Darren Locke v The Commissioners for HMRC [2025] UKFTT 956 (TC)

Neutral Citation: [2025] UKFTT 00956 (TC) Case Number:TC09604
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 23 July 2025Date Judgment date: 7 August 2025
By remote video hearing
Appeal reference: TC/2024/03650
INCOME TAX – failure to notify chargeability to income tax – rental income – whether deliberate or careless – section 7 Taxes Management Act 1970 – schedule 41 Finance Act 2008 – appeal dismissed
darren locke
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY’S
REVENUE AND CUSTOMS
Respondents
Before
TRIBUNAL JUDGETRIBUNAL MEMBER mohammed farooqRepresentation:For the Appellant: Mr Darren Locke, the Appellant in personFor the Respondents: Ms Perry Lucas, litigator of HM Revenue and Customs’ Solicitor’s Office..DECISION
Between
Darren LockeClaimantThe Commissioners for HMRCDefendant

Introduction

[1]This is an appeal brought by the Appellant dated 24 June 2024 against penalty assessments issued by HMRC under Schedule 41 of the Finance Act 2008 (“FA 2008”) in relation to his alleged failure to notify HMRC of his chargeability to income tax for the tax years 2020/21 and 2021/22 under section 7 of the Taxes Management Act 1970 (“TMA 1970”).[2]The penalties subject to this appeal amount to £1,745.66 and can be summarised as follows: Tax year Date issued Penalty percentage Amount 2020/21 1 November 2023 45.5% £87.95 2021/22 1 November 2023 45.5% £1,657.71 Total: £1,745.66[3]The Review Conclusion letter from HMRC is dated 18 April 2024. This is therefore a late appeal, but HMRC have indicated that they do not object to the late appeal. This was confirmed by Ms Lucas during the hearing before us.

