Cases

Hok v HMRC: Why "It's Not Fair" Is Not A Ground Of Appeal

A first-tier judge called HMRC's conduct unconscionable and cancelled the penalty. The Upper Tribunal restored every penny. Hok v HMRC explains why the tax tribunal cannot fix unfairness—and where your fairness argument actually belongs.

Liam Williams

Liam Williams

— 16 min read
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HMRC sat on its hands for four months. A £100 penalty quietly became £500—five months of £100, ticking up while nobody told you anything. And it is all owed on a year when you had little or no tax to pay in the first place.

So you are reading this with one thought above all others: surely the tribunal must see that's unfair.

Here is the hard answer, and you deserve it straight. The First-tier Tribunal cannot cancel a penalty just because HMRC behaved badly. Not because the judges are unsympathetic—a first-instance judge in the very case below agreed it was unfair and cancelled most of the penalty—but because the tribunal has no legal power to ask the fairness question at all. That is the lesson of Hok, and once you understand it, you stop wasting your one appeal on the wrong argument.

What Hok Actually Decided

HMRC v Hok Ltd [2012] UKUT 363 (TCC) is the foundational authority on what the tax tribunal can and cannot do about unfairness. The First-tier Tribunal (Tax Chamber) is a creature of statute: it can decide whether the law was applied correctly and whether the amount is right, and nothing more. It has no power to discharge a penalty because it thinks HMRC treated you unfairly—however strongly it feels that way.

The case is worth understanding precisely because the facts are sympathetic—an honest mistake, a slow-moving HMRC, a penalty that ballooned, and a judge who tried to do the decent thing and was reversed anyway. If even Hok lost at the tribunal, the jurisdictional point is real, and it applies to you. And although Hok arose from an old PAYE penalty, the principle is not confined to PAYE or to that particular penalty regime—it is a general statement of what the First-tier Tribunal can and cannot do, and it bites on self-assessment, VAT and other tax penalties in exactly the same way.

The Facts: An Honest Mistake And A Four-Month Delay

Hok Ltd was a small employer. It had to file an employer's end-of-year PAYE return (the old form P35) for the 2009-10 tax year by 19 May 2010. It did not file until 15 October 2010.

The reason was a genuine misunderstanding. The company's only employee had left part-way through the year, and the director wrongly believed that meant no return was needed. The company accepted the return was late and accepted it had no reasonable excuse for the delay (judgment para 1).

Here is the part that stings. HMRC did not send the first penalty notice until September 2010—four months after the deadline. By then the penalty was already £400 (four months at £100 a month under section 98A TMA 1970). The notice arrived too late to stop a fifth month accruing, so another £100 was added. The total came to £500—five monthly penalties of £100 each—on a year when the company had effectively no liability.

If HMRC had sent a reminder in May or June, the company would have filed at once and the penalty would have stopped at one or two months. Instead the meter ran. You can see why this felt like a trap. The First-tier Tribunal judge thought so too.

A note worth holding onto as you read: Hok Ltd was unrepresented before the Upper Tribunal—HMRC had a barrister, the company had no one. That is the position around 45% of tribunal appellants are in.

The First-Tier Tribunal Agreed It Was Unfair

At the First-tier Tribunal, Judge Geraint Jones QC did exactly what your instinct says a judge should do. He looked at HMRC's four-month silence, found that HMRC had "neither acted fairly nor in good conscience", and described the way the penalty system had operated as a "cash generating scheme".

He then discharged £400 of the £500, leaving only the first £100 standing. On fairness grounds, the bulk of the penalty was gone.

If the story ended there, this would be a different article. It does not end there. HMRC appealed to the Upper Tribunal—not on the facts, but on the law. HMRC's argument was simple and, as it turned out, decisive: the First-tier Tribunal had no power to do what it had done.

The Upper Tribunal Restored Every Penny

The Upper Tribunal—Mr Justice Warren (then Chamber President) and Judge Colin Bishopp (President of the Tax Chamber)—allowed HMRC's appeal and restored the full £500. Not the £400 the judge had discharged; the whole £500. Every penny was back.

