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Should I object to suspended penalties for client who relied on previous adviser?

A client came to me from a firm that is the subject of a criminal investigation by HMRC. On hearing that HMRC suspected criminal behaviour on the part of her accountant, and that they planned to enquire into the returns of every single client of that accountant, she asked me to re-do her accounts and tax returns and re-submit them to HMRC. HMRC has now made an offer, suspending penalties of 15% for a year. Following the judgement in J R Hanson and the commissioners for HMRC (UKFTT 314), in which it was held that no penalty was payable as the taxpayer was entitled to rely on his accountant's advice, should I ask that the penalty be removed from the offer entirely?

The tax advice service provided by my PI insurer thinks that if I do this, HMRC might withdraw the offer of suspension, and we might end up having to go to the Tribunal.

Incidentally, I have spoken to the Inspector a couple of times and he seems quite reasonable. Would it be worth a phone call?


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08th Dec 2012 13:17

What penalty calculation are we talking about here?

It sounds like you have made a full unprompted disclosure. That should be a good argument for limiting penalties up front. This is assuming that your client came clean before an actual enquiry was started. I don't believe that an announcement that HMRC are going to make general enquiries into all clients of a particular accountant constitutes prompting as such. After all, if they didn't have the manpower available, it is always possible that some clients would not have been looked at. That said, going by HMRC's manuals they could argue that the announcement meant the client had reason to believe there was an error or inaccuracy. Does the client strike you as someone that only got you to redo everything to be on the safe side? (i.e. someone who genuinely did not think there was anything wrong with their original accounts and returns)

If you are on good terms with the inspector, a phone call to float the idea past them is likely to be worthwhile. I think if you put it in terms of asking for their views on such a request rather than a formal action, you are unlikely to risk losing the suspended penalties offer. If you made it formal by putting it in writing or had a troublesome inspector then the risk would be greater.

Thanks (1)