Donaldson v HMRC: Can You Beat Daily Penalties On A Technicality?

You filed your tax return late, and now HMRC wants more than the £100 you were braced for. There are daily penalties—£10 a day, building up to £900—stacked on top, with the assessment notice that imposed them looking suspiciously vague about dates and periods.

So you are thinking what almost everyone in your position thinks: this paperwork looks wrong, and surely a form HMRC got wrong cannot stand. Find the slip, point it out, and the penalties fall away.

It is a reasonable instinct. It is also the exact argument a taxpayer named Keith Donaldson took all the way to the Court of Appeal—and lost. Donaldson v HMRC is the case that tests the hope that a procedural technicality cancels your daily penalties, and the honest answer it gives is sobering. But the same judgment also maps out the narrow openings that do survive, and it leaves the real merits defences completely untouched. Knowing the difference is what saves your one appeal.

The Story Of Mr Donaldson

Mr Donaldson's 2010-11 paper tax return was due on 31 October 2011. He did not file it.

In December 2011 HMRC sent him an automated reminder warning that if the return was still outstanding after 31 January 2012, "a £10 daily penalty will be charged every day it remains outstanding," up to a maximum of 90 days. In January 2012 it sent a further notice charging the fixed £100 penalty and repeating the daily-penalty warning. He eventually filed on 1 May 2012—six months late.

By then the bill had grown. HMRC assessed him a total of £1,200: £900 in daily penalties (£10 a day for the full 90 days) plus a further £300 for being more than six months late. The original £100 fixed penalty was never in dispute. It was the £900 daily penalties he challenged.

What happened next is a lesson in itself. Mr Donaldson appealed to the First-tier Tribunal—the first rung of the tax tribunal system—and then took no further part. The tribunal tested the daily penalties on its own initiative and cancelled them. HMRC appealed to the Upper Tribunal and won, restoring the penalties. The case then reached the Court of Appeal as Donaldson v HMRC [2016] EWCA Civ 761, where the lead judgment was given by the Master of the Rolls, Lord Dyson MR, with Lord Justice Kitchin and Lord Justice Hamblen agreeing. It was handed down on 18 July 2016.

By the time it reached the Court of Appeal, Mr Donaldson—an unrepresented taxpayer who had taken no part below—had pro bono counsel arguing the appeal for him through the Bar Pro Bono Unit. He still lost. The court dismissed his appeal, the daily penalties stood, and the Supreme Court later refused permission to appeal. Donaldson is now the final, binding word on how daily penalties are charged.

(One name trap worth clearing up, because it trips people up when they go reading around the subject. The taxpayer here is Mr Donaldson. The judge is Lord Dyson. A different judge, Lord Donaldson MR, turns up in older tax cases—he is no relation to this story. Do not let the surnames confuse you.)

The Three Things HMRC Must Do

Daily penalties do not appear automatically. They live in Schedule 55 to the Finance Act 2009, which builds the late-filing penalties in tiers that stack on top of one another:

• The fixed penalty (paragraph 3): £100 the day after the filing deadline passes, whether or not you owe any tax.
• Daily penalties (paragraph 4): once the return is more than three months late, £10 for each day it stays outstanding, capped at 90 days—so up to £900.
• The six-month penalty (paragraph 5): the greater of £300 or 5% of the tax due.
• The twelve-month penalty (paragraph 6): a further charge, higher still if information was deliberately withheld.

The daily penalties are the part Donaldson is about, and paragraph 4 sets three conditions HMRC must satisfy before a single £10 can be charged. The provision says you are liable "if (and only if)":

"(a) P's failure continues after the end of the period of 3 months beginning with the penalty date,
(b) HMRC decide that such a penalty should be payable, and
(c) HMRC give notice to P specifying the date from which the penalty is payable."

In plain terms: your return must be more than three months late; HMRC must decide a daily penalty should be charged; and HMRC must give you notice of the date the £10-a-day clock starts. The date in that notice can be earlier than the day the notice is sent—but no earlier than the end of the three-month period—so HMRC is allowed to warn you in advance. The £10-a-day cap of 90 days is what produces the £900 maximum.

Conditions (b) and (c)—the decision and the notice—are the two things a taxpayer naturally wants to attack. Mr Donaldson attacked both. Here is what the court did with them.

What The Court Of Appeal Decided

Did HMRC Really "Decide"?

