HMRC run contrary arguments before the First-tier Tribunal!

05 March 2012. Published by Adam Craggs, Partner

In the recent case of Cobb v HMRC [2012] UK FTT 40 (TC), the First-tier Tribunal ('FTT') said that HMRC should be able to suspend all or part of a penalty imposed for a careless inaccuracy in a tax return of an individual...

…who was made redundant because being made redundant may not be a 'one-off event' precluding suspension of a penalty under paragraph 14 of Schedule 24 to the Finance Act 2007 ('FA 2007').

The legislation

As readers will be aware, under Schedule 24 FA 2007, penalties are payable for errors contained in tax returns that involve under declaration of tax. The level of the penalty will depend on the nature of the error and the surrounding circumstances. If an error is careless, rather than deliberate, the maximum penalty is 30% but this may be reduced to a minimum of 15% if the taxpayer discloses the error following a prompt by HMRC.

Under paragraph 14 of Schedule 24 FA 2007, HMRC may suspend all or part of the penalty for a careless inaccuracy but only if a condition of suspension would help the taxpayer to avoid incurring further penalties for careless inaccuracy.

The decision

In the Cobb case, the representative from HMRC argued that it could set no measurable conditions for the appellant taxpayer to comply with because of the 'one-off' nature of the offence. HMRC cited the earlier tribunal decision in Fane v HMRC [2011] UKFTT 210 (TC) to support its argument that redundancy was a one-off event. However, after reviewing the examples of one-off events provided in HMRC's own guidance, the FTT (Judge Gemmell) rejected HMRC's argument and the conclusion reached in the Fane case.

It is significant that the FTT noted that HMRC had effectively argued the opposite in Parker v HMRC [2011] UKFTT 829 (TC), which had been heard that day by the same tribunal (Judge Gemmell), in which the taxpayer had been made redundant twice in one year.


Although the comments of the FTT are helpful to taxpayers, they are obiter and even if they were not obiter, they would not be binding on future tribunals. However, given the current economic climate, it is a sad fact of life that more people are likely to face redundancy in coming months and it is to be hoped that in future HMRC will adopt a sensible approach when dealing with other taxpayers who find themselves in a similar position to Mr Cobb.

What is of particular concern is the fact that HMRC appears to have ran contrary arguments in two similar cases heard before the FTT on the same day (HMRC were represented by different people in Cobb and Parker). Taxpayers are entitled to expect consistency from HMRC and to be treated the same as other taxpayers in a similar situation.  This would appear to be yet another example of HMRC failing to communicate effectively internally with the consequence that taxpayers are put to the inconvenience and expense of having to pursue an appeal to the FTT.

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