A Nurse v The Commissioners for HMRC [2026] UKFTT 722 (TC)

[2026] UKFTT 00722 (TC)Case No TC 09886
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 1 May 2026Date Judgment date: 15 May 2026
Video Hearing, by Teams
Appeal reference: TC/2024/03873
Keywords: Employment income; Excessive travel expenses; Discovery assessments and closure notice; appeals DISMISSED; penalties for incorrect returns; careless conduct; special reduction; Barry Edwards considered; decision flawed; penalties reduced to NIL; penalty appeals ALLOWED
Before
TRIBUNAL JUDGE KEITH GORDONMEMBER GILL HUNTER
Between
A NURSE (ANONYMISED DECISION)AppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentThe Appellant appeared in person for AppellantMs Siobhán Brown, litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]The form of the hearing was V (video). Prior notice of the hearing had been published on the gov.uk website, with information about how representatives of the media or members of the public could apply to join the hearing remotely in order to observe the proceedings. As such, the hearing was held in public.[2]The documents provided to the Tribunal before the hearing were a combined documents and hearing bundle (428 pages).

Anonymisation

[3]The Tribunal has decided (without any objection from HMRC when the possibility was aired at the hearing) to anonymise this decision. This is because the case concerns a vulnerable individual who has been duped into allowing a work colleague to make excessive travel expense claims on her behalf.[4]Until now, the Appellant has provided no meaningful information to HMRC that would allow them to identify the work colleague, and it is not clear to us whether she will in the future. However, if (as we sincerely hope) HMRC do commence further action to tackle the root cause of the problems identified in this case, we want to take every reasonable precaution to protect the Appellant from the risk of any retribution by the work colleague who might (not necessarily correctly) conclude that the Appellant has been the source of any information in HMRC’s possession.

The Tribunal’s approach to the case

[5]As the Appellant was unrepresented and somewhat bewildered by the process, we adopted a more inquisitorial approach to the hearing so as to ensure that the Appellant’s appeals were fairly considered. In particular:(1) we examined questions (both of fact and law) that were not necessarily in contention; and(2) we elicited the Appellant’s evidence by asking her open questions so as to better understand the facts of her case.[6]We also consider it prudent to ensure that the Tribunal’s e-mail notification of our decision contains a clear statement of the outcome of the case as we are conscious that this decision notice is not going to be fully accessible. We had considered giving a shorter unpublished decision. However, we decided that the issues arising in this case merited wider publicity, in the hope that that would somehow minimise the risk of other individuals being caught up in the same difficulties that the Appellant has experienced.

Outline

[7]The Appellant is employed by the NHS as bank worker which, we understand, is the usual term for what is effectively a zero-hours contract (albeit one which, we believe, expects workers to work complete shifts rather than be stood down mid-shift were things to get quiet).[8]In relation to the 2019-20, 2020-21, 2021-22 and 2022-23 tax years, Self Assessment tax returns were submitted on the Appellant’s behalf which included claims for home-to-work travel. They gave rise to repayment claims (three of which were given effect and the fourth of which was stopped). This led to the Appellant querying why she was not getting the fourth repayment which she was expecting and HMRC’s subsequent investigation.[9]HMRC concluded that the Appellant was not entitled to make the expense claims and:(1) assessed the tax repaid to the Appellant in relation to the first three of the tax years; and(2) amended the tax return in relation to the fourth.[10]HMRC also issued penalties on the basis that the Appellant’s tax returns carelessly claimed expenses to which she was not entitled.[11]The decisions under appeal are as follows: Date of decision Type of decision Tax year Effect of decision 12 December 2023 Assessment 2019-20 Recovery of £926.20 previously repaid to Appellant 12 December 2023 Assessment 2020-21 Recovery of £1,706.20 previously repaid to Appellant 12 December 2023 Assessment 2021-22 Recovery of £1,940.00 previously repaid to Appellant 12 December 2023 Closure notice 2022-23 Reversal of £2,285.00 overpayment previously claimed by Appellant Replacement by £50.40 underpayment (A net difference of £2,335.40) 5 February 2024 Penalty 2019-20 Penalty of £138.93, being 15% of £926.20 5 February 2024 Penalty 2020-21 Penalty of £255.93, being 15% of £1,706.20 5 February 2024 Penalty 2021-22 Penalty of £291.00, being 15% of £1,940.00 5 February 2024 Penalty 2022-23 Penalty of £350.31, being 15% of £2,335.40[12]For the reasons that follow, we:(1) dismiss the appeal against the assessments and closure notice; but(2) allow the appeal against the penalty assessments. The relevant law Legislation relating to travel expenses