Background

[4]On 16 December 2022, HMRC wrote to the Appellant in relation to two properties the Appellant had been letting out and for which he had been receiving rental income, which HMRC states had not been disclosed. In the letter, HMRC requested further information that would enable them to complete their checks.[5]The properties in question were:(a) 24 Freemantle Street, Edgely Stockport (which the Appellant had been renting out since 2006); and(b) 48 Elm Road South, Cheadle Heath, Stockport (which the Appellant had been renting out since 2011).[6]On 4 January 2023, the Appellant emailed HMRC to state that when he first purchased 24 Freemantle Street in 2006, he had “submitted a tax return at the end of the year declaring this rental income” and he had “received the attached letter in return dated 22 January 2007 stating that I did not need to send tax returns in the future unless my financial circumstances change.”[7]On 6 January 2023, Mr John Paul Cornelia, customer compliance officer at HMRC, called the Appellant to inform him that having checked the Appellant’s 2006/07 tax return, filed on 17 January 2007, that property rental income had not been declared in that return, contrary to what the Appellant had initially stated.[8]On 30 January 2023, the Appellant provided HMRC with his summary of the rental income received, his calculation of profit, together with other details concerning the two properties.[9]Between early February 2023 and August 2023, there were exchanges of correspondence between the Appellant and Mr Cornelia in relation to HMRC’s requests for additional documents and supporting evidence in relation to the rental income received by the Appellant, the mortgage interest and other expenses claimed, including the cost of general maintenance and refurbishment work.[10]This correspondence included an email sent by Mr Cornelia to the Appellant on 19 June 2023, stating that no documentary evidence had been provided for the general maintenance and refurbishment expenses claimed. The email stated that HMRC was willing to consider any email exchanges scheduling work, evidence of text message exchanges with contractors, names of contractors used, and letters and/or quotes. HMRC was also willing to consider cash withdrawals from bank accounts to support the claimed maintenance costs and expenses.[11]On 3 July 2023, the Appellant stated he had no documentary evidence regarding these expenses because most of the work had been agreed verbally with tradesman friends and paid in cash.[12]On 22 August 2023, HMRC wrote to the Appellant confirming their findings and advising that they would consider charging penalties for failure to notify. The letter explained that any penalty charged would be based on the behaviour that led to the failure to notify. The Appellant was asked to respond to several questions to enable HMRC to make a decision in respect of the penalties, as follows:• Why property income was omitted from your Self-Assessment tax return received 17 January 2007.• In an email dated 14 March 2023 you stated you sought legal advice in regard to taxation laws in setting up your “property investment’’, what advice did you seek concerning reporting your investment income• When setting up your Buy to Let Mortgages for the properties what steps did you take to seek guidance on your obligations to report any future letting income• What advice was provided by your letting agent regarding reporting your letting income.• Once you began making profits on your letting income (tax year ending 2020 onwards), why did you not disclose this to HM Revenue and Customs[13]On 4 September 2023, the Appellant responded, stating that until the parties were in agreement on the overall figure for his income tax liability, he reserved his comments regarding penalties. He further stated:
“As previously stated I have a letter from HMRC dated 22 January 2007 which states that HMRC 'do not propose to send tax returns in the future'. In light of this I did not send any tax returns and did not keep documentary evidence of any expenses for general maintenance and refurbishment costs; hence, the difficulty in getting these expenses agreed retrospectively. Upon receipt of a letter from HMRC dated 19 June 2018 regarding 'Income from Letting Property' I immediately informed HMRC of my circumstances at the time i.e. the two properties I rent out and satisfied them that there were no profits to declare. This has now been substantiated by you in the figures proposed in the Compliance Check. No Self Assessments were forthcoming from HMRC after communication in 2018.”
[14]On 18 September 2023, HMRC issued a penalty explanation letter to the Appellant, setting out the penalties that HMRC intended to charge and their reasonings.[15]On 17 October 2023, the Appellant responded by email stating that penalties could only be calculated once the tax liability position had been agreed and that, in any event, he did not agree there had been a “failure to notify”. His email stated this:
