The Upper Tribunal allowed the appeal in the case of Revenue and Customs Commissioners v Gretton (FTC/82/2011 published on 20 August 2012), which concerned a decision by the First-tier Tribunal (FTT) not to apply late payment interest and penalties on the tax payable.
HMRC relied on the wording of Section 86 TMA 1970 that any income tax or capital gains tax ‘shall carry interest…from the relevant date until payment’ and that the word ‘shall’ indicated that there was no discretion as to whether interest is applied. There was also no right of appeal against the interest charged, which further supported this assertion. The Upper Tribunal accepted HMRC’s submissions and confirmed that the FTT had made a clear error of law.
On the penalty point, however, the Upper Tribunal did not overrule the FTT as Section 100 TMA 1970 allows the penalty to be set aside.
It is not surprising that HMRC challenged the decision of the FTT not to apply interest to the tax payable. HMRC will automatically charge interest under Section 86 when tax is paid late and the FTT decision would have opened the floodgates for taxpayers to appeal or at least challenge any interest so charged. The impact could have been far reaching, as Section 86 interest is charged where taxes are assessed and where HMRC reach a negotiated settlement following a compliance check (enquiry).
Advisers may be interested to know, however, that there is still scope to mitigate interest charges as the Debt Management and Banking Manual sets out the circumstances in which HMRC will consider giving up interest. The majority of the decisions in this area rest with the Interest Review Unit based in Cumbernauld and the manual sets out the general principles where interest may be conceded – such as where recovering the interest would seem to be penal, would ignore an error on HMRC’s part, or where it is simply implausible for the client to find the funds to pay the interest on top of the tax.