What Actually Happened
Jeremy Francis Herrmann had entered into several tax avoidance schemes that HMRC later found didn't work. That meant a large amount of additional tax became due, including £9,960,157 following a closure notice issued in 2017, plus a further £4,012 from later adjustments.
In November 2023, Mr Herrmann's adviser asked HMRC to reallocate payments he'd already made to different tax years, a common request when someone wants to reduce the interest building up on an outstanding balance. Two further payments, of £2,363,062 and £1,348,760.66, were made shortly after to clear the outstanding tax and interest.
Everyone agreed that the tax had, in fact, been paid on time. The dispute was about what happened next: after the reallocation, HMRC's records showed some of those years as unpaid at the relevant deadline, and on that basis it issued £611,673.92 in late payment surcharges, along with separate late payment penalties for later tax years.
HMRC argued the legislation should be read purposively, meaning that if you ask for a reallocation, you should also accept the consequences, including penalties. Mr Herrmann argued that the law only cares whether tax was unpaid at a specific point in time, not what happens to the payment record afterwards.
For context on how these penalty triggers usually work day to day, our piece on recent HMRC self assessment penalty updates breaks down the standard fines and deadlines most taxpayers actually run into.
