TC09554 - [2025] UKFTT 00747 (TC)

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 26. 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.”