The relevant law

[13]The general rule for the deduction of employment expenses is found in the Income Tax (Earnings and Pensions) Act 2003, section 336 which reads as follows: Deductions for expenses: the general rule (1) The general rule is that a deduction from earnings is allowed for an amount if—(a) the employee is obliged to incur and pay it as holder of the employment, and(b) the amount is incurred wholly, exclusively and necessarily in the performance of the duties of the employment. (2) The following provisions of this Chapter contain additional rules allowing deductions for particular kinds of expenses and rules preventing particular kinds of deductions. (3) No deduction is allowed under this section for an amount that is deductible under sections 337 to 342 (travel expenses).[14]Travel expenses are the subject of a specific, but prescriptive, set of rules in sections 337 and 338. Travel in performance of duties 337(1) A deduction from earnings is allowed for travel expenses if—(a) the employee is obliged to incur and pay them as holder of the employment, and(b) the expenses are necessarily incurred on travelling in the performance of the duties of the employment. (2) This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs). Travel for necessary attendance 338(1) A deduction from earnings is allowed for travel expenses if— (a) the employee is obliged to incur and pay them as holder of the employment, and (b) the expenses are attributable to the employee’s necessary attendance at any place in the performance of the duties of the employment. (2) Subsection (1) does not apply to the expenses of ordinary commuting or travel between any two places that is for practical purposes substantially ordinary commuting. (3) In this section “ordinary commuting” means travel between— (a) the employee’s home and a permanent workplace, or (b) a place that is not a workplace and a permanent workplace. (4) Subsection (1) does not apply to the expenses of private travel or travel between any two places that is for practical purposes substantially private travel. (5) In subsection (4) “private travel” means travel between— (a) the employee’s home and a place that is not a workplace, or (b) two places neither of which is a workplace. (6) This section needs to be read with section 359 (disallowance of travel expenses: mileage allowances and reliefs).

Legislation relating to discovery assessments

[15]The power to make a discovery assessment is conferred by the Taxes Management Act 1970, section 29 which, at the dates of the assessments made (December 2023), read as follows (so far as is relevant to this case): Assessment where loss of tax discovered.(1) If an officer of the Board or the Board discover, as regards any person (the taxpayer) and a year of assessment— (a) that an amount of income tax or capital gains tax ought to have been assessed but has not been assessed, (b) that an assessment to tax is or has become insufficient, or (c) that any relief which has been given is or has become excessive, the officer or, as the case may be, the Board may, subject to subsections (2) and (3) below, make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged in order to make good to the Crown the loss of tax.(2) Where— (a) the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, and (b) the situation mentioned in subsection (1) above is attributable to an error or mistake in the return as to the basis on which his liability ought to have been computed, the taxpayer shall not be assessed under that subsection in respect of the year of assessment there mentioned if the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when it was made.(3) Where the taxpayer has made and delivered a return under section 8 or 8A of this Act in respect of the relevant year of assessment, he shall not be assessed under subsection (1) above— (a) in respect of the year of assessment mentioned in that subsection; and (b) in the same capacity as that in which he made and delivered the return, unless one of the two conditions mentioned below is fulfilled.(4) The first condition is that the situation mentioned in subsection (1) above was brought about carelessly or deliberately by the taxpayer or a person acting on his behalf. (5)The second condition is that at the time when an officer of the Board— (a) ceased to be entitled to give notice of his intention to enquire into the taxpayer’s return under section 8 or 8A of this Act in respect of the relevant year of assessment; or (b) in a case where a notice of enquiry into the return was given— (i) issued a partial closure notice as regards a matter to which the situation mentioned in subsection (1) above relates, or (ii) if no such partial closure notice was issued, issued a final closure notice, the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation mentioned in subsection (1) above. (6) For the purposes of subsection (5) above, information is made available to an officer of the Board if— (a) it is contained in the taxpayer’s return under section 8 or 8A of this Act in respect of the relevant year of assessment (the return), or in any accounts, statements or documents accompanying the return; (b) it is contained in any claim made as regards the relevant year of assessment by the taxpayer acting in the same capacity as that in which he made the return, or in any accounts, statements or documents accompanying any such claim; (c) it is contained in any documents, accounts or particulars which, for the purposes of any enquiries into the return or any such claim by an officer of the Board, are produced or furnished by the taxpayer to the officer; or (d) it is information the existence of which, and the relevance of which as regards the situation mentioned in subsection (1) above— (i) could reasonably be expected to be inferred by an officer of the Board from information falling within paragraphs (a) to (c) above; or (ii) are notified in writing by the taxpayer to an officer of the Board.[16]In summary, as the case law has made clear, an officer has to reach a conclusion (the subjective element) that tax has been underpaid and that conclusion has to be reasonable (the objective element) (Anderson v HMRC [2018] UKUT 159 (TCC) at [25], [29]).[17]Relevant to section 29(4) is the following provision within the Taxes Management Act 1970, section 118: (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.