Read this part carefully, because it is the most misunderstood thing about the case. The Upper Tribunal did not decide that HMRC had behaved well, or fairly, or reasonably. It expressly declined to make any finding either way on whether HMRC's conduct was unfair. What it decided was narrower and harder: the First-tier Tribunal had no power to consider the fairness question at all. Even if HMRC's delay was genuinely unfair—and the Upper Tribunal did not say it was not—the tribunal simply had no lever to pull.

At paragraph 58, the Upper Tribunal held that in discharging the penalties on fairness grounds the First-tier Tribunal had been "acting in excess of jurisdiction, and its decision must be quashed." The penalties were all due.

Why The Tribunal Could Not Help—"A Creature Of Statute"

To understand why a sympathetic judge was overruled, you have to understand where the First-tier Tribunal gets its powers from. The answer is: only from Acts of Parliament, and nowhere else.

The tribunal was created by section 3(1) of the Tribunals, Courts and Enforcement Act 2007 "for the purpose of exercising the functions conferred on it under or by virtue of this Act or any other Act." As the Upper Tribunal put it at paragraph 36, "It follows that its jurisdiction is derived wholly from statute."

The consequence is stark. In the same paragraph: the First-tier Tribunal "has no statutory power to discharge, or adjust, a penalty because of a perception that it is unfair." No provision in the Taxes Management Act says "and the tribunal may reduce a penalty it considers unfair", so the power does not exist. A court of general jurisdiction—the High Court—has inherent powers that fill the gaps. A statutory tribunal has only what the statute hands it.

That is why "fairness" is not a button the tribunal can press. It is not that the judges do not care. It is that Parliament never gave them the wiring.

The point goes further still. The First-tier Tribunal has no judicial review jurisdiction—no power to supervise the way HMRC, as a public body, exercises its powers. Quoting the classic statement of the law, the Upper Tribunal said at paragraph 41 that the First-tier Tribunal "does not have any judicial review jurisdiction." Judicial review is the legal mechanism for challenging how a public authority behaved—whether it acted irrationally, unlawfully, or unfairly in a public-law sense. The tribunal cannot do it. Your "HMRC treated me unfairly" argument is, in legal terms, a judicial-review argument—and it has walked into the one room where judicial review is not on the menu.

Why Parliament Built It That Way

This was not an accident or an oversight. Parliament made a deliberate choice, and you can see it in the structure of the very same Act.

When Parliament created the two-tier tribunal system in 2007, it gave the Upper Tribunal a judicial-review jurisdiction—a power to supervise public bodies—in sections 15 to 21 of the 2007 Act. It gave the First-tier Tribunal nothing equivalent. The contrast is the whole point. At paragraph 43, the Upper Tribunal observed that the Act conferred a judicial-review function on the Upper Tribunal—"a function it would not have had ... had the Act not done so"—and that "It is perfectly plain, from perusal of the Act itself, that Parliament did not intend to, and did not, confer a judicial review jurisdiction on the First-tier Tribunal."

So the absence of a fairness power in the First-tier Tribunal is not a gap. It is a design decision, visible on the face of the statute. Parliament gave the supervisory power to the Upper Tribunal and, by clear implication, left general supervision of HMRC's conduct where it had always lived—in the High Court (paragraph 57).

This matters for you in a practical way. The reason your fairness grievance does not work at the First-tier Tribunal is the same reason it can work somewhere else: the supervisory jurisdiction exists; it just sits in a different building. The Upper Tribunal's own judicial-review power is the very thing the First-tier Tribunal lacks—a contrast explored in our guide to the Upper Tribunal appeal. Your grievance is not worthless; it is in the wrong room.

The Narrow Door That Is Open: Proportionality

There is one apparent exception that trips people up, so it is worth drawing the line clearly. The tribunal can sometimes consider whether a penalty is disproportionate—but that is a different argument from "it's unfair", and the difference is the difference between winning and losing.