“4. The penalties have been levied based on ‘Failure to Notify’. I do not accept that penalties can be levied on this basis. The Fact Sheet Reference CC FS11 explains ‘What is a failure to notify’. Bullet point 1 is ‘first become liable to pay tax’. As previously advised during this Compliance Check I notified HMRC during the 2006 and 2007 tax year that I was renting out property and I completed a Self-Assessment Tax Return. How is this in breach of ‘Failure to Notify’? HMRC subsequently issued a letter dated 22 January 2007 stating that HMRC ‘do not propose to send returns in the future’. The point here is that HMRC have known since 2006 that I obtain rental income from property so this not a ‘Failure to Notify’. It is a failure of HMRC not sending me tax returns to complete. 5. Point 3 is further exacerbated by the fact I notified HMRC by disclosure that I was renting out property in response to the letter dated 19 June 2018 reference LX10004409 – AI. No further action was taken by HMRC at this time.”
[16]Attached to that email was a spreadsheet prepared by the Appellant, entitled “D. Locke Profit Loss Schedule”, setting out his calculations of the rental income received, mortgage interest, expenses claimed, profit/loss per year, and cumulative profits/losses, for the tax years 2006/07 to 2021/22.[17]On 20 October, HMRC wrote to the Appellant to state that without further evidence, their position on general maintenance and refurbishment expenses would remain the same, and that it was their intention to raise assessments for the tax years 2019/20, 2020/21 and 2021/22, as well as penalty assessments as explained in their letter of 18 September 2023.[18]On 1 November 2023, HMRC issued notices of assessment for income tax under section 29 TMA 1970 for the tax years ended 2019/20, 2020/21 and 2021/22, and penalties.[19]On 13 December 2023, HMRC received a letter from the Appellant (dated 8 December 2023) indicating that he did not agree with the assessments or the penalties. The Appellant included photos purporting to show the refurbishment of 24 Freemantle Street from 2009. Insofar as the penalties were concerned, the Appellant stated that until the parties had agreed on the correct tax liability, in his view, HMRC was not entitled to assess penalties.[20]On 19 December 2023, HMRC issued their View of the Matter letter, confirming that their position on the assessments for income tax remained the same as that set out in their letter dated 22 August 2023. The letter gave the Appellant the option to accept the offer of a review or to appeal to an independent tribunal. On 11 January 2024, the Appellant accepted the offer for a review.[21]On 8 March 2024, HMRC (Mr Cornelia) wrote to the Appellant with HMRC’s view of the matter to be read in conjunction with the earlier view of the matter of 11 December 2023. This letter addressed the matter of penalties which had not been covered in the initial letter. In this further letter, HMRC confirmed their view that the penalties raised had been correctly issued, based on the Appellant’s failure to notify, which HMRC had concluded was “deliberate but not concealed”.[22]On 18 April 2024, HMRC’s Review Officer (Saqib Aslam) issued a Review Conclusion letter. HMRC confirmed that the discovery assessments for the tax years in question were valid and had been raised correctly. However, the Review Officer varied the expenses claimed for the tax year 2019/2020, cancelling the assessment and the penalty issued for that tax year.[23]HMRC’s Review Officer also varied the assessments for the tax years 2020/21 and 2021/22 to take into account increased figures for allowable expenses. The penalties for the tax years 2020/21 and 2021/22, based on Potential Loss Revenue (“PLR”), were varied as follows: TaxYear Penalty% OriginalPLR OriginalPenalty AmendedPLR AmendedPenalty 2019/202 0 45% £3,795.4 0 £1,726.9 0 NIL Cancelled 2020/202 1 45.5% £4,053.2 0 £1,844.2 0 £193.3 1 £87.9 5 2021/202 2 45.5% £4,492.0 0 £2,043.8 6 £3,643.3 2 £1657.7 1 Total £1,745.6 6[24]On 9 May 2024, HMRC issued amended tax assessments to the Appellant for tax years ended 2019/20, 2020/21 and 2021/22 together with the amended penalty details.[25]On 14 May 2024, the Appellant wrote to HMRC, confirming his agreement to HMRC’s assessment of his tax liability on rental income. However, he asked HMRC to take into account another factor, namely, his allowable expenses for business mileage incurred whilst working for an employer which he states had not previously been claimed. He requested that those expenses be deducted from his taxable pay from all employments for the previous five years and that his tax liability be re-assessed in light of that.[26]On 4 June 2024, HMRC sent an email to the Appellant to notify him that the formal review process had been completed and that the original assessments had been varied in line with the review conclusions. The Appellant was advised to appeal against the penalties to the Tribunal, and to contact the Self-Assessment helpline for further support if he wished to make a claim for overpayment relief.[27]On 14 June 2024, the Appellant sent a letter to HMRC setting out four grounds on which he disagreed with the penalties levied.[28]On 24 June 2024, the Appellant appealed to the First-tier Tribunal.

