.  It therefore remitted the case to the FTT to have another go (but specifying that it must be a different panel, lest a dispassionate observer might consider the panel to be subconsciously influenced by its earlier decision).

Getting a ‘special circumstances’ reduction might still be almost as challenging as getting a camel through the eye of a needle: but the Marano decision does, perhaps, make it just a little bit less grim.

For more information, please get in touch with your usual BKL contact or use our enquiry form.

This article was republished by Tax Journal (Issue 1629) and is also available on the Tax Journal website.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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