In Total Technology (Engineering) Ltd v HMRC [2012] UKUT 418 (TCC), [2013] STC 681—decided by the same panel as Hok, at around the same time—the Upper Tribunal accepted that a tribunal can ask whether a penalty is disproportionate under EU-law proportionality principles or the European Convention on Human Rights. The reason it can is the key. Proportionality is a legal question that goes to whether the penalty is lawfully due at all—part of deciding an appeal already within the tribunal's jurisdiction, not a free-standing review of HMRC's conduct.

That is the line. "This penalty is disproportionate—so far out of step with the wrong that it is unlawful" is a legal challenge to the penalty's validity, and it is arguable at the tribunal. "HMRC sat on its hands and that's unfair" is a complaint about conduct, and it is not. Same penalty; two very different arguments; two very different forums. (In Hok itself this exception did not arise—the P35 penalty is purely domestic, so the proportionality route was closed on the facts, as the Upper Tribunal flagged at paragraph 37.)

One caution: challenges to ordinary fixed penalties rarely succeed, and in Total Technology the surcharge regime was held not to be inherently disproportionate. There is a legal version of "this is too much"—but only the legal version belongs at the tribunal. The proportionality context comes up again in our guide to VAT penalties and appeals.

Legitimate Expectation: Also Mostly Shut

There is a second fairness-flavoured argument people reach for: legitimate expectation—the idea that HMRC promised you one thing (or led you to expect it) and should be held to it.

In Oxfam v HMRC [2009] EWHC 3078 (Ch) the High Court suggested the tribunal could sometimes hear a legitimate-expectation point where it was bound up with a matter already within its statutory jurisdiction. But the Upper Tribunal in HMRC v Noor [2013] UKUT 71 (TCC) read Oxfam narrowly: the First-tier Tribunal generally cannot decide a legitimate-expectation argument, because that too is judicial-review territory, not a question "under the tax legislation". The edges of this area remain unsettled.

For an unrepresented appellant the safe rule is simple. A pure "HMRC promised me" or "HMRC misled me" argument generally belongs in judicial review, not the First-tier Tribunal.

Is Hok Still Good Law?

Yes. More than a decade on, Hok has not been overruled and is still the case routinely cited for the basic point: the First-tier Tribunal cannot police HMRC's fairness. A separate Court of Appeal decision, Beadle v HMRC [2020] EWCA Civ 562, arrives at the same destination by a different road—it holds that you cannot raise a "collateral" public-law challenge to a tax notice inside a penalty appeal, because (following the long-standing rule in O'Reilly v Mackman [1983] 2 AC 237) a public-law decision must generally be challenged by judicial review and not as a side-issue in other proceedings. The two cases are not the same point dressed up twice: Hok is about the powers the tribunal was given, while Beadle is about the one route by which a public-law argument must be brought. They point the same way.

What has moved on is the fine print, not the headline. Later tribunal decisions accept that the First-tier Tribunal can consider a public-law point when it forms part of a statutory appeal it already has, so the boundary is drawn statute by statute rather than with a single bright line. For an unrepresented appellant the practical rule is unchanged: a free-standing "HMRC was unfair" argument has no home at the First-tier Tribunal, whatever the tax. The edges are still being argued over; the centre is settled.

The Arguments That Actually Work At The Tribunal

So far this has been a wall of "no". Here is the turn, and it is the most useful part of the article. Hok does not leave you defenceless. It tells you to stop arguing about HMRC's conduct and start arguing about the law and the amount—because those are the things the tribunal was built to decide. There are three arguments that genuinely work.

Reasonable Excuse

This is the statutory safety valve, and it is the argument Hok Ltd conceded away. Section 118(2) TMA 1970 provides that a person with a reasonable excuse for a failure "shall be deemed not to have failed"—provided they then put it right without unreasonable delay once the excuse ends. This is the protection the law actually provides: as HMRC's own counsel put it to the Upper Tribunal (para 30), the chance to show a reasonable excuse "is sufficient protection for those who should be excused"—and the company simply was not one of them, because it had conceded the point.

