Daily penalties: HMRC victory in Court of Appeal

01 August 2016


The Court of Appeal has confirmed that HMRC had correctly imposed daily late filing penalties under Schedule 55 Finance Act 2009. This decision is important as there have been a number of cases put on hold awaiting its outcome.

The case Donaldson v HMRC [2016] EWCA Civ 761 concerned whether the daily penalties issued by HMRC in respect of the taxpayer’s 2010/11 self-assessment return were valid.

  • The taxpayer failed to file a paper return by 31 October 2011.
  • In December 2011 he was sent a computer generated reminder stating he was too late to file a paper return without paying a penalty, and that daily penalties would apply if he failed to file by 31 January.
  • He still did not file his return, and received a further reminder on 6 January, again stating that daily penalties would apply if the return was over 3 months late.
  • The taxpayer finally filed his return on 1 May 2012 and received an assessment for fixed and daily penalties.

The First Tier Tribunal (FTT) previously found that, as HMRC had not given a notice to the taxpayer specifying the date from which the daily penalties applied, those penalties were not valid.

The Upper Tribunal (UT) however subsequently overturned that decision and found that the daily penalties had been correctly imposed.

The Court of Appeal has now upheld the decision of the UT, finding that:

  • A generic policy decision taken by HMRC was sufficient to satisfy the requirement of para 4(1)(b) that HMRC must ‘decide’ that a penalty is payable: the decision does not have to be made on a taxpayer by taxpayer basis.
  • The notices given by HMRC to the taxpayer were sufficient: all they had to do was inform the taxpayer that, if his return was 3 months late, daily penalties would be charged for up to 90 days.

The UT had observed that HMRC had probably not satisfied its obligations under para 18 when issuing the penalty assessment, but it did not consider this in detail the issue was not under appeal. The Court of Appeal did go onto consider this point, again finding in favour of HMRC:

  • The penalty assessment, in not stating the period in which the daily penalties applied, did not satisfy the requirements of para 18(1)(c).
  • However, the taxpayer could not have been in doubt as to the period over which he incurred a liability based on the reminders received.
  • The omission from the assessment was therefore one of form and not substance and the taxpayer was not misled or confused by it.
  • This meant that, per the override in s114(1) TMA 1970, the omission did not affect the validity of the assessment.

The taxpayer’s appeal was therefore rejected.

With thanks to Ross Martin's SME tax news for providing this summary. They also commented on the case:

This decision is of interest as many taxpayers had appealed daily penalties based on the FTT decision and further appeals on behalf of the taxpayer.  As a result a large number of appeals were stayed behind this case.

HMRC’s success at the Court of Appeal may prove to be the final nail in the coffin for these appeals.  The taxpayer has been represented pro bono with minimal personal involvement to date, so it is highly doubtful that a further appeal will be made.”