Legislation relating to closure notices

[18]The procedures for closing enquiries are found within the Taxes Management Act 1970, section 28A. So far as is relevant to this case, the provisions read as follows: (1B) The enquiry is completed when an officer of Revenue and Customs informs the taxpayer by notice (a “final closure notice”) —(a) in a case where no partial closure notice has been given, that the officer has completed his enquiries, or(b) in a case where one or more partial closure notices have been given, that the officer has completed his remaining enquiries. (2) A partial or final closure notice must state the officer’s conclusions and— (a) state that in the officer’s opinion no amendment of the return is required, or (b) make the amendments of the return required to give effect to his conclusions.[19]Provided that the enquiry was opened in time, the only real constraint on the officer’s actions are for the closure notice to reflect the officer’s actual conclusions (as per subsection (2)) and for those conclusions to be reasonably held (by analogy with the position for discovery assessments and public law decisions more generally).

Legislation relating to penalties

[20]The penalty provisions are found in the Finance Act 2007, Schedule 24. For the purposes of this case, the following provisions are relevant. Error in taxpayer's document 1(1) A penalty is payable by a person (P) where—(a) P gives HMRC a document of a kind listed in the Table below, and(b) Conditions 1 and 2 are satisfied. (2) Condition 1 is that the document contains an inaccuracy which amounts to, or leads to— (a) an understatement of a liability to tax, (b) a false or inflated statement of a loss, or(c) a false or inflated claim to repayment of tax. (3) Condition 2 is that the inaccuracy was careless (within the meaning of paragraph 3) or deliberate on P’s part. (4) Where a document contains more than one inaccuracy, a penalty is payable for each inaccuracy. Tax Document Income tax or capital gains tax Return under section 8 of TMA 1970 (personal return). … Degrees of culpability 3(1) For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is— (a) “careless” if the inaccuracy is due to failure by P to take reasonable care, ... Standard amount 4(1) This paragraph sets out the penalty payable under paragraph 1. (2) If the inaccuracy is in category 1, the penalty is— (a) for careless action, 30% of the potential lost revenue, … 4A(1) An inaccuracy is in category 1 if— (a) it involves a domestic matter, or … Potential lost revenue: normal rule 5(1) “The potential lost revenue” in respect of an inaccuracy in a document (including an inaccuracy attributable to a supply of false information or withholding of information) or a failure to notify an under-assessment is the additional amount due or payable in respect of tax as a result of correcting the inaccuracy or assessment. (2) The reference in sub-paragraph (1) to the additional amount due or payable includes a reference to— (a) an amount payable to HMRC having been erroneously paid by way of repayment of tax, and (b) an amount which would have been repayable by HMRC had the inaccuracy or assessment not been corrected. Reductions for disclosure (A1) Paragraph 10 provides for reductions in penalties— (a) under paragraph 1 where a person discloses an inaccuracy that involves a domestic matter, (1) A person discloses the matter by— (a) telling HMRC about it, (b) giving HMRC reasonable help in quantifying the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment, and (c) allowing HMRC access to records for the purpose of ensuring that the inaccuracy, the inaccuracy attributable to the supply of false information or withholding of information, or the under-assessment is fully corrected. (2) Disclosure— (a) 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 inaccuracy, the supply of false information or withholding of information, or the under-assessment, and (b) otherwise, is “prompted”. (3) In relation to disclosure “quality” includes timing, nature and extent. 10(1) If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure. (2) But the standard percentage may not be reduced to a percentage that is below the minimum shown for it— (a) in the case of a prompted disclosure, in column 2 of the Table, and (b) in the case of an unprompted disclosure, in column 3 of the Table. Standard % Minimum % for prompted disclosure Minimum % for unprompted disclosure 30% 15% 0% Special reduction 11(1) If they think it right because of special circumstances, HMRC may reduce a penalty under paragraph 1, 1A or 2. (2)In sub-paragraph (1) “special circumstances” does not include— (a) ability to pay, or (b) the fact that a potential loss of revenue from one taxpayer is balanced by a potential over-payment by another. Suspension 14(1) HMRC may suspend all or part of a penalty for a careless inaccuracy under paragraph 1 by notice in writing to P. … (3) HMRC may suspend all or part of a penalty only if compliance with a condition of suspension would help P to avoid becoming liable to further penalties under paragraph 1 for careless inaccuracy. Appeal 15(1) A person may appeal against a decision of HMRC that a penalty is payable by the person. (2) A person may appeal against a decision of HMRC as to the amount of a penalty payable by the person. (3) A person may appeal against a decision of HMRC not to suspend a penalty payable by the person. 17(1) On an appeal under paragraph 15(1) the tribunal may affirm or cancel HMRC's decision. (2) On an appeal under paragraph 15(2) the tribunal may— (a) affirm HMRC's decision, or (b) substitute for HMRC's decision another decision that HMRC had power to make. (3) If the tribunal substitutes its decision for HMRC's, the tribunal may rely on paragraph 11— (a) to the same extent as HMRC (which may mean applying the same percentage reduction as HMRC to a different starting point), or (b) to a different extent, but only if the tribunal thinks that HMRC's decision in respect of the application of paragraph 11 was flawed. (4) On an appeal under paragraph 15(3)— (a) the tribunal may order HMRC to suspend the penalty only if it thinks that HMRC's decision not to suspend was flawed, and (b) if the tribunal orders HMRC to suspend the penalty— (i) P may appeal against a provision of the notice of suspension, and (ii) the tribunal may order HMRC to amend the notice.

