Jeremy Francis Herrmann v The Commissioners for HMRC [2026] UKFTT 715 (TC)

[2026] UKFTT 00715 (TC)Case No TC 09883
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 11 February 2026Date Judgment date: 14 May 2026
Taylor House Hearing Centre, London
Appeal reference: TC/2024/03218
TC/2024/04176
INCOME TAX- late payment penalties and surcharges – reallocation of past payments
Before
TRIBUNAL JUDGE MCGREGORMS REBECCA NEWNS
Between
JEREMY FRANCIS HERRMANNAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentMr James Morris, representative for AppellantMr Omar Riaz, litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]This decision considers late payment penalties and surcharges that relate to periods of self-assessment liability where, at the time of the trigger points for the penalties and surcharges, the relevant tax had been paid, but where the paid funds were subsequently reallocated to apply to different periods.[2]The appeal concerned:(1) late payment penalties in relation to tax years 2020/21 and 2021/22 amounting to £202,205; and(2) Late payment surcharges in relation to the tax years 2008/09 and 2009/10 amounting to £611,673.92.[3]The appeals were notified separately but were consolidated to be heard together since they relate to the same fact pattern.

law

[4]HMRC has the power to assess and notify late payment penalties under paragraphs 1-3 of Schedule 56 to Finance Act 2009, which relates to the penalties raised in respect of the 2020/21 and 2021/22 years.[5]Under paragraph 1, “A penalty is payable by a person where P fails to pay an amount of tax specified in column 3 of the Table below on or before the date specified in column 4”.[6]For the purposes relevant to this case, the section of the table provides in the first line of the table, that a penalty arises where an amount of income tax that is payable under sections 59B(3) or (4) of the Taxes Management Act 1970 (this is the column 3 amount) is not paid by the date falling 30 days after the date specified in sections 59B(3) or (4) of TMA 1970 (the date in column 4).[7]Paragraph 3(1) and (2) provide that for a payment of tax falling within item 1 of the table, the penalty is 5% of the unpaid tax.[8]Paragraph 3(2) provides: “If any amount of the tax is unpaid after the end of the period of 5 months beginning with the penalty date, P is liable to a penalty of 5% of that amount”.[9]Paragraph 3(3) provides for a further penalty of 5% in identical terms after 11 months.[10]Section 59B(4) of TMA 1970 provides that, unless specific cases apply, the due date for the settlement of the amount due under self-assessment for income tax is the 31 January next following the year of assessment.[11]Paragraphs 11 and 12 of Schedule 56 to Finance Act 2009 provide the procedural rules for issuing the late payment penalties arising under paragraph 3. The assessment of a penalty may be made on or before the later of date A and date B.[12]Date A is the relevant one in this case and is defined as:
“the last day of the period of 2 years beginning with the date specified in or for the purposes of column 4 of the Table (that is to say, the last date on which payment may be made without incurring a penalty).”
[13]Paragraphs 9 to 16 of the Schedule provide for the appeals process against penalties; the defence of reasonable excuse; and the power to HMRC to reduce the penalties in special circumstances.[14]Late payment surcharges, as were raised in respect of tax years 2008/09 and 2009/10 arise under section 59C of TMA 1970. They operate in a similar way to late payment penalties:(1) Where an amount due under section 59B of TMA 1970 and “remains unpaid on the day following the expiry of 28 days from the due date” then the taxpayer shall be liable to a surcharge of 5% of the unpaid tax; and(2) Where any of the tax remains unpaid on the day following the expiry of 6 months from the due date, the taxpayer is liable to a further surcharge of 5% of the unpaid tax.

