Judge cancels penalty in Hanson tribunal

A taxpayer who incorrectly claimed tax relief in his tax return has overturned a £14,000 penalty after a tribunal ruled his accountant was to blame for the careless error.

In the case - J R Hanson and the commissioners for HMRC (UKFTT 314) - Mr Hanson’s 2008/09 tax return was completed on his behalf by an accountancy firm, Clarke Broome Fleming (CBF). The return indicated a claim for relief for a disposal of loan notes received as part of the sale of a business but did not give more detail.

Continued...

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Comments
bookmarklee's picture

I have been warning of this for ages    1 thanks

bookmarklee | | Permalink

Ever since the new penalty regime was introduced I have been warning that accountants will become the focus of errors and mistakes.

There have been plenty of misleading commentators who missed this fact that the above case proves. Taxpayers can evidence that they have taken reasonable care by appointing a credible accountant, responding promptly to requests for info and only signing their return after checking it  TO EXTENT TO WHICH THEY ARE ABLE. Beyond this clients are not liable or penalties if their returns contain errors made by their accountants. This doesn't though make the accountants liable to penalties for such errors.  So far as i can recall the legislation provides no facility to charge a penalty in such cases.

I hope that HMRC will now accept that no penalties are due in circumstances where the accountant accepts and evidences that an error was their fault rather than that of the taxpayer.

Mark

So...did any penalty fall on the accountant?

Maslins | | Permalink

On the face of it, it seems the above is only really bad for the taxman.

Ok so the accountant's reputation suffers a bit, but by claiming to be good then doing a rubbish job they've got the client out of the penalty...win!

Unless the financial penalty starts to get shifted onto the accountant on the basis they were the one making the mistake, I don't see why this is bad news...or have I missed something?

At last...    1 thanks

markfd | | Permalink

...the HMRC's approach, which is to ignore the requirement to show negligence and simply claim penalties on a strict liability basis, has been challenged and foudn to be wrong.  This will be a very important and useful case... 

 

[PS When I saw the headline I thought this referred to poor old Lord Hanson who was 'done' for b-i-k on his home security costs about 10 years after the fact!]

No penalty on accountant    3 thanks

k.gordon | | Permalink

Under the current penalty rules (and under those in place prior to FA 2007), a penalty is payable only if the taxpayer is careless (previously, "negligent").

Therefore, if an accountant/tax adviser is reasonably appointed, but the accountant/tax adviser makes an error, no penalty may be levied (although interest will run on any late paid tax).

Of course, that won't necessarily stop HMRC from asking for a penalty.  I estimate that for every case that goes to the Tribunal ten are settled beforehand (usually with the taxpayer coughing up).

As one former HMRC officer has said to me, HMRC are no longer instructed to get the right amount of tax (for which one can also read penalties, interest etc): they are now charged to get as much as they can (on the false basis that if a taxpayer is unhappy they can always challenge it).

Keith Gordon, Atlas Chambers

PS I wonder whether anyone can research the "negative tax gap" - the amount of tax that is deliberately or carelessly demanded by HMRC in excess of the correct amount.

johnjenkins's picture

I See no    1 thanks

johnjenkins | | Permalink

reason why penalties should be applied for carelessness. I have a client at the moment where there is no potential loss to HMRC and client is in a refund situation but they still want to hit him for over £20k for a careless error. At the moment they haven't formalised it but it's absolutely ludicrous. Mark, how many Accountants will now take the brunt of carelessness to avoid penalties for their client? Especially when the penalties are that high.

No more penalties

The Rogue | | Permalink

So a taxpayer and accountant can claim that the accountant was at fault every time and never have to pay a penalty.  Or will the accountant have to pay?  If the latter then there will be a legal battle between accountant and taxpayer over who pays the penalty.

Yet

hiu612 | | Permalink

There are no provisions to charge penalty's on agents yet. . . but there have been rumblings that this is something HMRC would like to see introduced. With the Revenue's increasing wish to regulate the profession there's no doubt that the agent in question will get a little black mark against their name for future reference.

Also

hiu612 | | Permalink

Whilst it is good to see this highlighted in court, the argument is not a new one, and i was able to have a penalty of £3-£4k removed on very similar grounds under the old penalty regime, 5 or 6 years ago.

Good!    1 thanks

The Black Knight | | Permalink

A Good decision.

It's the deliberate mistakes they ought to concentrate on.

Although It also means that the client/accountant can have a go at a thumper without fear of penalty?

I have seen many tax liabilities extinguished by the accountants pen where the client could claim to have left all this to his accountant.

Will we see a closer examination of these errors (given the more profitable civil penalty route is closing) as to the behaviour of the accountant from a money laundering point of view. Probably not!

Is this perhaps the real reason the deliberate defaulters legislation is drafted to move the goal posts well knowing they had created a flaw in the new penalty regime?

Surely the answer is to extend reasonable to care of the client and his agent in assessing the level of penalty?

johnjenkins's picture

When you look    1 thanks

johnjenkins | | Permalink

at it sensibly HMRC, by upping the penalties, have created yet another IR35 scenario.

