Andrew Hubbard

Written by: Andrew Hubbard

Andrew Hubbard


Tribunal decides that penalty notices sent via a digital tax account are unlawful

Although the pace of change may have slowed down recently there is no doubt that the future administration of the tax system will be largely digital. We have made the point before in this bulletin that it is essential that the underlying legislation does properly work in a digital environment: we have regularly expressed concerns that the existing rules are not fully fit for purpose. A recent tribunal decision offers us no reassurance.  

On the face of it this was a very simple case. The taxpayer filed her return electronically nearly 11 months late and she was charged penalties of £1,300. There seemed to be no defence. But the judge examined the legislation in great detail and came to the conclusion that the penalties (other than a fixed penalty of £100 which was not in doubt) were not legally due.

The taxpayer had signed up for a digital tax account and had therefore consented to receive notices to file, reminders and statements of account via her secure mailbox. But the judge said that regulations couldn’t be read as implying her consent to receiving penalty notices via that mailbox. 

Those were so important that a taxpayer needed to give specific consent to receiving penalty notices in that way and she had not given it. 

HMRC argued that they did send her emails to say that there was a new message in her digital account but the judge said that these emails were 'bland and uninformative' and did not alert the taxpayer to the fact that she was in danger of facing penalties. 

There is a legal requirement that a person must be notified that a penalty will become due and in this case, because the taxpayer had not been notified in a way which was in accordance with the law, the penalties were cancelled.

This case does not create precedent and may in any event be appealed. It is certainly possible to argue that the judge was splitting hairs and that the taxpayer was lucky to escape on a technicality. But that would be the wrong way to look at things. There has to be a proper legal underpinning of everything which HMRC does and if a penalty is to be charged taxpayers have a right to know that the charge is fully in accordance with the law. 

We have no problem with HMRC having the power to penalize taxpayers for errors or delays – it is an essential part of the tax system – but the legal basis for the power must be crystal clear and unambiguous. At the moment it is isn’t.

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