evidence and facts

[15]We had before us a bundle of 630 pages, including a witness statement from Mr Elston Bell of HMRC. We also heard oral evidence from Mr Bell who was cross examined.[16]The facts that led up to the penalties and surcharges under appeal have a very long and meandering history. What follows are the key facts essential to the understanding of the appeals that are live.[17]Mr Herrmann has been in self-assessment for all of the period in question.[18]Mr Herrmann had entered into a number of avoidance schemes that have subsequently been found not to have had the effect expected and more tax is therefore due in relation to a number of different years. There is, now, no dispute about the liability for tax in the relevant years.[19]The core year that has led to this dispute was the tax year 2008/09:(1) an enquiry was opened into the self-assessment for that tax year in 2011;(2) a closure notice was issued for that enquiry in 2017, which required an additional £9,960,157.00 of tax to pay, over and above the amount that had been self-assessed on the return;(3) following the conclusion of the “Ingenious” litigation, consequential amendments were made to Mr Herrmann’s return as a result of him being a partner in an LLP. This amendment required an additional £4,012 of tax to pay over and above the amount that had been self-assessed and included in the earlier closure notice. These consequential amendments were notified on 17 July 2023;[20]Although 2008/09 is the core year that is relevant to these appeals, there were enquiries and amendments made in relation to a number of other years as well. The total amount of tax due in relation to all the affected years continued to be discussed between HMRC and Mr Herrmann’s advisers between July and November 2023. During this period there was also a change of adviser to Mr Herrmann and for some of this period amounts were stood over, i.e. suspended from enforcement by Mr Bell while ongoing discussions continued.[21]On 2 November 2023, in a letter that formed part of the correspondence finalising the amount due, Mr Herrmann’s adviser raised requests to reallocate of payments that had previously been made by Mr Herrmann to different periods. As an example, one of the requests was for an amount that was paid in 2005 and had been allocated to the payment on account due 31 January 2007 to be partially reallocated to the payments on account that were due on 31 January and 31 July 2006.[22]On 9 November 2023, Mr Bell replied to the 2 November 2023 letter and included a general statement that referred to the Debt Management and Banking Manual. This explained that unless Mr Herrmann had given a clear indication at the time he made the payments that it was his intention for payments to be directed to other charges, then “there’d be little scope for him to move those payments”. He went on to suggest contacting the Debt Management team if there had been incorrect allocations made in the past.[23]On 13 November 2023, Mr Herrmann’s agent wrote to the Debt Management noting an earlier telephone call on 10 November 2023. The letter explained that in the process of resolving the complex affairs of Mr Herrmann, a number of incorrect allocations had been made. It then set out a series of adjustments to allocations that they wished the Debt Management team to make. The requests related to the reallocation of funds that had been paid by Mr Herrmann in 2005, 2006, 2008 and 2009 and reallocation of accelerated payment notice payments in 2013.[24]On 15 November 2023, Mr Herrmann’s agent wrote again to Debt Management following a telephone call. This explained that the requests for reallocations had been sent on to a technical team but that Mr Herrmann would in the meantime pay all amounts of tax due in order to stop any further interest accruing and that he would pay the amount of interest that had accrued once it had been finalised after agreeing the reallocations.[25]Additional payments were made on 17 November 2023 - £2,363,062 and 23 November 2023 - £1,348,760.66. It is agreed by all parties that this amount satisfied all the outstanding tax and interest accrued for all the relevant years.[26]On 22 December 2023, HMRC issued two letters notifying Mr Herrmann of liability to Late Payment Surcharges for the tax years 2008/09 and 2009/10. These amounted to £611,673.92.[27]The appeals against these surcharges proceeded as follows:(1) 18 January 2024 - Mr Herrmann appealed to HMRC against the late payment surcharges;(2) 29 February 2024 – HMRC issued their view of the matter letter in relation to 2009/10 only;(3) 9 April 2024 - following the submission of further representations from the appellant, HMRC issued their view of the matter letter in relation to 2008/09;(4) 2 May 2024 – Appellant made further representations for consideration of the review officer regarding 2008/09;(5) 18 June 2024 – HMRC issued review conclusion letter upholding the surcharges in full;(6) 9 July 2024 – Appellant submitted a notice of appeal to the Tribunal in respect of the surcharges.[28]On 13 February 2024 HMRC issued late payment penalties (“LPPs”) in respect of tax years 2019/20, 2020/21 and 2021/22.[29]The 2019/20 penalties were subsequently withdrawn when HMRC acknowledged that they had been issued out of time.[30]The appeals against these LPPs proceeded as follows:(1) 25 March 2024 - the Appellant wrote to HMRC seeking agreement for late appeals to be heard on the LPPs;(2) 16 April 2024 – HMRC refused to admit late appeals;(3) 15 May 2024 – Appellant submitted notices of appeal to the Tribunal in respect of the LPPs, including seeking permission to appeal late;(4) 21 August 2024 – HMRC confirmed that they were not objecting to the late appeal.[31]On 14 March 2025, the Tribunal directed that the two appeals should be heard together.

parties arguments

[32]In this section, we set out at a very high level the nature of the parties’ arguments. Their detailed submissions are found where relevant in the discussion below.