Case law on special reduction

[21]The leading case on special reduction is the Upper Tribunal’s decision in Barry Edwards v HMRC [2019] UKUT 137 (TCC). Although that case considers a different penalty regime (the penalties for late Self Assessment tax returns), we consider that the general approach laid down in that case is equally applicable to the penalties under Schedule 24. After considering previous case law in which different approaches had been adopted, the Upper Tribunal warned against giving the phrase, “special circumstances”, a restrictive meaning. In particular, at [73] and [74], the Upper Tribunal agreed with the following proposition from an earlier case:
“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 right to reduce the amount of the penalty.”

The burden of proof

[22]HMRC must prove that the decisions reflect the conclusions made by the officer and that those conclusions were reasonably held.[23]HMRC must also prove the conduct complained of (both to justify the assessment under section 29(4) and the penalty assessment) and/or demonstrate that the condition in section 29(5) is met.[24]Once those thresholds are passed, it is for the taxpayer to demonstrate:(1) that the discovery assessments or closure notice overstate the tax payable; and/or(2) the penalties are excessive or that HMRC’s decisions on suspension and special reduction are flawed.

Facts of the case

[25]We heard oral evidence from two witnesses:(1) Mrs Lynch, an officer of HMRC; and(2) the Appellant.[26]Both gave their evidence clearly and honestly. In some ways, the Appellant was overwhelmed by a combination of the fact of the case itself and the need to answer questions in the formal atmosphere of a Tribunal hearing. This, on occasions, led to some confusion on her part. However, it was clear that she was doing her best to be open to the Tribunal (and to HMRC in the course of cross-examination). We are confident that we were able to form a clear picture of the relevant facts from what the Appellant told us, in conjunction with the documentary evidence.[27]We accordingly make the following findings of fact:

Background

[28]The Appellant works for (usually) two trusts within the NHS, which we shall identify as S and K. She is employed on a bank basis.[29]In about 2020, she engaged a company to give effect to certain fixed-rate expense claims made available to NHS staff in relation to uniforms (an allowance and a contribution to laundering costs). These fixed-rate amounts, totalling £143, have long been agreed between HMRC (and, previously, the former Inland Revenue) and the relevant unions but, seemingly, have to be claimed in the first instance. However, once the claim was made, they are given effect for subsequent years by way of an adjustment to a worker’s PAYE code. This is what happened in the present case.