Judge cancels penalty in Hanson tribunal    1 thanks

coverack | | Permalink

How about this, fellow agents? –

  1. Deal with areas of compliance that you’re sure about
  2. If unsure, get HMRC techies to advise
  3. Describe your reservations in the appropriate section of the Tax Return & RETAIN A VERBATIM NOTE
  4. Alert client to item 3 above
  5. Get client’s (reluctant or otherwise) permission to file Return as it stands

PI impact?    1 thanks

Andy3T | | Permalink

I don't think we'll see many accountants leaping to "take one for the team" by saying that the error was due to them and not their client's carelessness.

The return error made the enquiry more likely (oro utright caused it) and the client has therefore suffered the tax investigation and all the fees and stress that go with it due to the accountant's "error" - not something to volunteer for in my view.

I'd love to see the "negative tax gap" estimated, but then I'd also like to see "fines" on HMRC officers who string out enquiries because they are incompetent, dim, or malignant - but it isn't going to happen and the existing appeals, costs, etc processes are simply not practicable for the smaller (and even the fairly sizable come to that) taxpayer so the morally bankrupt "collect the most money" philosophy will continue to exist within the "collect the right tax" framework.

If HMRC lose too often I'd expect to see a penalty system come in to simply move the penalty from the taxpayer to the agent.  Then we'll get the big disputes over who was responsible, etc - and still have penalties disappearing into the communication gap of course.

Hanson

tonyglasbey | | Permalink

When taxpayers signs off their returns they declare that the returns are "correct and complete to the best of (their) knowledge and belief". Implicit in this must be a defence of reliance on the competence and rigour of any agent acting for them. Hence HMRC never had a case in this instance.
Coming after agents would be difficult, as the statutory responsibility for correct returns can only lie with the taxpayer. A whole new raft of legislation, it seems to me, would be required to make agents liable to penalties. That could take a long time.
This is not to say that tax agents should get away with negligent misstatements. HMRC are quite capable of bringing uncomfortable pressure to bear on agents who have a poor submissions history, without the need for penalties.
Does anyone else get the sense that HMRC are at the vanguard of a sinister plot by the state to exert increasing control upon its citizenry, while at the same time massively enhancing their coffers? Anything that impedes this progression has got to be good for freedom and democracy.

 

No

The Rogue | | Permalink

tonyglasbey wrote:

Does anyone else get the sense that HMRC are at the vanguard of a sinister plot by the state to exert increasing control upon its citizenry, while at the same time massively enhancing their coffers? Anything that impedes this progression has got to be good for freedom and democracy.

 

I don't get that sense at all.

johnjenkins's picture

Again

johnjenkins | | Permalink

I see no reason why an error of any sort (notice I say error not deliberate misleading stuff) should have a penalty attached to it. Whatever the motives this will now go on and on and on.

should_be_working's picture

Yes and no    1 thanks

should_be_working | | Permalink

tonyglasbey wrote:

Does anyone else get the sense that HMRC are at the vanguard of a sinister plot by the state to exert increasing control upon its citizenry, while at the same time massively enhancing their coffers? Anything that impedes this progression has got to be good for freedom and democracy.

Not a sinister plot, no, just a natural tendency of all government.

Rowland v HMRC (2006 SpC 548)    1 thanks

David Scott | | Permalink

There is an earlier case which was similar and could have been used

It was held that the taxpayer could not be charged ( in this case a surcharge on an underpayment) as the taxpayer had relied on his agent's advice

It is good to note that the Hanson tribunal continues to endorse that principal

 

It paves the way for agent penalties    1 thanks

may2011 | | Permalink

Setting aside the question of whether it is right to penalise error at all, if agent error is used repeatedly as a get-out HMRC will have very good motivation to introduce agent penalties for careless errors.  If they can penalise poor old Joe Bloggs who knows nothing about tax it is just as reasonable to say to agents "you should know better, so you take the hit!" 

"There are no provisions to charge penalty's on agents yet. . . but there have been rumblings that this is something HMRC would like to see introduced."  hiu612 

"A whole new raft of legislation, it seems to me, would be required to make agents liable to penalties." tonyglasby

They'll get the legislation through in a hurry if they want it. The government needs money. They could write a clause that says by acting as agent you take responsibility as with power of attorney.  Maybe it will just be added as part of the terms and conditions of using the HMRC website.

Then insurance will kick in and HMRC will have a nice income stream via the insurers.  All of us will share the burden, in effect, as our premiums go up, and we will pass it on to the clients.  It's like the policeman's line in "The Ladykillers" - it's only a penny on each policy, so nobody will miss it!  It would be a form of disguised taxation. Galling as it is, it would be fairer than letting a few innocent taxpayers take all the burden.

Let's face it, most errors are indeed agent errors.  How many clients have a clue whether a return is right or wrong? It is our job to make sure the returns are right. If we have done all the checks, and systematically asked all the right questions but they have with-held or falsified information, then of course it is the client's problem.  That is not an error, but fraud.