Reasonable excuse is a question of fact squarely within the tribunal's jurisdiction. It is not "fairness"—it is a specific statutory defence with a recognised legal test. If your lateness was caused by serious illness, bereavement, a genuine and reasonable misunderstanding, a failure of HMRC's own systems, or some other event a responsible person could not have avoided, that is the argument to run. Our guide to what counts as a reasonable excuse sets out the principles, and the leading case, Perrin v HMRC, gives the four-step test the tribunal applies. Note one thing Perrin makes clear: HMRC has to prove the penalty was properly due before the burden shifts to you on the excuse—so do not assume the penalty is valid just because a notice arrived.

The Amount Is Simply Wrong

The tribunal's bread-and-butter power is to check the arithmetic. For a fixed penalty under section 100B TMA 1970, the tribunal can set the determination aside if no penalty was actually incurred, confirm it if the amount is correct, or increase or reduce it to the correct amount. The lever is "correct", not "fair"—but a great many penalty notices are simply wrong, and that is an argument the tribunal will hear all day.

Was the return actually late? Did the penalty count the right number of months? Did HMRC apply the right rate, or the right cap? Did it penalise the wrong year, or a return you were not obliged to file? In Hok the £500 was arithmetically correct—five months at £100—which is exactly why the only argument left was the fairness argument the tribunal could not entertain. In your case the numbers may not add up, and if they do not, that is a winning point that lives at the tribunal. Our overview of how HMRC penalties work and our guide to self-assessment penalties explain the mechanics of common fixed penalties—including the "it's not fair I owe £X on £0 tax" situation Hok forecloses as a fairness argument but which can still be attacked on whether the penalty was correctly charged.

Special Circumstances And Special Reduction

The modern penalty regimes (Schedule 55 and Schedule 24) contain a further statutory lever: HMRC may reduce a penalty where there are special circumstances. This is HMRC's power, not the tribunal's—but the tribunal can step in where HMRC's decision on special circumstances was "flawed" in the legal sense. That is a narrow but real route, and crucially it is a statutory one, not a general fairness review. We do not re-derive it here because our guide to reducing HMRC penalties owns the full special-circumstances and special-reduction analysis—read it there.

The thread running through all three is the same. None of them asks the tribunal to judge HMRC's conduct. Each asks a question the statute gave the tribunal: is there a defence, is the amount correct, was HMRC's mitigation decision lawfully made? Pick the argument that fits the question the tribunal is allowed to answer.

Where Your Fairness Argument Does Belong

Now for the room your grievance actually belongs in. Hok does not say your sense of unfairness is irrelevant to everything—it says it is irrelevant at the tribunal. There are two places where HMRC's conduct is exactly the question.

One thing to be clear about before you switch rooms: this is not an either/or choice, and complaining does not pause your appeal clock. If your penalty also has any arguable law-or-amount point—a reasonable excuse, a miscount, a return you were not obliged to file—lodge that appeal with the tribunal inside the 30 days window to protect it, and pursue the conduct complaint in parallel. Letting the appeal deadline slip because you have decided your real grievance is about fairness is the single mistake this article most wants you to avoid. If you do appeal, you may also be able to ask to postpone paying the disputed tax in the meantime—see postponing payment during an appeal—and our tax dispute timeline maps how every deadline fits together.

Complain To HMRC, Then The Adjudicator, Then The Ombudsman

If your real complaint is about how HMRC behaved—delay, poor service, a misleading letter, a failure to act on information you gave—the route is the complaints ladder, not the tribunal.

Start with HMRC's own complaints process. HMRC investigates first; if you are unhappy with the answer, a different officer carries out a second-tier review. HMRC can refund reasonable costs caused by its mistakes—postage, phone calls, even professional fees—so keep your receipts. One warning the page itself gives: keep paying the tax while you complain, because a complaint does not stop interest or further penalties accruing.

If both HMRC tiers leave you dissatisfied, you can take the matter—free of charge—to the Adjudicator's Office, which is independent of HMRC and looks at whether HMRC applied its own rules, standards and guidance fairly and consistently. And if you still disagree after the Adjudicator, you can ask your MP to refer the case to the Parliamentary and Health Service Ombudsman.