The Issues

[29]The issues that we need to consider are:(a) Whether HMRC issued the penalties correctly, based on the Appellant’s alleged failure to notify his chargeability to income tax in the tax years 2020/21 and 2021/22.(b) Whether the penalty amounts raised are excessive and unreasonable.(c) Whether the Appellant’s behaviour was deliberate and prompted or, in the alternative, careless.[30]The burden of proof rests on HMRC to show that the penalties have been charged correctly, that there was a failure to notify chargeability to income tax, and that the Appellant’s behaviour was deliberate and prompted (or in the alternative, careless). Once that is demonstrated, the burden of proof shifts to the Appellant to demonstrate that he has a reasonable excuse for the failure to notify (provided the failure was not deliberate, but careless).[31]The standard of proof is the ordinary civil standard, this being the balance of probabilities.

The Grounds of Appeal

[32]The Appellant’s notice of appeal states as follows: “I agreed with the review of my income tax liability for rental income (received 18.04.24) but then questioned in a letter dated 15.05.24 (within 30 days) whether retrospective business mileage tax relief could be taken into consideration to offset this. I disagree with the penalties levied as per my letter to HMRC dated 14 June 2024”.[33]As indicated above, the letter dated 14 June 2024 sets out four grounds or reasons as to why the Appellant disagrees with the penalties. They are set out here in full:
“1. I disclosed to HMRC that I was receiving income from letting property from February 2006. I completed a Self Assessment Tax Return and received a letter from HMRC on 22 January 2007 which stated HMRC ‘do not propose to send you returns in the future’. It is possible my return did not disclose rental income as it would have been for the previous tax year i.e., 2005 to 2006 when I was not receiving rental income. Nevertheless, the recent review undertaken has disclosed that I was not receiving a profit for the tax year 2006 to 2007. My point is that there was not a ‘Failure to Notify’ as no tax was due. 2. I received a letter from HMRC on 19 June 2018 (Reference LX10004409 – AI) regarding income from letting property This was part of the Let Property Campaign. I phoned HMRC and disclosed within the 30-day period that I was receiving income from letting property. I declared that there was no profit to pay tax on which has subsequently proven to be the case during my recent review. In fact, the review has proven that my account was in arrears from tax year 2006 to 2021. After my disclosure I did not receive any Self-Assessment returns from HMRC which I assumed they would have been obligated to do. Again, this cannot be grounds for ‘Failure to Notify’ as no tax was due. 3. I received a letter from HMRC on 16 December 2022 (Reference CFS-2031550) regarding income from letting property. This was the commencement of the compliance check which has been ongoing until agreement was obtained on 18 April 2024.I have been fully co-operative during this compliance check and the review has found that I made a small profit due to income from letting property in tax year 2020 to 2021 and owe £193.31 in tax. During tax year 2021 to 2022 the review has disclosed that I owe £3,643.32 in tax. This is not in dispute, what is in dispute is the penalties levied. The compliance check commenced prior to the date when the Self Assessment returns were due for tax year 2021 to 2022 i.e., by 31 January 2023. I was not aware at this time that I owed any tax, and it has taken a full compliance check lasting over 16 months and a review to come to this conclusion. Again, this cannot be ‘Failure to Notify’ as HMRC were told prior to when the Self Assessment returns were due that I was receiving income from letting property. As the review has been retrospective over 16 years then it was not apparent at the time that any tax was due. HMRC should have issued a Self Assessment return at the onset of this compliance check if it was thought that any tax was due. 4. I sent an email to John-Paul Cornelia on 14 May 2024 regarding retrospective claims for business mileage for the years where no Self Assessment claims were made. These claims would offset the tax owed due to income from letting property and would; therefore, negate any proposed penalties to be levied. I intend to take this matter up with the Self Assessment helpline if no further assistance is forthcoming from John-Paul Cornelia.”

