Tribunal’s mistake as to HMRC’s ‘mistake’: quantification of penalties

The case of William Aggrey [2022] UKFTT 200 (TC) raises an important point of wide interest: albeit one that was not mentioned by the Appellant, HMRC or the Tribunal judge.

There were omissions from Mr Aggrey’s tax returns.  HMRC had levied penalties and Mr Aggrey had appealed against them.

The Tribunal agreed with HMRC that penalties were in principle chargeable.

However, the Tribunal noted that HMRC’s computation of the penalties did not comply with the Tribunal’s reading of the law.  Assuming that HMRC had made a mistake, the Tribunal reduced them.

In point of fact, the Tribunal was itself mistaken: the variation from the law that the Tribunal identified was not down to a mistake on HMRC’s part; it was in accordance with HMRC’s published policy.

The law states the maximum penalty that may be charged (expressed as a percentage of the tax involved) in various specified circumstances.  It then requires HMRC to reduce that percentage ‘to one that reflects the quality of the disclosure’.  But it states a minimum figure (again, depending on the circumstances) below which the penalty may not be reduced.

For example, if HMRC discover on enquiry that through your lack of reasonable care your self-assessment return understates your tax liability, the maximum penalty is in most circumstances 30% and the minimum 15%.

The ‘quality of the disclosure’ means, as the judge in Aggrey paraphrased it, ‘the amount of help given to HMRC once the failure has been identified’.

Until 2016 it was always possible, by dint of giving full co-operation to HMRC, to secure that the penalty charged did not exceed the statutory minimum.

In 2016 HMRC’s practice (but not the law) was changed: thenceforth, if the disclosure was ‘a significant period’ after the event (normally three years or more), HMRC would treat the minimum penalty as 10 percentage points higher than the statutory minimum.

Thus, alleging that Mr Aggrey had been careless in failing to declare a capital gain dating back more than three years, HMRC treated the maximum penalty as 30% and the minimum as 25% (rather than the 15% specified by the law).  Determining that the ‘quality’ of the disclosure warranted reducing the penalty by 85% of the maximum permissible reduction, HMRC had assessed a penalty of 25.75% (being 25% + 15% x 5%).  The Tribunal, believing HMRC’s use of a 25% minimum to be a mistake, ‘corrected’ the penalty to 17.25% (being 15% +15% x 15%).

It is relevant to speculate what the Tribunal’s decision might have been had the judge realised that HMRC had not made a mistake but had deliberately substituted their own minimum penalty for that provided under the law: would the apparent departure from the law have been accepted had it been recognised to be deliberate?

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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.

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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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