Taxpayer’s arguments

[33]The Appellant’s grounds on the surcharges are as follows:(1) They surcharges are invalid because there was no late payment within the meaning of the legislation. At the dates that could have triggered a surcharge being 28 days and 6 months after the due date for payment, there was no amount of tax that remained unpaid. Therefore no surcharge can arise in accordance with the terms in the legislation.(2) In relation to 2008/09 only, HMRC’s choice of reallocation was arbitrary and led to the position that they claim triggered a penalty.(3) If the surcharges are found to be valid, the Appellant had a reasonable excuse because he could not be expected to pay additional tax until it was ascertained and he paid the tax promptly after the final figure was ascertained.(4) HMRC’s failure to exercise their discretion to mitigate the surcharges renders them invalid;(5) The surcharges are invalid because they were not issued within the time limits set out in section 103 of TMA 1970.[34]Also put briefly, the Appellant’s grounds in relation to the LPPs are:(1) The LPPs are invalid for the same reasons set out in ground 1 against the surcharges. The language in the legislation is slightly different, but the effect is the same;(2) If the surcharges are found to be valid, the Appellant had a reasonable excuse because he could not be expected to pay additional tax until it was ascertained and he paid the tax promptly after the final figure was ascertained.(3) The special reduction provisions in relation to LPPs are different from the discretion on surcharges. HMRC failed to consider special reduction properly. These penalties are not penalising late payment for the purposes of the compliance objective of late payment penalties and therefore special reduction should apply.(4) For the 2020/21 penalties, HMRC are out of time because they failed to notify the penalties within the period set out in legislation.

HMRC arguments

[35]With regard to the surcharges, HMRC submit that:(1) The original payments in relation to 2008/09 and 2009/10 were made on time, but, as a result of the reallocations of payments requested by the taxpayer in 2023, the amounts were later found to be showing as unpaid at the relevant trigger dates for the surcharges and therefore the surcharges are validly issued;(2) The time limits in section 103 of TMA 1970 do not apply to the surcharges because they are not penalties. Even if the section did apply, the surcharges are still in time because the final determination of the tax, on which the surcharge could be calculated, was not made until November 2023;(3) The taxpayer cannot have a reasonable excuse because the surcharges arose out of instructions coming from the taxpayer’s agent so there can be no reasonable excuse;(4) With regard to mitigation, this was addressed in the view of the matter letters and in the statement of case, but in any event there is no appeal against a refusal to exercise the discretion as it would have to be considered by way of judicial review, which is outside the scope of the Tribunal;[36]With regard to the late payment penalties:(1) As with the surcharges, HMRC consider that it is possible to look retrospectively to identify a late payment and that, when they do that, the late payment penalties validly arose;(2) The notices were issued within the statutory time limits to Mr Herrmann’s address;(3) Mr Herrmann does not have a reasonable excuse for these late payments because the trigger was the reallocations of earlier payments that were requested by him;(4) HMRC’s decision on special reduction was not flawed because it was based on the fact that the reallocation was requested by the taxpayer.

