Unreasonable decision

HMRC’s refusal to suspend a penalty

The taxpayer reported bank interest for 2014-15 in his 2013-14 tax return because the bank had given him the wrong year’s certificate. Neither he nor his accountant noticed the error. After an enquiry HMRC found he had underpaid tax as a result. The same mistake had happened in the previous year but this resulted in an overpayment.

HMRC issued a penalty saying the error was due to carelessness. It refused to suspend the penalty on the ground that the error had arisen because the taxpayer had been careless so there were ‘no specific time bound measurable conditions’ that could be set (FA 2007 Sch 24 para 14).

The taxpayer appealed.

The First-tier Tribunal said HMRC’s decision not to suspend the penalty was flawed and ‘Wednesbury unreasonable’ (this is a decision ‘so unreasonable that no reasonable person acting reasonably could have...