The Legal Framework

[34]Under section 7(1) TMA 1970, every person who is chargeable to income tax for any year of assessment, and falls within subsection (1A) or (1B), shall, subject to subsection (3), within the notification period, give notice to HMRC that he is so chargeable.[35]Subsection (1A) applies to a person who has not received a notice from HMRC requiring a return for the year of assessment, as was the situation in this case.[36]The notification period means, in the case of a person who falls within subsection (1A), the period of six months from the end of the year of assessment. In this case, any notice as to chargeability to income tax must therefore be given to HMRC by 5 October following the end of the tax year in question.[37]Section 7(3) goes on to state that a person shall not be required to give notice under section 7(1) in respect of a year of assessment if, for that year:(a) the person's total income consists of income from sources falling within subsections (4) to (7) below;(b) the person has no chargeable gains; and(c) the person is not liable to an amount of tax under any provision listed in relation to the person in section 30 of ITA 2007 (additional tax).[38]We have not set out subsections (4) to (7) as none of those exceptions apply to the facts of this case.[39]In relation to penalties, paragraph 1 of schedule 41 FA 2008 states that a penalty is payable by a person who fails to comply with a “relevant obligation” which includes, as defined in paragraph 1, the obligation under section 7 TMA 1970 (the obligation to notify HMRC of chargeability to income tax).[40]Paragraph 5 of schedule 41 FA 2008 states that a failure by a person to comply with a relevant obligation is:(a) “deliberate and concealed” if the failure is deliberate and P makes arrangements to conceal the situation giving rise to the obligation; and(b) “deliberate but not concealed” if the failure is deliberate but P does not make arrangements to conceal the situation giving rise to the obligation.[41]Paragraph 6 of schedule 41 FA 2008 outlines that potential lost revenue (‘PLR’) is used to calculate the penalty.[42]Paragraph 6(1) of schedule 41 FA 2008 explains that the calculation of the penalty, where the failure involves a domestic matter (see paragraph 6A) is as follows:(a) for a deliberate and concealed failure, 100% of the potential lost revenue;(b) for a deliberate but not concealed failure, 70% of the potential lost revenue; and(c) for any other case, 30% of the potential lost revenue.[43]Paragraph 7(2) Schedule 41 FA 08 states that for income tax liabilities, the PLR is so much of any income tax as to which the taxpayer is liable in respect of the tax year as, by reason of the failure to notify, is unpaid on 31 January following the tax year.[44]We have also been referred to CH72160 – Penalties for Failure to Notify: Types of failure of HMRC’s Compliance Handbook, which describes “deliberate but not concealed”. The full text of CH72160 was not in the bundle but the relevant passages are replicated in the View of the Matter letter of 9 March 2024 and in the Review Conclusion letter of 18 April 2024. The passages read as follows:
“A failure to notify is deliberate but not concealed if the person • knows that they are required to notify us about a relevant obligation • is able to do so but • does not do so This includes cases where a person deliberately • failed to keep records necessary to know when a notification is required even though they knew it was likely that the conditions for notification would be met • failed to check or seek advice when they knew it was likely that they would have to notify a relevant tax obligation.” • knows that they are required to notify us about a relevant obligation • is able to do so but • does not do so • failed to keep records necessary to know when a notification is required even though they knew it was likely that the conditions for notification would be met • failed to check or seek advice when they knew it was likely that they would have to notify a relevant tax obligation.”
[45]Paragraph 12 of schedule 41 FA 2008 sets out the reductions in penalties for disclosure, based on whether the disclosure of a relevant act or failure is prompted or unprompted. A disclosure is “unprompted” if made at a time when the person making it has no reason to believe that HMRC have discovered or are about to discover the relevant act of failure, whilst anything else would be “prompted”.[46]Paragraph 13 of schedule 41 FA 2008 sets out the minimum percentage for penalties, depending on whether a person’s disclosure was prompted or unprompted.[47]HMRC submits that the Appellant’s failure to notify was deliberate but not concealed. In the alternative, HMRC submits that the Appellant’s failure to notify was at the very least careless.[48]Section 118 TMA 1970 provides the interpretation of what it means to be “careless”: “(5) For the purposes of this Act a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation. (6) Where—(a) information is provided to Her Majesty's Revenue and Customs,(b) the person who provided the information, or the person on whose behalf the information was provided, discovers sometime later that the information was inaccurate, and(c) that person fails to take reasonable steps to inform Her Majesty's Revenue and Customs, any loss of tax or situation brought about by the inaccuracy shall be treated for the purposes of this Act as having been brought about carelessly by that person”.[49]The issue of whether a taxpayer is “careless” was also discussed in David Collis v HMRC [2011] UKFTT 588 (TC), at paragraph 29, where the Tribunal stated, “we consider that the standard by which this falls to be judged is that of a prudent and reasonable taxpayer in the position of the taxpayer in question.”[50]Paragraph 20 of schedule 41 FA 2008 states that liability to a penalty for a failure to notify which is not deliberate will not arise if the person satisfies HMRC (or on appeal the Tribunal) that they have a reasonable excuse for their failure to notify. The issue of whether there was a reasonable excuse for any failure will therefore only be relevant if the failure to notify is careless (but not if the failure is intentional but not concealed).[51]There are also time limits for assessing a penalty for failure to notify. These are prescribed in paragraph 16(4) of schedule 41 FA 2008, which states that an assessment of a penalty for failure to notify must be made before the end of the 12-month period beginning with:(a) the end of the appeal period for the assessment of tax unpaid by reason of the relevant act or failure in respect of which the penalty is imposed; or(b) if there is no such assessment, the date on which the amount of tax unpaid by reason of the relevant act or failure is ascertained.[52]Finally, paragraph 14 of schedule 41 FA 2008 allows HMRC to reduce a penalty if HMRC considers it right to do so because of special circumstances.