Mr Donaldson argued that HMRC had never properly "decided" anything in his individual case—a computer had simply generated penalties for everyone who was late. Where, he asked, was the decision the statute required?

The court held that a generic decision was enough. In June 2010 HMRC had taken a high-level policy decision that all taxpayers more than three months late would face daily penalties. That, Lord Dyson MR held at paragraph 18, "is a decision which satisfies the requirement of para 4(1)(b)." HMRC does not have to sit down and make a fresh, individual decision about each taxpayer. As the court explained at paragraph 15, Parliament dealt with a taxpayer's individual circumstances elsewhere—through reasonable excuse and special reduction—not by demanding a case-by-case decision to charge the penalty.

It is worth being precise about what the court did not decide. HMRC had a fallback argument that an automated computer issuing the notice was itself enough to satisfy condition (b). Lord Dyson MR expressly had "considerable doubts" about that and declined to rest the decision on it. So the holding is narrow: it was the June 2010 policy decision that counted, not the idea that "a computer can decide." Do not read this case as blessing fully automated decisions.

Was The Notice Valid Even Though It Warned In Advance?

Mr Donaldson's second argument was about timing. HMRC's warning had been sent before he was even three months late—how could a notice telling him he "might" become liable satisfy a requirement to specify "the date from which the penalty is payable"?

The court rejected this too. At paragraph 21 it found the notices "did not 'merely' inform Mr Donaldson that he 'might' be liable"—they stated in terms that he would be liable to £10 a day for every day after 31 January 2012 that the return stayed unfiled. There is nothing in the statute restricting when HMRC can give the notice. The three conditions in paragraph 4 are cumulative, not chronological: as the court put it at paragraph 17, the order in which they are listed does not mean they must happen in that order. A notice sent in advance is a good notice.

The Notice Was Defective—But It Did Not Matter

This is the heart of the case, and the part that stings.

Mr Donaldson's strongest point was that the assessment notice failed to state the period the daily penalties covered, which paragraph 18 of Schedule 55 requires. And on this, he was right. At paragraph 26 the court accepted the notice "undoubtedly did not state the start or the end dates of the period," and that merely pointing him to paragraph 4 "was not sufficient to satisfy the requirements of para 18(1)(c)." HMRC's notice was genuinely defective.

And yet he still lost—because of section 114(1) of the Taxes Management Act 1970. That provision, quoted by the court at paragraph 27, is a wide-ranging cure for defective paperwork:

"An assessment or determination, warrant or other proceeding which purports to be made in pursuance of any provision of the Taxes Acts shall not be quashed, or deemed to be void or voidable, for want of form, or be affected by reason of a mistake, defect or omission therein, if the same is in substance and effect in conformity with or according to the intent and meaning of the Taxes Acts, and if the person or property charged or intended to be charged or affected thereby is designated therein according to common intent and understanding."

In short: a defect does not invalidate a notice if the notice still does its job and the right person is clearly identified. The court held at paragraph 29 that the missing period "could be worked out without difficulty," that Mr Donaldson "could have been in no doubt" about it, and—the decisive phrase—that he "was not misled or confused by the omission." The omission was one of form, not substance. Section 114(1) saved it, and the appeal was dismissed.

There is a limit to this cure, and the court was clear about it. Section 114(1) does not rescue a mistake that is, in the court's words at paragraph 28, "too fundamental or gross." A defect that genuinely misleads or confuses you sits outside the cure. But a defect you could untangle for yourself, as Mr Donaldson could, gets forgiven.

The blunt takeaway: after Donaldson, "HMRC got the form wrong" is rarely a winning argument on its own. The courts are forgiving of procedural slips that did not actually confuse the taxpayer.

What This Means For Your Appeal—Where The Openings Actually Are

So if "the notice was technically wrong" usually fails, where does that leave you? It leaves you needing a live ground rather than a dead one. Donaldson closes off the pure-technicality challenge but it marks out, almost by accident, the narrow places where a validity attack can still work—and it does not touch the merits defences at all.

HMRC Must Still Prove It Gave You The Notice

This is the crucial distinction. Section 114(1) cures a notice that was given but defective. It does not invent a notice that was never given at all.

Condition (c) in paragraph 4 still has to be met: HMRC must actually have given you a notice specifying the date from which the daily penalty runs. If HMRC cannot show it ever issued a daily-penalty notice, there is nothing for section 114(1) to cure, and the daily penalties have no foundation. In other cases the tribunal has struck down daily penalties precisely because HMRC could not prove the paragraph 4(1)(c) notice was given.