This is the same escalation path our guides to VAT registration delays and queries and interest on unpaid tax describe for situations where there is no right of appeal at all—pure delay, or interest you cannot appeal. Hok is the parent authority behind both: where the grievance is conduct, the remedy is the complaint ladder.

Judicial Review In The Administrative Court

For a genuine public-law failure—HMRC acting irrationally, unlawfully, in breach of a legitimate expectation, or with serious procedural unfairness—the formal remedy is judicial review in the Administrative Court (part of the High Court). This is the route Hok itself points to: the supervisory jurisdiction the First-tier Tribunal lacks lives there.

Be realistic about it. Judicial review is governed by strict court procedure, it carries real cost and costs-risk (a world away from the free £0 tribunal), and the time limit is tight—you must act promptly and in any event within three months of the decision you are challenging. It is rare, it is not a substitute for a statutory appeal you actually have, and it is the kind of step most people take proper advice on before committing. But it is the correct home for a true "HMRC behaved unlawfully" challenge.

The Test To Apply Before You Appeal

Here is the single question to ask before you lodge anything. Is my complaint about the law or the amount of the penalty—or about HMRC's conduct? The first belongs at the tribunal. The second belongs on the complaint ladder or, in a genuine public-law case, in the Administrative Court. Picking the wrong room can waste your one appeal and burn the 30 days you have to use it.

Belongs at the tribunal Belongs on the complaint ladder or in the Administrative Court
"I had a reasonable excuse for filing late." "HMRC sat on its hands for months and let the penalty grow."
"The penalty is the wrong amount—HMRC miscounted the months." "HMRC gave me poor service and never replied to my letters."
"No penalty was actually incurred—I had no obligation to file." "HMRC promised me one thing and then did another."
"HMRC's special-circumstances decision was legally flawed." "HMRC treated me differently from everyone else—it's irrational."
"This penalty is disproportionate and therefore unlawful." "HMRC ran this as a cash-generating scheme—it's unconscionable."

If your grievance sits in the right-hand column, move it to the room where someone can actually hear it. If it sits in the left-hand column, frame it as a question about the law or the amount—not about whether HMRC was fair—so that you are asking the tribunal something it is allowed to answer. For help turning a grievance into a proper ground of appeal, and avoiding fairness-only grounds that Hok dooms from the start, see our guide to writing grounds of appeal.

Hok reached the Upper Tribunal because the First-tier Tribunal had made an error of law—the same gateway explained in Edwards v Bairstow. The irony is worth holding onto: a judge who tried to be fair was reversed for it, because fairness was a question he had no power to decide. Learn the lesson he learned the hard way—use the tribunal for what it is for.

Key Legislation And Resources

The Judgment

Legislation

Key Cases

  • HMRC v Hok Ltd [2012] UKUT 363 (TCC) — the tribunal is a creature of statute with no power to discharge a penalty for unfairness and no judicial-review jurisdiction (paras 36, 41, 58)
  • Oxfam v HMRC [2009] EWHC 3078 (Ch) — public-law points may be heard where bound up with a matter already within the tribunal's statutory jurisdiction; later read narrowly
  • HMRC v Noor [2013] UKUT 71 (TCC) — the First-tier Tribunal generally has no jurisdiction over legitimate-expectation arguments; Oxfam distinguished
  • Total Technology (Engineering) Ltd v HMRC [2012] UKUT 418 (TCC), [2013] STC 681 — proportionality is a legal question within jurisdiction, distinct from a general "fairness" review (on GOV.UK; not on BAILII or Find Case Law)
  • Beadle v HMRC [2020] EWCA Civ 562 — Court of Appeal authority (on the collateral-challenge route, via O'Reilly v Mackman, rather than citing Hok) that the First-tier Tribunal cannot entertain a collateral public-law challenge to a tax notice in a penalty appeal; such challenges belong in judicial review
  • O'Reilly v Mackman [1983] 2 AC 237 — House of Lords; the foundational "procedural exclusivity" rule that a public-law decision must generally be challenged by judicial review, not raised as a collateral side-issue in other proceedings (the rule Beadle applies in the tax-penalty context)

GOV.UK Guidance

On This Site

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.

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