Discussions and Findings

[53]We have considered all the documentary evidence in the hearing bundle, including the Appellant’s notice of appeal, his letters to HMRC, his witness statement dated 9 May 2025, and the witness statement of Mr Cornelia dated 2 May 2025. The Appellant and Mr Cornelia both gave oral evidence and were cross-examined. We have reflected carefully upon their evidence. Whether the penalties were correctly issued[54]The penalties under appeal have been issued as a result of the Appellant’s alleged failure to notify his chargeability to income tax in the tax years 2020/21 and 2021/22.[55]There is no question in our minds that the Appellant did have an obligation to notify HMRC of his chargeability to income tax pursuant to section 7(1) TMA 1970 for the tax years under appeal. That provision obliges a person who is chargeable to income tax for any year of assessment, and who falls within subsection (1A), which the Appellant does, to give notice to HMRC that he is so chargeable, unless section 7(3) TMA 1970 applies. Section 7(3) does not apply in this case.[56]Whether or not any rental profit is made in any tax year in question is neither here nor there. In other words, the obligation to notify does not rely on whether or not a “profit” is made. The obligation to notify HMRC of chargeability to income tax under section 7(1) TMA 1970 applies in respect of all taxable income, unless that person falls within section 7(3), in which case, that person would have no obligation to notify.[57]As summarised above, section 7(3) states that a person shall not be required to give notice under section 7(1) in respect of a year of assessment if, for that year:(a) the person's total income consists of income from sources falling within subsections (4) to (7) below;(b) the person has no chargeable gains; and(c) the person is not liable to an amount of tax under any provision listed in relation to the person in section 30 of ITA 2007 (additional tax).[58]None of the above, as set out in section 7(3), applies in this case. The Appellant therefore did have an obligation to notify HMRC of his chargeability to income tax for the tax years 2020/21 and 2021/22, and was required to do so by 5 October following the tax year in question (so by 5 October 2021 the tax year 2020/21 and 5 October 2022 for the tax yar 2021/22).[59]Turning to the Appellant’s grounds of appeal, firstly, he contends that he disclosed to HMRC that he was receiving income from 2006 by completing a self-assessment tax return, and that he received a letter from HMRC dated 22 January 2007, which stated that HMRC do not propose to send him any further tax returns in future.[60]This contention does not assist the Appellant. It transpires that whilst the Appellant did file a tax return on 17 January 2007, he had not in fact disclosed any rental income in that tax return. Given that no rental income was disclosed in that tax return, the letter from HMRC stating that no returns would be sent in future is not surprising.[61]That letter, received in 2007, cannot absolve the Appellant of his obligation to notify HMRC of his chargeability to income tax for the tax years 2020/21 and 2021/22. Furthermore, the letter completely undermines the Appellant’s contention that it was acceptable for him not to have notified his chargeability to income tax more generally, on the basis that his circumstances had apparently not changed (e.g. he states that he was not making a profit).[62]The 2007 letter is worth reading in full. It states as follows (the words emphasised in bold are in accordance with the original letter): “We have looked at your last Tax Return and do not propose to send you returns in the future. However, if there have been any changes in your financial circumstances since the information given in that return, or they change in the future, you must let us know straight away. Overleaf you will see when we need Tax Returns from you. Please keep this letter so you can check whether you should start completing returns again. Even if you think your circumstances do not mean we need a Tax Return from you, you should contact us if you start to receive any new taxable income or gains, or if you think you should be paying more tax on your existing income. It is your responsibility to tell us about this. We can charge interest and penalties if you leave it too late or if we find out by some other means. There is more information in the enclosed leaflet, but you can contact us if you need help, or speak to your tax adviser, if you have one”.[63]Overleaf, the letter goes on to list the circumstances in which a tax return would be required. Importantly, under the heading “We need a Tax Return each year”, one of the circumstances listed is this: “if you have income from letting any property or land you own (but if you are an employee and this income is less than £2,500 a year a Tax Return may not be necessary)”.[64]Given the clear contents of the letter, we do not accept that the Appellant could have been under any reasonable misapprehension as to his obligation to notify. Even if such a misapprehension could have arisen, the responsibility was on the Appellant to ensure that his understanding of what was required of him pursuant to tax legislation was correct. If he had been unsure as to what was required, he could and should have contacted HMRC for guidance and/ or sought his own tax advice (as advised in the letter).[65]As to the Appellant’s contention that he had contacted HMRC shortly after receiving the letter of 19 June 2018 to inform them that he was receiving rental income but that there was no profit to pay tax on, again, this does not assist his appeal given the obligation imposed pursuant to section 7(1) TMA 1970. The obligation is to notify HMRC as to one’s chargeability to income tax in relation to all taxable income (unless section 7(3) applies, which it does not in this case). Whether or not a profit arises is irrelevant.