In HMRC v HOK [2012] UKUT 363 (TCC) the Upper Tier Tax Tribunal (UTT) has ruled that the First Tier Tribunal (FTT) did not have the jurisdiction to reduce late filing penalties on grounds of unfair conduct by HMRC.

The taxpayer, HOK Limited did not file its P14 return on 14 May in error, because its only employee had ceased employment mid year. HMRC did not notify the company of any late filing penalty until September. The result was that five months of penalty (£500) was due by the time that the return was filed.

On appeal to the FTT HOK had its penalties reduced to one month - £100, on the grounds that HMRC had acted unfairly by not raising a penalty notice as soon as a penalty was incurred.

After the hearing HMRC caved in after continued criticism of its perceived unfair practices over this type of penalty and changed its systems to ensure that other taxpayers received notification of penalties sooner.

HMRC appealed the tribunal decision and the matter became the subject of a test case. The UTT decided that a tribunal does not have a power to reduce a tax penalty when it is imposed under circumstances where one is due and is of the correct amount, even if HMRC deliberately delayed in notifying the taxpayer of the fact that it was incurring penalties.

In a nutshell, the UTT decided that the tribunal does not have the jurisdictions to exercise either:

  • a judicial review function or
  • common law principles

as any matter in relation to HMRC’s unfairness of conduct is a matter for judicial review.

The UTT also noted that there was also no apparent evidence of deliberate delay by HMRC.


In a scenario that would have appealed to Franz Kafka the only route for HOK is to apply for Judical Review (on the grounds of procedural unfairness and legitimate expectation). As the Judical Review process follows the highly complex Civil Procedure Rules the majority of taxpayers just don't have the expertise or resources to take their case any further. So much for safeguards for the taxpayer.

Taxpayers and agents are appalled by this result. We have spent years debating HMRC's Powers, Deterrents and Safeguards, and HMRC has assured us all the way through that penalties are a deterrent and not for raising revenue. Now (surprise, surprise...) we find that if HMRC does not act as we expect it to act, and we know how we expect it to act, because it says how in our Taxpayer Charter, then we are stuffed,  unless, of course we want to pay a barrister to represent us at Judicial Review.

HMRC has long been under fire for setting its controls so that there is a delay before it sends out PAYE penalty notices. HMRC did not have to wait four months in order to issue a penalty, this is just debt collection policy after all. It could have issued letters as soon as the deadline was passed. HMRC has more efficient systems for different penalties as we all see in practice.

It is ironic that in a case which considered both unfairness and disproportionality that the taxpayer could not afford representation.