The expense claims at the heart of this case

[30]However, in the subsequent months, a colleague (whom we will call M) advised the Appellant that she would be entitled to claim further deductions.[31]We saw screenshots of Whatsapp correspondence between the Appellant and M in May and June 2021. In the course of that correspondence:(1) M said that “they It is not clear to us whether “they” refers to accountants that M claimed were putting in these claims (in the sense that he was acting as a liaison between the accountants and the Appellant) or the word actually refers to the information that would be necessary to allow the repayment to be made. We did not consider that we needed to resolve this ambiguity. will help you claim for your self-assessment repayment”.(2) M requested a list of information concerning the Appellant’s employment income (P60, payslip, NI number) and personal details such as e-mail address, home address, telephone number and the Appellant’s date of birth.(3) He also requested details of the Appellant’s Government Gateway identification number.(4) The Appellant provided this information.(5) M also requested the Appellant’s password on the Government Gateway.(6) The Appellant complied with this request too.(7) M further requested the activation code that would have been sent to the Appellant’s phone.(8) Again, the Appellant complied with this request.[32]On 15 July 2021, a tax return was submitted in relation to the 2020-21 tax year. The net effect of that return was as follows: Income from S £19,445 Tax deducted re S £1,359.00 Income from K £2,853 Tax deducted re K £570.00 Business travel and subsistence expenses Re S: £8,674Re K: £NIL Tax repayment claimed £1,704.40 Date tax repayment made 20 July 2021[33]The repayment was made to the Appellant’s bank account. In a subsequent Whatsapp chat, M calculated the fee due to the “accountants” being 20% of the repayment received (£340.88) and provided bank details for the Appellant to transfer this fee, adding that she might also wish to add “anything you want to give me”.[34]We find that the Appellant made this 20% payment to M.[35]The Appellant also asked at the same time “What about the other year”.[36]On 24 July 2021, a tax return was submitted in relation to the 2019-20 tax year. In other words, the return for the earlier year was submitted nine days after the return for the later year. The net effect of that return was as follows: Income from S £15,159 Tax deducted re S £530.00 Income from K £1,982 Tax deducted re K £396.40 Business travel and subsistence expenses Re S: £6,543Re K: £NIL Tax repayment claimed £926.40 Date tax repayment made 28 July 2021[37]We find that the Appellant paid 20% of this repayment to M following receipt.[38]On 9 April 2022, a tax return was submitted in relation to the 2021-22 tax year. The net effect of that return was as follows: Income from S £23,234 Tax deducted re S £2,102.80 Income from K £1,403 Tax deducted re K £280.60 Business travel and subsistence expenses Re S: £9,843 Re K: £NIL Tax repayment claimed £1,938.60 Date tax repayment made 28 April 2022[39]We find that the Appellant paid 20% of this repayment to M following receipt.[40]On 7 April 2023, a tax return was submitted in relation to the 2022-23 tax year. The net effect of that return was as follows: Income from S £21,277 Tax deducted re S £1,622.40 Income from K £6,608 Tax deducted re K £1,921.60 Business travel and subsistence expenses Re S: £7,850Re K: £1,170 Tax repayment claimed £2,285.00[41]It can be seen that the amounts claimed by the Appellant are slightly different from the sums assessed as summarised at ¶‎11 above. We find that the discrepancies are due to rounding adjustments built into the PAYE system and are not material.[42]However, the figures for the 2022-23 tax year require a further explanation. Of the £2,285 repayment claim:(1) £1,804 (being (£7,850 + £1,170) × 20%) relates to the expense claims;(2) £28.60 of that amount (being £143 × 20%) is not in dispute;(3) a further £560 relates to the fact that the tax deducted figures did not match the PAYE/RTI records held by HMRC The differences appeared to be keying-in errors rather than anything more sinister. In relation to S, the tax deducted was understated by £40 whereas, in relation to K, the tax deducted was overstated by £600. ;(4) however, the tax deducted per the PAYE/RTI figures led to an under-collection of tax amounting to £50.40.[43]In other words £2,285.00 = £1,804.00 + £560.00 – (£28.60 + £50.40).