[66]Furthermore, although we accept that it is more likely than not that the Appellant did contact HMRC shortly after receiving the letter of 19 June 2018 to notify them that he was receiving rental income (but not making a profit), that took place in 2018. It does not absolve him from his obligation to notify his chargeability to income tax some years later, for the tax years 2020/21 and 2021/22.[67]The Appellant further contends that there can be no failure to notify because the compliance check commenced in December 2022, prior to the date when self-assessment returns were due, e.g. 31 January 2023, and HMRC had been told by then that he was receiving rental income.[68]We do not accept that contention. HMRC should have been notified of the Appellant’s chargeability to income tax at the latest by 5 October 2022 for the tax year 2021/22, and at the latest by 5 October 2021 for the tax year 2020/21. This notification period is prescribed by section 7(1C) TMA 1970. By the time the compliance check had commenced, the time for the Appellant to notify HMRC of his chargeability to income tax for both tax years had passed. The fact that HMRC did not issue a self-assessment tax return for completion when they opened the compliance check or at some date thereafter makes no difference.[69]Finally, the Appellant seeks to set off a claim for business mileage as allowable expenses for those years when no such claims had been made by him, which he states would offset the tax he now owes due to rental income and therefore negate the penalties levied. This particular issue was raised by the Appellant in his email to Mr Cornelia on 14 May 2024, in which he states that he confirms his agreement to HMRC’s assessment of his tax liability on rental income, but raises another factor (business mileage) which he requests be taken into account.[70]The difficulty is that this additional factor was not raised by the Appellant until 14 May 2024, after the end of the compliance check and review process. HMRC’s review conclusion letter is dated 18 April 2024. The Appellant does not raise this factor until 14 May 2024, when it was raised by him for the first time. By then, the review process had concluded, and the assessments and penalties varied in accordance with the review conclusion. HMRC were not obliged to re-open their compliance check and review process.[71]The other difficulty is this. The Appellant has not actually made a retrospective claim (or claim for overpayment relief) for business mileage as allowable expenses. Although he has raised the matter in a letter, that is very different from actually lodging a claim for such expenses. He has been advised by HMRC to contact the self-assessment helpline for assistance if he wished to make a claim for overpayment relief. No such claim has been submitted and no decision has been issued by HMRC in respect of any retrospective claim for business mileage. As such, there is no appealable decision in that regard. Whether the penalty amounts raised are excessive and unreasonable[72]The notice of appeal does not raise a ground of appeal in relation to whether or not the penalty amounts are excessive and unreasonable. We have nevertheless considered this issue and do not consider the penalty amounts to be excessive or unreasonable.[73]We are satisfied that there has been a failure to notify pursuant to section 7(1) TMA 1970, giving rise to penalties pursuant to paragraph 1 of Schedule 41 FA 2008. We are satisfied that the penalty amounts have been raised correctly by HMRC, in accordance with paragraph 6 of Schedule 41 (for deliberate but not concealed failures) and that the reductions applied by HMRC are appropriate. We expand on this below. Whether the Appellant’s behaviour was deliberate and prompted or, in the alternative, careless.[74]HMRC contends that the Appellant’s failure to notify his chargeability to income tax was deliberate (but not concealed) and prompted. In the alternative, HMRC argues that the failure to notify was careless.[75]We have determined that the Appellant’s failure to notify his chargeability to income tax for the tax years 2020/21 and 2021/22 was deliberate (but not concealed). We have reached this conclusion for several reasons, not least because of the letter that the Appellant received from HMRC dated 22 January 2007. That letter was written in clear terms and should have immediately placed the Appellant on notice of the requirement to notify HMRC if there were any changes in his financial circumstances. Any doubt about that would have been dispelled by what is stated overleaf in that letter, under the heading “We need a Tax Return each year”, whereby it was explained that a tax return would be required if the person has “income from letting any property or land”. That was the situation which applied in the Appellant’s case. We therefore do not accept that the Appellant could have been under any reasonable misapprehension as to what was required of him. In any event, if he had been unsure as to what was required of him notwithstanding the clear explanations in the letter, the Appellant could have spoken to HMRC for further guidance and/or sought his own tax advice.[76]Furthermore, from the schedule titled “D.N. Locke Assessment”, it is clear that by 2011/12, the Appellant’s rental income had jumped to £10,550, no doubt as a result of him starting to rent out his second property (his former residential home). That additional income from that second property could and should have caused the Appellant to notify HMRC of that additional income. If he had not been sure of his obligations at that stage, notwithstanding the letter received from HMRC of 22 January 2007, he could and should have contacted HMRC or spoken to a tax adviser for guidance.