A small company facing a £9,933.75 careless-inaccuracy penalty from HMRC saw the charge cancelled in full after UK Property Accountants advanced a four-part statutory appeal. The penalty, raised under Schedule 24 of the Finance Act 2007 following a Corporation Tax compliance check, was reduced to nil through written representations alone, without the matter ever reaching any tax tribunal.
Here is how the appeal was built, why each argument held, and what to do if you are facing an HMRC inaccuracy penalty of your own.
Key Takeaways
- A small company reduced a £9,933.75 HMRC inaccuracy penalty to nil after UK Property Accountants advanced a four-ground statutory appeal
- The penalty was raised under Schedule 24 of the Finance Act 2007 following a Corporation Tax compliance check
- Where HMRC never processes or pays an erroneous credit, the potential lost revenue under paragraph 5 of Schedule 24 may be nil, and a penalty based on nil is itself nil
- Reasonable reliance on a professional agent and HMRC-recognised software can support an argument that an inaccuracy was not careless (HMRC Compliance Handbook CH81130)
- The penalty was cancelled through written representations alone, without an appeal to the Tax Tribunal
The Challenge: A Software Error Treated As Careless
The client was a small company, no longer trading and in the process of winding down. During a Corporation Tax compliance check covering the accounting period that ended 31 March 2020, HMRC identified an erroneous land remediation relief tax credit entry in the company's CT600 return. Land remediation relief is a Corporation Tax relief under Part 14 of the Corporation Tax Act 2009 provided for the cost of cleaning up contaminated or derelict land and buildings.
The figure had been produced using HMRC-recognised tax preparation software, and the erroneous entry was not spotted because it mirrored the format of a legitimate calculation. HMRC characterised the behaviour as careless, i.e. a failure to take reasonable care, and proposed a penalty of £9,933.75, calculated at 15% of a potential lost revenue (PLR) figure of £66,225.
HMRC also declined to suspend any part of the penalty. Its position was that the inaccuracy stemmed from a failure to check the return before submission, which it treated as a fundamental requirement that could not be addressed by suspension conditions. Despite representations from the client and agent at the pre-assessment stage, HMRC issued the formal penalty notice, and the matter proceeded to a written appeal.
For many businesses in wind-down, a sub-£10,000 penalty on a dormant return is the kind of charge that gets paid simply to close the file. We took a different view.
What We Delivered: 4 Independent Grounds, Each Able to Stand Alone
Rather than rely on a single argument, we constructed a layered statutory and factual defence. Each ground was independent, so that even if HMRC rejected one, the others remained intact.
This reflects our standard methodology on HMRC disputes. Advance every properly arguable point, and concede no ground that does not need to be conceded.
Ground 1: There Was No Careless Inaccuracy
A taxpayer who engages a competent professional agent and relies on HMRC-recognised software has taken meaningful steps towards reasonable care. HMRC's own Compliance Handbook guidance at CH81130 treats reasonable reliance on others as consistent with taking reasonable care. We argued that a software-generated error, undetected precisely because the erroneous figure resembled a legitimate calculation entry, is not the conduct the legislation is designed to penalise as “careless.”
Ground 2: The Statutory Gateway to "Careless" Never Opened
Under paragraph 3(2) of Schedule 24, an inaccuracy that was neither careless nor deliberate when the return was filed can only become careless if the taxpayer later discovers it and fails to take reasonable steps to notify HMRC. Here, the error was never independently discovered by the company before HMRC raised it. On that reading of the statute, the gateway that would allow HMRC to treat the inaccuracy as careless was never triggered.
Ground 3: The Potential Lost Revenue Was Nil
This was the decisive point. We argued that, under paragraph 5 of Schedule 24, the potential lost revenue in this case meant an amount actually paid or repayable by HMRC as a result of the inaccuracy. HMRC never processed or paid the erroneous credit. The entry sat on the return for over three years without any action, no repayment was ever sought or made, and the company was in the course of closure. If no money was ever at risk, the PLR is nil, and a penalty calculated as a percentage of nil is itself nil.
Ground 4: Special Circumstances & Suspensions
In case HMRC resisted the primary grounds, we argued two fallback positions. First, special circumstances under paragraph 11 of Schedule 24, supported by David Collis v HMRC [2011] UKFTT 588 (TC), on the basis that mechanically applying the penalty regime to a genuine software error of this kind would be vulnerable to challenge. Second, we formally requested full suspension of the penalty under paragraph 14 of Schedule 24, citing Pandey v HMRC [2017] UKFTT 216 (TC), to demonstrate that workable suspension conditions could be set.
The Result: Penalty Reduced from £9,933.75 to Nil
HMRC accepted our position. The proposed penalty of £9,933.75 was reduced to nil. The saving represented the entire penalty, achieved through written representations alone, without recourse to the First-Tier Tax Tribunal. The client, a modest company in wind-down, was protected from a significant and, in our assessment, unjustified liability.
Why This Case Should Concern You
This was not a seven-figure dispute or a headline tax figure. The penalty was under £10,000; the client was a small company in wind-down, and the underlying error was a software anomaly rather than a deliberate act. For many practices, a case of this nature attracts a standard response or an early concession.
We treated it with the same rigour we would apply to a major dispute. We read the statute carefully, identified every arguable point, and pressed each one in writing until HMRC agreed. The broader lesson for any business facing an inaccuracy penalty is that an HMRC penalty explanation is a starting position, not a settled conclusion. Schedule 24 contains real, technical defences on whether the conduct was careless at all, on whether the statutory test for carelessness is even met, on how potential lost revenue is calculated, and on special circumstances and suspension. A careful reading of the legislation, applied to the specific facts, can change the outcome entirely.
Facing an HMRC Penalty? We Can Help
If you have received an HMRC penalty explanation, a penalty notice, or a compliance-check letter, do not assume the proposed figure is final. Our advisers can review the statutory basis of the charge and tell you whether there are grounds to challenge it.
Book a free 15-minute discovery call, and we will tell you, honestly, whether an appeal is worth pursuing in your circumstances.
About UK Property Accountants
UK Property Accountants is a firm of chartered certified accountants and chartered tax advisers specialising in UK property taxation and the reliefs, compliance and disputes that go with it, including HMRC enquiries and penalty appeals. Our team works only in property and real estate, which gives us depth in areas such as land remediation relief, capital allowances and Corporation Tax for property businesses.
This article describes work carried out for a client of UK Property Accountants and is provided for general information only. It is not personal tax or financial advice, and outcomes depend on individual circumstances. Tax rules, rates and case law change. Please seek advice tailored to your situation before acting. UK Property Accountants is a firm of chartered certified accountants and chartered tax advisers.
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