In practice, that turns into two concrete moves. In your appeal and grounds, ask HMRC to produce evidence that it actually issued a paragraph 4(1)(c) daily-penalty notice, and to show the date that notice specified. And check your own correspondence for a late-filing penalty notice or self-assessment reminder naming the date the £10-a-day clock starts—1 February, for a paper return. The gap opens most often with return types that carry no standard reminder, such as CGT 60-day property returns, where HMRC more often cannot show the notice was ever given. Where its evidence that the notice went out is thin, the tribunal can properly examine it.

A Defect That Genuinely Misled You

The section 114(1) cure has a ceiling. A defect that is "too fundamental or gross," or one that actually misled or confused you about what you faced, falls outside it.

Donaldson lost on this point only because the missing period could be worked out without difficulty and left him in no real doubt. If a notice's error genuinely left you unable to understand the period, the amount, or what was being charged, the cure may not reach it. The line the tribunal applies is whether you were "misled or confused"—not whether the paperwork was perfect.

Reasonable Excuse

Donaldson says nothing about reasonable excuse, and that defence survives entirely. Under paragraph 23 of Schedule 55, a late-filing penalty—daily penalties included—does not stand if you had a reasonable excuse for filing late. This is a separate question from whether the notice was valid, and you can run both.

The leading authority is Perrin, which sets out the four-step test the tribunal applies: what facts give you an excuse, which are proven, were they objectively reasonable for someone in your position, and did you put the failure right without unreasonable delay once the excuse ended. We unpack each step in our analysis of Perrin and the four-step test and in plain English in our reasonable excuse guide.

Special Circumstances

Schedule 55 also lets HMRC reduce a penalty where there are "special circumstances" (paragraph 16), and the tribunal can step in where HMRC's decision on that was legally flawed. One thing paragraph 16 expressly does not count as a special circumstance is an inability to pay—"I can't afford it" is not enough. But genuine, out-of-the-ordinary features of your case can be. The mechanics of special reduction are covered in our guide to reducing HMRC penalties.

The £100 And The Daily Penalties Are Separate Questions

It helps to see your penalties as two halves of a single question—"was this penalty validly imposed?"—each governed by its own case. Donaldson is about the daily penalties under paragraph 4. Its companion, Goldsmith, is about the fixed £100 penalty and the notice to file that triggers it. A challenge to the daily-penalty notice is a different argument from a challenge to the £100, and you may have grounds on one but not the other. Look at each separately.

"It's Not Fair" Is Not A Ground

One temptation to resist is the pure fairness argument—that automated penalties churned out by a computer are simply unjust. The tribunal applies the statute, including the section 114(1) cure; it is not a court of general fairness. That limit is the subject of Hok, and it is why a complaint that the system is unfair belongs with HMRC's complaints process, not in your tribunal grounds.

How To Use This If You Have Daily Penalties

First, work out exactly what you are facing. Read the assessment and separate the layers: the fixed £100 (paragraph 3), the daily penalties of £10 a day up to £900 (paragraph 4), the six-month penalty, and the twelve-month penalty. They stack, so a long delay can produce several at once, and each can be challenged on its own footing. A return six months late, for example, can carry the £100 fixed penalty, up to £900 in daily penalties, and a further £300 (or 5% of the tax due, if that is more) at the six-month mark—roughly £1,300 before any twelve-month penalty is added.

Then pick a live ground, not the dead one. After Donaldson, "the form was wrong" rarely wins by itself. The questions that still have life are: can HMRC actually prove it gave you the daily-penalty notice; did any defect genuinely mislead you; do you have a reasonable excuse; and are there special circumstances? Run whichever fit, in the alternative.

Mind the clock. You generally have 30 days from the date of the penalty notice to appeal. The first appeal goes to HMRC, not the tribunal—usually on form SA370 or through HMRC's online appeal tool. If HMRC refuses, you can ask for a free statutory review, a fresh look by a different officer that takes about 45 days, and only if that fails does the case go to the First-tier Tribunal, where there is no fee. Our guides to how to appeal to the tax tribunal and the HMRC internal review walk through each step, and writing grounds of appeal helps you turn the right question into a proper ground.

If the 30 days has already passed, the door is not necessarily shut—a late appeal can be accepted where you have a good reason for the delay, as our guide to late appeals explains.