[77]Does the Appellant contacting HMRC after receipt by him of their letter on 19 June 2018 change matters? In our view, it does not. Whilst we accept that the Appellant contacted HMRC shortly after that letter to inform them that he was receiving rental income, we have no details as to what was discussed beyond what the Appellant states in his letter of 14 June 2024, that he told HMRC that “there was no profit to pay tax on”. This is repeated in his witness statement dated 9 May 2025. The Appellant continued to have an obligation to notify HMRC as to his chargeability to income tax (unless he fell within section 7(3) in any particular year) notwithstanding this call. There is nothing before us which indicates that during the call, the Appellant was told by HMRC that he did not have to notify them in the future.[78]On the balance of probabilities, we find that the Appellant knew that he was required to notify HMRC of his chargeability to income tax for the tax years 2020/21 and 2021/22, was able to do so, but did not do so. If he had been unsure, he could and should have sought guidance from HMRC or sought tax advice (he did not), particularly once he begun letting out his second property in 2011, and again in 2017, when the Appellant became aware that the rules had changed in respect of one’s ability to offset mortgage interest. In our view, he did not do so because he likely knew that he would have to notify HMRC as to his chargeability to income tax.[79]It was not until compliance checks were opened in December 2022 that the Appellant disclosed his rental income to HMRC for the tax years 2020/21 and 2021/22 (and for previous years). There was no concealment of the situation leading to the failure to notify. In the circumstances, we find that the failure to notify for the tax years 2020/21 and 2021/22 was deliberate, but not concealed.[80]Given our finding that the failure to notify was deliberate (but not concealed), pursuant to paragraph 20(1) of Schedule 41 FA 2008, the issue of whether or not there was a reasonable excuse for the failure does not apply. Reductions to the penalty[81]Paragraph 13 of schedule 41 FA 2008 determines the minimum penalty amount depending on whether a person’s disclosure was prompted or unprompted. We agree with HMRC that the disclosure in this case was prompted, as the disclosure was made after the compliance check had commenced and it would have been reasonable for the Appellant to believe that HMRC had found out about the failure to notify, or was about to find out. The penalty percentage range for this category is 35-70%.[82]We have considered HMRC’s rationale for the reductions applied to reflect the quality of the Appellant’s disclosure and his engagement with HMRC’s enquiry, as set out in HMRC’s letter of 19 September 2023, 18 April 2024 and 9 May 2024, and explained in Mr Cornelia’s witness statement. The total reduction applied is 70%, which consisted of:• 30% for telling (out of a maximum 30%);• 20% for helping (out of a maximum 40%); and• 20% for giving access to records (out of a maximum 30%).[83]The Appellant did not produce all of the documentation/ evidence required to support his claimed expenses and chose not to engage with the penalty questions. In the circumstances, we do not believe that there is any basis for disturbing HMRC’s conclusion as to the reductions to be applied. Special circumstances[84]Under paragraph 19(3) of schedule 41 FA 2008, on an appeal against the amount of a penalty, the Tribunal may substitute its own decision for HMRC’s and rely on paragraph 14 (special circumstances), but only if the Tribunal considers that HMRC’ decision on special circumstances was flawed, which in this context, means flawed when considered in the light of the principles applicable in proceedings for a judicial review.[85]In the case of Barry Edwards v HMRC [2019] UKUT 121 (TCC), the Upper Tribunal held that the meaning of special circumstances should not be given a restrictive interpretation. It agreed with the First-tier Tribunal in Advanced Scaffolding (Bristol) Limited v HMRC [2018] UKFTT 0744 (TC) which stated at [102]:
“It is clear that, in enacting paragraph 16 of schedule 55, Parliament intended to give HMRC and, if HMRC’s decision is flawed, the Tribunal a wide discretion to reduce a penalty where there are circumstances which, in their view, make it right to do so. The only restriction is that the circumstances must be “special”
. Whether this is interpreted as being out of the ordinary, uncommon, exceptional, abnormal, unusual, peculiar or distinctive does not really take the debate any further. What matters is whether HMRC (or, where appropriate, the Tribunal) consider that the circumstances are sufficiently special that it is.”

And at [105]:

“…that a special circumstance may or may not operate on the person involved but that what is key is whether the circumstance is relevant to the issue under consideration”
. And at [105]:[86]We have considered the totality of the evidence and do not consider that the appeal raises any circumstances which might be considered sufficiently “special” for the purposes of paragraph 19(3) of schedule 41 FA 2008. We therefore do not consider that HMRC’s decision in this respect is flawed.

Conclusion

[87]For the reasons set out above, the appeal is dismissed.

Right to apply for permission to appeal

[88]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. Release date:07th AUGUST 2025