Appealing a 2007-2008 Self Assessment Penalty

Appealing a 2007-2008 Self Assessment Penalty

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 New client came to us last month with a 2007-2008 problem.

She is an employed individual who following her mother's death invested £140,000 into an offshore fund. During 2007-2008 she withdrew £140,000 from the fund thinking that she was just taking out her original investment leaving the profit in the fund to grow further.

She was sent a letter, we now know, from the fund provider advising of a chargeable gain of £105,000 but did not really read the letter on the mistaken belief that she had no tax consequences of drawing out the original investment.

HMRC opened an enquiry in March this year and it has been accepted that she has a tax liability of circa £40k which should have been paid. On our advice she has already paid that amount to HMRC.

The Inspector is now insisting that a penalty must be charged and is suggesting 10%. I tried the suspended penalty argument, which would work for later years, but cannot be applied to the earlier year.

My arguments thus far for no penalty have been:

She is not a tax expert and has never submitted a tax return before

She felt the withdrawal was just her taking back the original investment

She therefore did not believe there was a chargeability to notify HMRC of

She was not seeking to avoid tax

As soon as HMRC contacted her she assisted fully

Due to her having never filed returns before, and believing she did not have to then, she had never had professional assistance such that it could have been spotted

That HMRC had not notified her until about 3 years after the event - had a return automatically been issued during the year then of course it may have been spotted

That overall it is fair to say that a prudent and reasonable person with no knowledge of tax having invested £140k and then a few years later withdrawn £140k would have believed they had no need to declare anything to HMRC.

The Inspector is saying that of course she was careless by not acting on the Chargeable Gain notice which of course she may have been but in the grand scheme of things this does seem harsh. Particularly as I am sure that had this happened more recently a suspension under FA07/SCH24/PARA14 (1) & (3) could have applied?

Any comments will be appreciated.

Replies (2)

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Stepurhan
By stepurhan
20th Jul 2011 09:34

Chargeable gain notification a problem

If the fund provider actually sent her a letter notifying her of the chargeable gain, I'm not sure you really have a basis for argument. The information was in her possession that she had a liability to tax. Failing to read the letter does sound a bit like carelessness. I agree that, without this letter, there could be a reasonable argument that she believed she was simply taking back the sum she had invested.

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By youngloch
20th Jul 2011 10:05

Completely agree...

 I completely agree that the letter is the real problem here but when you consider the fact that penalties can now be suspended, and the fact that she will never make this mistake again, it seems harsh that the penalty can be imposed for 2007-2008. A technicality but an unfair one when the penalty will be circa £4k hence the reason I am looking for another shot to fire back to the Inspector.

However I'm happy that I've talked him down to 10% thus far....

As an aside it is also very refreshing when you find an Inspector talking to us on first name terms. Ultimately we are all doing our jobs and things are so much more constructive when you can have an open and frank discussion with our colleagues at HMRC.

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