The action taken by HMRC

[44]The 2022-23 repayment was not made to the Appellant. According to the notes taken from HMRC’s systems:(1) The refund of £2,285 was initially rejected because of “insufficient details”.(2) On 19 April 2023, the Appellant called HMRC and was told that the repayment should be made within ten working days.(3) However, it was then rejected for a reason noted as “no credit available”.(4) On 15 June 2023, the Appellant sought an update on the repayment via HMRC’s webchat facility. The Appellant was told to expect that payment by 3 July 2023.(5) On 3 July 2023, the Appellant sought another update on the repayment via HMRC’s webchat facility.(6) On 7 July 2023, the Appellant sought another update on the repayment via HMRC’s webchat facility. She was told that this had been referred to another team. The Appellant expressed her dissatisfaction.[45]The case was then referred to Officer Lynch who reviewed the file on 2 August 2023. She read the file and, as per her witness statement: I noted that the customer worked for the NHS and was claiming high expenses for business travel and subsistence. Having previously worked as an employer compliance officer in Public Bodies Group I knew it was highly unlikely an individual would work for a public body and incur work related expenses to this level, which were eligible for tax relief and not be reimbursed by their employer. I felt at this point there was a risk the repayment claim was inaccurate.[46]Later that day, Officer Lynch called the Appellant and explained her concerns about the accuracy of the repayment claim and the need for a formal enquiry to be opened into the 2022-23 return.[47]The Appellant explained to Officer Lynch that her claim related to travel to work and, in response, Officer Lynch explained briefly that such travel is not eligible for tax relief.[48]The enquiry letter was issued on 3 August 2023.[49]On 31 August 2023, the Appellant telephoned Officer Lynch. Officer Lynch reports that the Appellant had said that “she could not get in touch with the person that completed her return, she did not have their details and had deleted their number. She stated it was someone from her work, but they had been on different shifts”. What the Appellant is said to have said here is not entirely accurate as, in October 2023, the Appellant was able to take screenshots of her Whatsapp conversation with M. We find that Officer Lynch’s recollection is correct and put the inconsistency down to a combination of embarrassment and apprehensiveness on the Appellant’s part rather than any desire to deceive or be unreasonably obstructive.[50]On 21 September 2023, Officer Lynch wrote to the Appellant and explained:(1) she would remove the £9,020 expense claim and substitute the previously agreed £143 amount which was reflected in her PAYE code;(2) she would also correct the errors in the figures regarding the tax deducted figures as they did not match the PAYE/RTI records held by HMRC;(3) assessments were to be made in relation to the 2019-20, 2020-21 and 2021-22 tax years so as to reverse similar claims made.[51]On 21 October 2023, the Appellant e-mailed Officer Lynch. She expressed no disagreement with the proposed amendments and assessments. She also provided further information as to how she had come to make these repayment claims.[52]The closure notice was given and the discovery assessments under appeal were made on 12 December 2023.[53]These were the subject of an appeal received by 15 January 2024. Although this was strictly a few days outside the 30-day statutory appeal period, HMRC admitted the appeal.[54]Penalties were then the subject of correspondence on 3 January 2024. In short, Officer Lynch considered that:(1) the errors were caused by the Appellant’s careless conduct;(2) the disclosure of the errors was “prompted” because they were identified by the enquiry into the 2022-23 tax return; and(3) the Appellant was entitled to the maximum discount in relation to her co-operation with HMRC’s investigations.[55]The penalty assessments were notified to the Appellant on 5 February 2024.[56]The Appellant did not appeal against the penalty assessments until 28 October 2024. However, HMRC were content to admit the late appeal.

Subsequent events

[57]The only other subsequent event of note was the fact that the Appellant was approached by another colleague whom M had tried to encourage to make a similar expense claim. The Appellant explained to this other colleague that it had caused her significant problems and she counselled against it. It is the Appellant’s belief that this other colleague heeded the Appellant’s advice and was not tempted to make such a claim.

The closure notice

[58]The enquiry into the 2022-23 tax return was opened well within the 12-month window after the submission of the return. We could see no reason to doubt the validity of the enquiry process or the subsequent closure notice. It was also clear that Officer Lynch subjectively and objectively reached the conclusion that the 2022-23 tax return was wrong. Accordingly, we conclude that the closure notice was procedurally valid.[59]Furthermore, the Appellant accepted at the hearing (what was implicit in her earlier correspondence with HMRC and the Tribunal) that she was not contending that she was entitled to make the repayment claims. She accepted that it was a mistake. From what we have seen, she was right not to argue that the tax returns had been made correctly. In particular, the expense claims purported to relate to home-to-work travel costs and, therefore, are disallowed as “ordinary commuting”. Having seen the RTI records for the year, we also agree that the £50.40 underpayment represents the correct position.[60]One issue that bothered us was that the Appellant was clearly a victim of what looks to us likely to be a fraud being perpetrated by either M or those for whom he was acting as an intermediary. In this sense, we considered whether the Appellant lacked sufficient agency in the repayment claim process so that it might be said that she had not actually submitted a tax return. If there has been no return by a taxpayer, then we consider that section 9A(1) of the Taxes Management Act 1970 cannot be complied with. In particular, the Appellant explained that she did not provide any information to M that would justify the quantum of the claims made. However, we felt we could not set aside the closure notice on this basis because the Appellant had taken an active and knowing role in the process: she knew to expect a repayment and was herself actively pursuing it. Whilst it was extremely naive and unwise, the Appellant did supply log-in details to M. We conclude, therefore, that the 2022-23 return was made by the Appellant through a person acting on her behalf (albeit not in her best interest).[61]We accordingly uphold the closure notice and dismiss the appeal against it.