discussion – validity of late payment surcharges and penalties

[37]At the core of this dispute is a question of statutory interpretation covering two different, but similar statutory regimes. To put it very succinctly, the taxpayer is arguing that no penalties or surcharges can arise at all because the legislation, supported by case law, requires a consideration of whether an amount of tax is outstanding at specific snapshots in time. By contrast, HMRC argues that the legislation can be read purposively to allow for surcharges and penalties to be applied retrospectively after the reallocations had been put into place.[38]We were taken through the legislation in detail by Mr Morris, on behalf of Mr Herrmann, to set out the relevant due dates for tax to be paid in the relevant years and the trigger points for the penalties. We are grateful for his clear explanations. However, we do not need to reflect all that detail in this decision, not least because there was no dispute from HMRC on it.[39]Both parties agree what the trigger points for the surcharges were and both parties agree that, when considered at that date, the payments had been made. By way of simple example, the due date for the 2009/10 tax year was 31 January 2011 and Mr Herrmann had paid the amount of tax due by that date before the trigger point for the surcharge 28 days later. This was true of each of the relevant due dates and trigger points for all of the surcharges and LPPs under appeal.[40]The dispute is about how the reallocation exercise undertaken by the Debt Management team in HMRC in November 2023 affected those earlier payments.[41]The taxpayer’s position is that it has no effect whatsoever. They rely on the interpretation of the statutory language and the support of case law.[42]In respect of the surcharges, the statutory language is “Where any of the tax remains unpaid on the day following the expiry of 28 days from the due date, the taxpayer shall be liable to a surcharge equal to 5 per cent of unpaid tax.” The language in respect of the 6-month surcharge is identical save for the time period.[43]In respect of the LPPs, the statutory language in paragraph 1 of Schedule 56 provides the liability for the first penalty:
“(1) A penalty is payable by a person (“P”) where P fails to pay an amount of tax specified in column 3 of the Table below on or before the date specified in column 4. … (4) In the following provisions of this Schedule, the “penalty date”, in relation to an amount of tax, means the day after the date specified in or for the purposes of column 4 of the Table in relation to that amount.”
[44]The date specified in column 4 in this circumstance is 30 days after the due date.[45]Paragraph 3 provides that this penalty is “5% of the unpaid tax”.[46]It goes on to provide that “If any amount of the tax is unpaid after the end of the period of 5 months beginning with the penalty date, P is liable to a penalty of 5% of that amount.”. Identical language is again used for the 11-month penalties.[47]The Appellant submits that the statutory language in both cases requires a “snapshot” approach on the relevant day. In the context of the surcharge language, they argue that the phrase “on the day” is very specific and cannot be interpreted as HMRC suggest. In relation to the LPP language, the Appellant submits that it is differently worded but also requires consideration by reference to a particular date, pointing to the repeated used of the phrase “is unpaid”.[48]HMRC submit that the language in both cases allows for an interpretation including “showing as unpaid” on the relevant date, but looked at retrospectively after the reallocations have been made. They further submit that it cannot have been Parliament’s intention to allow there to be no consequence for late payment and to allow a taxpayer to request reallocation in order to reduce interest payment and not to have to take the consequences of that request, including surcharges and penalties for late payment.[49]We were referred to the case of Thomson (Inspector of Taxes) vMinzly, [2002] STC 450. In this case, Mr Minzly owed tax that was due on 31 January 2000. He paid it during the course of the day on 29 February. The question in that case was whether the tax remained “unpaid on the day following the expiry of 28 days from the due date” when it was paid during that day. The High Court agreed with HMRC that the tax was unpaid on that day because it remained unpaid in the earlier part of that day.[50]The Appellant relies on the following passage (their emphasis):
“In approaching s 59C(2) it is essential, in my view, to bear in mind that it can only come into play when tax has remained unpaid during at least 28 days from the due date. It seems to me that this inquiry which the subsection requires to be made is whether this state of affairs remains in existence on the day after that period has expired. That being the inquiry, I take the view that it has to be answered in respect of a particular point of time, not in respect of the whole of an additional period. In my view that point of time, as a matter of language, is at any time on 29 February. I accept of course that when one is addressing the continuance or otherwise of a state of affairs which has existed during a previous period, that means in practice that one must look to the first moment of the day in question.”
[51]We were also referred to the case of S W McMullan v Commissioners for Her Majesty’s Revenue and Customs [2009] UKFTT 367 (TC). In this case Mr McMullan had paid the tax due for 2006/07 on 30 January 2008, i.e. on time, but did not file his return until 8 December 2008. In the interim, the tax paid was refunded on 15 August 2008 apparently at the request of the taxpayer. In a very brief decision, which relies on the decision in Minzly, the Tribunal in that case decided that Mr McMullan was not liable for the surcharges HMRC had imposed. The Tribunal interpreted Minzly as follows:
