Harrison: the threshold for ‘deliberate failure’ to file

/ 1 September 2022

Chris Smith

There are penalties for failure to file a self-assessment tax return on time (unless there is a ‘reasonable excuse’ for the failure):

  • The initial penalty is £100;
  • If the return remains outstanding after 3 months, penalties of £10 a day (up to a maximum of £900) start to kick in;
  • If it’s still not filed 6 months after it should have been, a penalty of 5% of the tax due (or a minimum of £300) is payable, with another 5% (or £300) if the delay reaches a year.

That much is reasonably well understood.

What may be less well-known is that the 12-month penalty of 5% can be greatly uplifted (to a maximum of 200% in some circumstances) if ‘by failing to make the return, [the taxpayer] deliberately withholds information which would enable or assist HMRC to assess [the taxpayer’s] liability to tax’.

Thus (unlike the other penalties) the ‘super-penalty’ appears to require not just a failure to file the return but a positive decision not to do so: but the approach taken by HMRC and the Upper Tribunal recently in the case of Matthew Harrison [2022] UKUT 216 (TCC) gives some cause for concern.

Mr Harrison’s 2014/15 tax return, which should have been filed by 31 January 2016, was not filed until September 2018.

Over the relevant period, Mr Harrison had suffered a number of distressing events including a violent carjacking, a car crash, the death of his mother, the sectioning of his daughter with post-natal mental health problems resulting in his becoming (with his wife) their grandchild’s carer and ‘considerable financial and operational difficulties’ in his business involving formal complaints to a supervisory authority and the suspension of Mr Harrison’s personal authorisation.

When Mr Harrison changed accountants in March 2016, he discovered that his previous advisers had not filed his 2014/15 tax return.  He didn’t take steps to get them to do so – it was, in his words ‘one fight too many’.  Instead, he (eventually) instructed his new advisers to recreate the return, which they sent to him for approval in September 2017.  For reasons that he ‘could only put down to mental anguish at the time’ he did not approve and file it until he ‘had started to come out of [his depression]’ in September 2018 – so more than 2½ years late.

HMRC asserted (and the Tribunal agreed) that, although Mr Harrison’s circumstances might afford him a ‘reasonable excuse’ for failing to meet the 31 January 2016 deadline, those circumstances and that excuse had ceased to apply at some (unspecified) time before September 2018 and the filing had been unreasonably delayed thereafter.  So there were penalties for the late filing.

Though that part of the decision may be harsh, one can see how it could have been reached.  What is much less easy to accept is HMRC’s imposition of the ‘super-penalty’ for deliberately withholding the return, and the Tribunal’s rejection of Mr Harrison’s appeal.

Mr Harrison admitted: ‘Sorting out my tax return was just at the bottom of my priorities’ list.’  But there seems to have been no evidence adduced that he had made a positive decision not to file it: at best (or worst) he had failed to direct to the filing of the return the attention it warranted.  Indeed, the Tribunal expressly ‘does not suggest that this was a calculated act undertaken for gain’; but it was sufficient, in the Tribunal’s view, that ‘Mr Harrison was aware of what he was required to do, and he would have been aware that he had prioritised other demands on his time ahead of submitting the Return. He was therefore conscious of the decision that he had made and must be regarded as having taken this decision deliberately.’

On the basis of this case, the hurdle that HMRC must surmount in order to impose an enhanced ‘deliberate withholding’ penalty is a low one: much lower than many might have thought when the law was introduced.  It appears that it may now be HMRC’s default position that any prolonged delay in filing a return may be assumed to be a ‘deliberate withholding’ of information with the concomitant enhanced penalties.  Whether that position is or is not a correct one, it is as well to be aware of it.

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

Chris Smith

Director of Personal Tax Compliance

T +44 (0)20 8922 9160
E chris.smith@bkl.co.uk

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