The discovery assessments

[62]The discovery assessments were made under section 29 of the Taxes Management Act 1970 in relation to the 2019-20 to 2021-22 tax years.[63]Each of the discovery assessments was made for a tax year for which a tax return had been made.[64]Each discovery assessment was made outside the relevant enquiry windows for the tax returns in question.[65]Given the information provided by the Appellant to Officer Lynch and what was contained in the tax returns for those years, it is clear that Officer Lynch subjectively and objectively reached the conclusion that the expense claims were wrong as they related to travel expenses that the Appellant was not entitled to claim. Officer Lynch was also acting reasonably when she permitted the £143 expense allowance previously granted to the Appellant. Accordingly, we find that the condition in section 29(1) was met in relation to all three assessments.[66]Furthermore, for the reasons set out in ¶‎58 above, we see no reason to vary the amount of the assessments.[67]Each assessment was made within the normal 4-year time limit found in section 34 of the Taxes Management Act 1970.[68]As a result, the only matter that needs to be addressed is whether either of the conditions in section 29(4) and (5) is met.[69]Section 29(4) asks whether the errors are attributable to the careless or deliberate conduct of either the Appellant or a person acting on her behalf. HMRC have not pleaded anything about the conduct of any person acting on the Appellant’s behalf and so we make no formal finding in that regard. What we have said at ¶‎59 above represents only a preliminary view.[70]Similarly, HMRC have not alleged that this case comes within the deliberate conduct category. We therefore have to consider whether the erroneous tax returns were down to the Appellant’s careless conduct, noting the wording of section 118(5) cited at ¶‎17 above.[71]We accept what Ms Brown said as to the appropriate test (although we prefer to use the Upper Tribunal’s decision in HMRC v Hicks[2020] UKUT 12 (TCC) as the authority): [taking reasonable care is] what a reasonable and prudent taxpayer in the position of [the taxpayer] would have done…. That test had to take account of all the circumstances, including their characteristics ….[72]It was clear to us that the Appellant was a straightforward and honest person and we infer that she would assume others to be similarly natured unless she had reason to suspect otherwise. We also note that the Appellant had suffered a bereavement during the spring of 2021 and was more vulnerable at the time than she might otherwise have been. We also infer that the Appellant had no-one else she could trust or confide in so as to double check the bona fides of M or the accountants supposedly working in the background. In many ways, it is unsurprising why the Appellant trusted M to be a confidant in the absence of anyone in her close family. For these reasons, we can understand why the Appellant saw no reason to approach HMRC or any professional adviser to verify the repayment claims. Furthermore, given HMRC’s prompt payment of the 2020-21 repayment claim, we can see that, were the Appellant to have had any lingering doubts, HMRC’s willingness to honour the repayment claim would have given the Appellant further encouragement that she was doing the right thing. Indeed, the second repayment claim was made after the first one had been received. And the repayment claim for the third year was made after two earlier repayment claims had been promptly made by HMRC.[73]We, of course, know that HMRC operate a “process now check later” approach. However, that is because we are what is often referred to as an expert tribunal. It would be wrong to attribute such knowledge to a lay taxpayer. In particular, we do not consider that the Appellant would have been aware of HMRC’s approach.[74]That said, albeit with some reluctance, we conclude that HMRC have satisfied us that the Appellant failed to take reasonable care to ensure that her tax returns were correct. We say so for the following reasons:(1) By passing over personal login details to M (contrary to normal protocols), the Appellant was exposing herself to the situation where returns would be made on her behalf without any opportunity to check the contents.(2) As the Appellant herself said to us, she was surprised by the size of the repayments that M had indicated she would be entitled to. We consider that the Appellant should have taken stock at that stage and questioned whether it was realistic.[75]For these reasons, we conclude that the Appellant failed to take reasonable care to avoid excessive expense claims being made on her behalf. Accordingly, the condition in section 29(4) is met for all three of the discovery assessments.[76]For section 29(5), we raise the possibility that this alternative condition might not have been met. As Officer Lynch said (see ¶‎43 above), the returns were in some ways obviously wrong and, whilst HMRC’s computer was not set to identify this problem, the so-called “hypothetical officer” might well have been expected to spot it. However, given our findings on section 29(4) (and only one of the two subsections needs to be satisfied), we prefer not to express any concluded view on this point.[77]For the preceding reasons, we uphold the discovery assessments and dismiss the appeal against them.

