CH175230 - Special reduction: upper tribunal views on the meaning of ‘special circumstances’ in Barry Edwards

This page gives additional detail for review officers and appeals teams.

The following comments by the Upper Tribunal in Barry Edwards ([2019] UKUT131) are an authority on special circumstances:

“68. There are many appeals in the FTT where the question as to whether there are special circumstances justifying a reduction in the amount of a penalty has been considered. Accordingly, from time to time the FTT has made general observations about what might constitute special circumstances. In many of those decisions, reference is made to Crabtree v Hinchcliffe (Inspector of Taxes) [1972] AC 707 where Viscount Dilhorne (in a rather different context to that with which we are concerned) suggested at page 739E that:

“For circumstances to be special [they] must be exceptional, abnormal or unusual…”

69. In Warren v HMRC [2012] UKFTT 57, the FTT put a gloss on the meaning of “special”. It said at [54] that:

“The adjective “special” requires simply that the circumstances be peculiar or distinctive. But that does not necessarily mean that the circumstances which affect most taxpayers could not be special: an ultra vires assertion by HMRC that for a period penalties would be halved might well be special circumstances; but generally special circumstances will be those confined to particular taxpayers or possibly classes of taxpayers. They must encompass the situation in which it would be significantly unfair to the taxpayer to bear the whole penalty.”

70. In Welland v HMRC [2017] UKFTT 0870 the FTT likewise did not confine the meaning to circumstances which did not affect many taxpayers. After referring to the passage in Warren cited above, the FTT said at [125]:

“What was said in Warren seems right, if very general. … In summary, it seems to me that the alleged special circumstances must be an unusual event or situation which does not amount to a reasonable excuse but which renders the penalty in whole or part significantly unfair and contrary to what Parliament must have intended when enacting the provisions.”

71. By contrast, in Collis v HMRC [2011] UKFTT 588 the FTT said at [40] that:

“to be a special circumstance the circumstance in question must operate on the particular individual, and not be a mere general circumstance that applies to many taxpayers by virtue of the scheme of the provisions 5 themselves.”

72. In our view, as the FTT said in Advanced Scaffolding (Bristol) Limited v HMRC [2018] UKFTT 0744 (TC) at [99], there is no reason for the FTT to seek to restrict the wording of paragraph 16 of Schedule 55 FA 2019 by adding a judicial gloss to the phrase. In support of that approach the FTT referred to the observation made by Lord 10 Reid in Crabtree v Hinchcliffe at page 731D-E when considering the scope of “special circumstances” as follows:

“the respondent argues that this provision has a very limited application… I can see nothing in the phraseology or in the apparent object of this provision to justify so narrow a reading of it”.

73. The FTT then said this at [101] and [102]:

“101. I appreciate that care must be taken in deriving principles based on cases dealing with different legislation. However, I can see nothing in schedule 55 which evidences any intention that the phrase “special circumstances” should be given a narrow meaning.

“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 right to reduce the amount of the penalty.”

74. We respectfully agree. As the FTT went on to say at [105], special circumstances may or may not operate on the person involved but what is key is whether the circumstance is relevant to the issue under consideration.”