Background
In March 2025, a client approached us following an HMRC investigation triggered by the failure to submit tax returns for approximately 10 years.
The client had multiple sources of income, including pension income, rental income, and two property disposals in 2015 and 2021. Due to the length of time involved, records were incomplete, making the case more complex and increasing the risk of significant penalties.
The key area of exposure was Capital Gains Tax, particularly in relation to the property disposals.
Our Approach
We worked closely with the client to bring her affairs fully up to date by preparing and submitting tax returns for the period 2015 to 2025.
Given the lack of complete records, we reconstructed the financial position using available information and engaged directly with HMRC to agree a fair and reasonable outcome. As part of this process, we successfully secured £10,000 in additional allowable expenses where documentation was no longer available due to statutory record-keeping limits.
While HMRC accepted the tax position, they issued a penalty factsheet and considered whether the behaviour should be classified as deliberate or non-deliberate — a distinction that significantly impacts both penalty levels and how far HMRC can go back in time.
The Challenge
HMRC initially considered applying penalties based on behaviour categories that could have resulted in substantial additional costs. In particular, a classification of deliberate behaviour would have led to higher penalties and extended time limits.
The focus of our work was therefore to challenge this classification and ensure the client was treated fairly based on the actual circumstances.
How We Challenged HMRC
Our response was carefully structured and based on both technical guidance and the client’s personal situation.
We relied on HMRC’s own internal guidance, which confirms that behaviour cannot be considered deliberate where the taxpayer did not know their actions were incorrect. We demonstrated that the client had no knowledge of the reporting obligations at the time.
We also established that this was an isolated matter, with no pattern of repeated or intentional non-compliance. This was further supported by the client’s continued difficulty in understanding the tax obligations, even after receiving professional advice, which made it clear that there was no conscious decision not to comply.
In addition, we highlighted the client’s personal circumstances, including her age, caring responsibilities, and the emotional impact of bereavement, all of which affected her ability to manage her affairs during the relevant period.
We also noted that the client had relied on professionals involved in the property transactions and had not been made aware of any reporting obligations, contributing to her misunderstanding.
Finally, we raised the point that the use of extended statutory time limits depended on a deliberate classification, which was not supported by the facts of the case.
The Outcome
Following our representations, HMRC agreed to reclassify the 2015–16 position from deliberate to non-deliberate.
For the 2021–22 tax year, penalties were no longer pursued.
This resulted in a saving of approximately £21,600 in penalties for the client.
Key Takeaway
This case demonstrates that HMRC penalties are not fixed and can be challenged successfully with the right approach.
By combining technical expertise with a clear understanding of the client’s circumstances, it is often possible to significantly reduce or remove penalties, even in complex cases involving multiple years of non-compliance.
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⚠️ Disclaimer
This case study is based on a real client scenario. All details have been anonymised to protect client confidentiality. Outcomes depend on individual circumstances and cannot be guaranteed.
Decision date: 30th of April 2026
