QE Tax Flash: Penalties are now HMRC's new tool: Shifting the bar in favour of HMRC

His Majesty's Revenue & Customs ("HMRC") are increasingly using penalties as a tool to punish taxpayers for mistakes – even where there is no dishonest intention.

In the UK, HMRC have the power to apply penalties to a taxpayer if they find a careless or deliberate inaccuracy in a tax return which results in a loss of tax. A finding of deliberate behaviour allows HMRC to assess tax inaccuracies dating back 20 years, impose penalties of up to 100% of the potential lost revenue, and issue personal liability notices that pierce the corporate veil to make company officers personally liable.

But the bar has now shifted to the lowest it has ever been – in favour of HMRC: In New Claire Wine Limited v HMRC [2026] UKUT 116 (TCC), the Upper Tribunal confirmed that HMRC does not need to plead or prove dishonesty to establish deliberate conduct in tax matters. The taxpayer was a wine wholesaler, for which the directors had purchased 9,700 cases of wine that were not included in business records. When the errors emerged as a result of an HMRC stock flow exercise, HMRC imposed penalties for deliberate behaviour, on the basis that multiple corporation tax and VAT returns had not stated significant off-record sales, purchases and proceeds. The Upper Tribunal determined that the taxpayer had behaved deliberately because it knew that its tax returns were inaccurate, even though there was no dishonest intention. 

Liesl Fichardt: "Penalties are now the new tool at HMRC’s disposal, making it harder for taxpayers to escape additional charges even where there was no dishonest intent.”

Emily Au: “This binding appeal decision demonstrates that the Upper Tribunal has short shrift for those who knowingly file an inaccurate return.”

Julius Berling: “The Upper Tribunal's decision builds on a developing line of authority consistently holding that ‘deliberate’ behaviour requires knowledge but not dishonesty. In light of the serious consequences that follow, taxpayers may rightly be surprised how low the bar is set.”

Read more here: New Claire Wine Limited v The Commissioners for HM Revenue and Customs [2024] UKUT 00390 (TCC) - GOV.UK