Keep a few more things straight. These are civil penalties, not a criminal matter—automatic charges for a late return, not an accusation of fraud, however stern the letter reads. The penalty and the tax behind it are separate: even a successful penalty appeal does not wipe out any underlying tax you owe, and interest runs on unpaid tax at 7.75% until it is paid.

Paying the penalty does not waive your right to appeal it. If you pay to stop interest and enforcement and then win, HMRC refunds it—so you can do both at once. And if the real problem is simply that you cannot afford to pay, that is not a ground of appeal, but it is a reason to ask HMRC for Time to Pay—an instalment arrangement that runs separately from any appeal.

And mind the calendar on the regime itself. Donaldson governs Schedule 55, which still applies to the older years most appeals concern. For defaults from April 2026, a points-based new penalty regime under the Finance Act 2021 progressively replaces Schedule 55—but for the returns most readers are appealing now, Schedule 55 and Donaldson are still the law.

Key Legislation And Resources

The Judgment

• Donaldson v HMRC [2016] EWCA Civ 761 — Court of Appeal (Civil Division), Lord Dyson MR (Master of the Rolls), with Kitchin and Hamblen LJJ; handed down 18 July 2016. On appeal from the Upper Tribunal (Tax and Chancery Chamber); the Supreme Court refused permission to appeal

Legislation

• Schedule 55, Finance Act 2009 — the late-filing penalty regime: para 1 (the penalty for failing to file), para 3 (£100 fixed), para 4 (£10/day up to £900, with the three conditions for daily penalties), para 5 (6-month penalty), para 6 (12-month penalty), para 16 (special reduction—excluding inability to pay), para 23 (reasonable excuse)
• Section 114(1), Taxes Management Act 1970 — the "want of form" cure: a defect or omission does not invalidate a notice that is in substance correct and does not mislead
• Section 8(1), Taxes Management Act 1970 — the notice to file that makes a self-assessment return due in the first place

Key Cases

• Donaldson v HMRC [2016] EWCA Civ 761 — a generic HMRC policy decision satisfies para 4(1)(b) (para 18) and prospective notice satisfies para 4(1)(c) (paras 17, 21); a notice that failed to state the period was defective (para 26) but cured by s.114(1) TMA because the taxpayer "was not misled or confused" (para 29)
• Goldsmith v HMRC [2019] UKUT 0325 (TCC) — the companion case on the fixed £100 penalty and the validity of the notice to file under s.8 TMA; pair it with Donaldson on the daily penalties
• Perrin v HMRC [2018] UKUT 156 (TCC) — the four-step reasonable-excuse test, the merits route Donaldson leaves untouched

GOV.UK Guidance

• Self Assessment tax returns: penalties — the £100 fixed penalty, daily penalties, and the 6- and 12-month tiers
• Estimate your penalty for late Self Assessment tax returns and payments — HMRC's own penalty calculator
• Disagree with a tax decision or penalty — how to appeal to HMRC, ask for a review, and go to the tribunal, including form SA370
• Compliance Handbook CH401220 — HMRC's internal guidance on charging Schedule 55 late-filing penalties
• Self Assessment Legal Framework SALF506A — HMRC's account of the paragraph 4 daily-penalty mechanism

On This Site

• Goldsmith v HMRC: Filing Penalties — the companion case on the fixed £100 penalty and the notice to file
• Self-Assessment Penalties — the full late-filing penalty stack and how to challenge each layer
• CGT 60-Day Reporting Appeals — daily penalties on property returns, where the missing-notice gap most often bites
• Perrin v HMRC: Reasonable Excuse — the four-step test, the surviving merits route
• What Is A Reasonable Excuse? — plain-English primer on the defence
• Reducing HMRC Penalties — special circumstances, special reduction, and the "flawed" standard
• Hok v HMRC: Tribunal Jurisdiction — why "it's not fair" is not a ground the tribunal can hear
• New Penalty Regime — the points-based Finance Act 2021 successor to Schedule 55
• Writing Grounds Of Appeal — turning a live question into a ground the tribunal can hear
• How To Appeal To The Tax Tribunal — the step-by-step of appealing to HMRC, asking for a review, and lodging a tribunal appeal
• HMRC Internal Review — the free statutory-review stage that comes before any tribunal
• Late Appeal To The Tax Tribunal — what to do if the appeal deadline has already passed

This article is for informational purposes only and does not constitute legal or tax advice. For advice specific to your situation, consult a qualified tax adviser, accountant, or solicitor.