Of course under time pressure we can all make mistakes, but if we're making more than is reasonable we will rightly be dubbed incompetent. Any agent with too many errors may go on an HMRC danger list - not to mention becoming a higher risk to the insurers.  How's that for incentive to do your job better!

Nick Graves's picture

Tonyglasbey    1 thanks

Nick Graves | | Permalink

There is, because all governments will by their inherent nature tend towards bureaucracy and totalitatianism generally (after Ludwig von Mises). It is eventually their own inevitable downfall.

But this is a rare example of where the commonsense of the old common law actually triumphs against tyranny. Such decisions are to be celebrated.

@John    1 thanks

The Black Knight | | Permalink

With you in sentiment, but you could never prove deliberate error because only the diligent have working papers?

How did you arrive at that number? I don't know!!! how ridiculous does negligence need to be before it is criminal?

An agent is not a

Vinoo | | Permalink

An agent is not a "responsible person" as far as far as tax payments are concerened. If any penalties/interest or surcharges are incurred it is borned by the individulas,partners or companies.So one should not have a relaxed view that any penalties will be waived.This is a bad precedent HMRC have set

johnjenkins's picture

Ah Ha

johnjenkins | | Permalink

Black Knight, you have fallen, like so many, into the trap of "is this an error or mistake, or is it deliberate, syndrome". We have had enough training and experience to know what the difference is. HMRC don't want there to be a difference, so taking sensibilty away. This brainwashing has been going on for years. It would appear that the tribunals are bringing sensble back into the equation, although the client should really be aware of what is in the return (maybe not the figures but certainly the substance).

mr. mischief's picture

I am OK if it works 2 ways!    2 thanks

mr. mischief | | Permalink

I am OK if HMRC wish to go after agents for errors, careless or otherwise PROVIDING this works the other way.

If I can hit HMRC with a penalty every time they make an error, careless or otherwise, under s strict liability basis then I am confident the net balance will be lots of extra profits!

At the moment we have a situation where no-one in HMRC takes any hit at all for even blatant blunders or ridiculous delays, whilst we agents get our 31 days and face potential client penalties for errors.

It must be a 2-way street!

Trust in the Government    1 thanks

kenatnam | | Permalink

Isn't it diabolical that the people we should be able to trust deliberately mislead us?

Overstating tax & penalties due by HMRC is just as bad as tax evasion by a tax payer.

Same penalties under law please - lets see the faceless minions at HMRC up in court & going to jail. After all by doing this they are just stealing from us.

johnjenkins's picture

Trust

johnjenkins | | Permalink

went out of the window during the last recession, when messrs Lawson and Major let SME's down badly and allowing banks to have their wicked way and destroy many good business. I personally don't think we have ever recovered from that and the mistrust has just got wider and wider. Now if Boris and DC were to swop jobs that would be a start.

"It would be a form of disguised taxation."    1 thanks

mikewhit | | Permalink

Like taking out IR35 insurance packages ...

Thatcher, not Major    1 thanks

may2011 | | Permalink

It goes back to Mrs Thatcher - the "loads of money" culture, the deregulation of financial markets to enable them to do what they like, and to hell with law and honesty and fairness.  Big became good - let the devil take the little guy trying to earn an honest living.

Now we have people broadcasting from Russia telling the world that London is the most corrupt financial centre in the world. And we all sense that it's true.  If we fix the illegality in the City we sink the whole ship; if we don't it will go down anyway, but more slowly; so government, having boxed itself in, turns a blind eye and behaves equally unscrupulously to keep us afloat a little bit longer. 

John Major came in at the tail end of the culture-shift and didn't have time or support enough to do anything about it.

 

johnjenkins's picture

@may2011    1 thanks

johnjenkins | | Permalink

Got to take issue with you there. Maggie was the person who gave SME's the chance to grow. She allowed ordinary people to own property and to be able to use that equity to run their own business. She stopped the stranglehold that unions had over business growth. Admittedly she destroyed some manufacturing but that was only because under union rule some refused to change with the times. We are in the same situation now with GB having taken us back to the "dark old days" Tell me the eighties weren't exciting and business growth wasn't at its best?

Then along came the wimp brigade. I have always said that the banks destroyed a lot of good business in the last recession (and Lawson just let it happen), which was bank led just like this one, and we really haven't recovered from that. Boris needs to take over.

New PM

The Rogue | | Permalink

Boris as Prime Minister I can live with.

 

But Dave as Mayor of London?  I hope not.

taxhound's picture

carelessness

taxhound | | Permalink

Anyone who says they have never made a mistake has never made anything at all.

Mistakes are regrettable and obviously professionals need to take care, but they happen.

HMRC also make lots of mistakes.  Can we send them penalty notices for careless errors?  Or can we accept that we are all human and sometimes these things happen.  

Tax and interest, yes, penalties for "honest" mistakes, no.

David Delve's picture

still valid?

David Delve | | Permalink

Just come across this 18m after the above?

 

Is there an update?