In Mark Butterworth v HMRC [2018] TC05276 the FTT was confused by what is meant by a 'tax liability' when it comes to Self Assessment and PAYE. As a consequence it did not reduce six and twelve month late filing penalties on a 'nil' liability return. 

  • An employed taxpayer was required to file under Self Assessment in order to claiming employment expenses in excess of £2,500 each year.
  • He incurred Late Filing Penalties for 2 years’ returns.
  • In both years his expense claims which created a partial refund of PAYE already deducted.
  • He appealed against the various penalties charged. 

The taxpayer had claimed that under para 17(3) Schedule 55 FA2009 meant that his 6 and 12 month late penalties of £600 of penalties could be reduced to zero, because he had no tax to pay in the year. 

The 2015 tax liability was nil (net of PAYE).

The tribunal judge was unsure as to whether the tax liability used in the penalty calculations should be before or after deduction for PAYE. 

Sch 55 para 24, told him that the relevant liability to use for these calculations is the amount shown as due or payable in that year’s tax return. 

Finding this unclear, he decided that the calculations should ignore PAYE amounts and so HMRC should have charged 5% of the gross tax for the year, which would have been higher than £300.   

The judge then accepted the two £300 penalties should stand unchanged and went on to consider whether the penalties could be limited by the special rules in sch 55 para 17 (3).

Surprisingly, the Tribunal decided that the two £300 penalties were not calculated with reference to a liability to tax, and so ruled the limitation rules in 17(3) did not apply. 

The tribunal did howver cancel £900 of daily late filing penalties for 2015/16 following Donaldson: the HMRC's template for notices did not stipulate the period for which the penalty was charged, see Penalties, Grounds for Appeal, HMRC error


  • Its difficult to speculate however, perhaps if the judge had been more familiar with what is shown in a tax return, he would have realised that PAYE is taken off the year’s tax liability shown in the tax return. 
  • As the six and twelve month penalty amounts can only be charged if they give a figure higher than the 5% of the tax liability for the year this appears to be an incorrect reading of the law. 
  • Incorrect findings of law can be appealed to the Upper Tribunal.

Useful tax guides on this topic:

How to Appeal a Tax Penalty

Penalties: Late filing

Grounds for Appeal: Toolkit

Appeals: late appeals 

External links

Mark Butterworth v HMRC [2018] TC05276