“It is clear from the decision of the High Court that the default (failure to pay tax) has to be tested at a particular moment in time - namely the start of the day following the due date. If the tax is (sic) not been paid by the start of the following day, then there is a default, and a surcharge is payable - even if the tax is paid later on that day. The corollary must be that if the tax is paid by the start of the day following the relevant date, then there is no default, and no surcharge is payable - even if the tax is later refunded by HMRC.”
[52]HMRC argue that Minzly is a decision on a narrow point concerning a late payment made during the course of a day, which is not what has happened in this case.[53]We start our consideration with the plain reading of the statutory language. With regard to the surcharges we must ask ourselves whether “any of the tax remains unpaid on the day following the expiry of 28 days from the due date”. With regard to the LPPs we must consider whether the taxpayer “fails to pay” the tax by a certain date and the penalty date is the day after that due date. We do not see that this language shows any ambiguity. We must consider whether the tax “remains unpaid” on the particular date set out in the legislation or where the Appellant has “failed to pay” the tax by the particular date. In our view, the literal interpretation of the words does not allow for HMRC’s interpretation that requires a retrospective look back after reallocation.[54]This conclusion is reinforced by the decisions in Minzly and McMullan. In particular, we note that the focus of the quoted paragraph above is on the continuation of a period during which the tax has “remained unpaid”, i.e. that the non-payment of tax must continue from the due date to the date at which the penalty trigger occurs.[55]Both parties invited us to consider the purpose of the legislation. HMRC looked at it negatively – Parliament cannot have intended to allow the taxpayer to request reallocation in order to reduce interest and not take the consequences of penalties or surcharges for late payment. The Appellant identifies the purpose of penalties and surcharges as being to encourage payment on time and to deter late payment. They point to a passage in Latham v HMRC [2012] UKFTT 533 (TC):
“The purpose of the surcharge is plainly to encourage taxpayers to pay their tax liabilities on time and to deter late payment.”
[56]We were not taken to any other records of Parliamentary intention as regards the surcharge or penalty regime.[57]We agree that the clear purpose of a regime that penalises late payment is to encourage compliance and to act as a deterrent to late payment. We would add that the existence of the additional penalties after the first further supports the deterrent effect of the regime. Taxpayers should pay on time and those that don’t will suffer a penalty that is measured by reference to the amount of tax that is paid late and that these penalties will be repeated if the non-payment continues for a specified period of time.[58]HMRC asks us to add into that purpose a more convoluted consideration, whereby a later agreement with HMRC with regards to the allocation of payments already held by HMRC between past years is something that needs to be taken into account when considering whether a penalty should arise. HMRC submitted that the taxpayer should “bear the consequences” of that reallocation, particularly because the taxpayer is getting the benefit of reduced interest that comes with that reallocation.[59]From the Appellant’s side, they argue that the reallocation exercise is one of request or supplication. The Appellant may have requested a reallocation but it was HMRC that made the decision. According to the Appellant, the reallocation that took place did not match the one they requested and, in at least one case, the reallocation made by HMRC resulted in their purported trigger for a penalty where a different reallocation would not have done.[60]There is no legislative provision that deems a payment that was originally paid in respect of tax year A to be treated for all purposes as if it had been paid in respect of tax year B in circumstances where HMRC has agreed a reallocation. In fact there is no legislation relating to the reallocation of payments between years at all. We understand that HMRC agrees to and makes such reallocations under its general care and management powers.[61]We do not consider that the legislation bears the purposive interpretation that HMRC suggest, to allow them to treat a retrospective late payment on paper as an actual late payment.[62]The commentary in the case law in Minzly and McMullan support that conclusion.[63]For the avoidance of doubt, we do not consider that the small variations in language between the surcharge legislation and the late payment penalty legislation have any consequence on the interpretation we have reached.[64]We therefore find that neither the surcharges nor the late payment penalties were validly issued because there was no late payment on the penalty trigger dates.[65]As a result of this finding, we do not need to consider the remaining arguments put forward, which are only relevant where the surcharges and penalties are validly issued.

disposition

[66]For the reasons set out above, we allow the taxpayer’s appeals against the late payment penalties and surcharges.

Right to apply for permission to appeal

[67]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: 14 May 2026