Penalties

[78]The penalties are charged under the provisions in Schedule 24 to the Finance Act 2007.[79]For the reasons set out in ¶¶‎68 to ‎74 above, we conclude that the requirement to prove carelessness is met for the first three years. By analogy, we conclude that carelessness is also proven in relation to the fourth year.[80]We also agree with HMRC that the disclosure of the errors was prompted and that the Appellant should receive maximum mitigation for the extent of her co-operation with Officer Lynch. Accordingly, the appropriate penalty rate for each year is 15%.[81]We consider that the penalties for the first three years are correctly calculated. However, the penalty for the 2022-23 year has also penalised the Appellant for the £560 error in relation to the tax deducted at source. HMRC have correctly not charged any penalty in relation to the £50.40 underpayment that was accruing to the Appellant by way of a shortfall in the PAYE system. We do not consider that the Appellant should be liable for any additional penalty in this respect as we were given no evidence as to the circumstances concerning this error and it was not pleaded in HMRC’s combined Statement of Case. Therefore, subject to our conclusions on suspension and special reduction below, we would limit the penalty to 15% of the amount of tax relating to the excessive expense claim (i.e. 15% × 20% × £8,887 = £266.61). This is thus £84 less than the amount assessed, £84 being 15% of £560. (£8,887 = £7,850 + £1,170 – £143.)[82]HMRC declined to suspend the penalties on the basis that the Appellant is no longer within Self Assessment. Officer Lynch explained that this was a blanket rule set out in HMRC’s internal guidance. We consider that by sticking to a blanket rule, Officer Lynch might well have fettered her discretion making her decision “flawed”. However, even if we remake the decision, the outcome would be no different. In particular, we see no realistic likelihood of the Appellant returning to the Self Assessment system within the next two years and thus there is limited scope for the Appellant to be at risk of making a further careless inaccuracy. Accordingly, there is no realistic suspension condition that would help her to avoid becoming liable for a further penalty (as required by paragraph 14(3)). For these reasons, we agree that suspension is not appropriate in the present case.[83]The possibility of reducing the penalties for special circumstances was considered during the internal review process. In the conclusion letter of 6 February 2025, the reviewer concluded as follows: HMRC can only make a special reduction where there are special circumstances. Penalty legislation provides for common circumstances, and these are therefore taken into account in establishing the liability to and/or level of a penalty. To be special circumstances, the circumstances in question may or may not be specific to the particular individual but must be relevant to the penalty under consideration and not be general circumstances that apply to many taxpayers by virtue of the penalty legislation. I have considered the reasons that you have given for submitting SATRs with inaccurate employment details, but I have not found any evidence of circumstances that might allow a special reduction.[84]We consider that that approach was flawed. In particular, we conclude that there was evidence of circumstances that might allow a special reduction which were not taken into account, namely:(1) the fact that the Appellant is a victim of someone preying on her naivety; and(2) the fact that the Appellant has effectively suffered a 20% penalty by having to pay M his fee for these suspect claims We understand that the Appellant did not make the 20% fee to M in relation to the 2022-23 tax year because she had not received the repayment for that year. If that is correct, then strictly the Appellant has not been penalised for that year. However, taking a holistic approach given the 15% penalty charge being sought over four years and the 20% fee paid for three years, we consider that the Appellant has suffered enough financially. – indeed, we do not consider that HMRC consider that penalties should be a revenue raiser (or even a way to compensate HMRC) but they should operate as a financial deterrent: if so, the deterrent has already been suffered.[85]As a result, we consider that we are entitled to remake the decision in relation to special reduction.[86]In addition to the two factors identified at ¶‎84 above, we also note:(1) the fact that the Appellant is effectively being further penalised by her exposure to HMRC’s interest rates;(2) the fact that HMRC are somewhat to blame for having a repayment system that authorises repayments which, on even a cursory glance Whilst we accept that the “process now check later” system is automated (and in most cases properly ensures that taxpayers are promptly given what they are entitled to), we see no reason why the HMRC computer cannot be programmed to halt what should be obviously false claims. Furthermore, one half of “process now check later” expects there to be a check at a later date. We saw no evidence to suggest that the Appellant’s first three repayment claims would have been subjected to any form of checking had the Appellant not proceeded to make her fourth claim. , ought to have rung alarm bells; and(3) the fact that we consider the Appellant to fall on the carelessness side of the (did/did not take reasonable care) only by a narrow margin.[87]For these reasons, we consider that the appropriate result is for each of the four penalties to be reduced to NIL. Summary[88]We direct that, when this decision notice is e-mailed to the Appellant, the covering e-mail makes the following statement summarising the outcome of these appeals: The Tribunal has reached a decision in your case. 1. You must still repay the tax that you claimed in error. 2. You do not have to pay a penalty. Please see the attached letter and the reasons for the Tribunal’s decision.

Right to apply for permission to appeal

[89]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: 15 May 2026