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This is a CoA classic. I think the judgment is a bit of a joke in allowing this taxpayer off the hook (to the tune of c£800k penalties), and in doing so it says being recklessly negligent re your tax affairs is not as bad as being dishonest (re deliberate bad behaviour - which is a trigger for lots of nasty tax penalties), so courtesy of the CoA you now have a readymade brand new get out of jail free card excuse for your client i.e. they weren't dishonest, just recklessly negligent! See paras 102 & 108:

http://www.bailii.org/ew/cases/EWCA/Civ/2018/1727.html

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By Justin Bryant
06th Aug 2019 12:57

See also this article, which suggests reckless carelessness is enough re "deliberate": https://www.taxation.co.uk/Articles/2016/08/30/335290/deliberate-dangers

On the other hand, a taxpayer being disorganised with his tax affairs is not enough for a finding of dishonesty. See:
http://www.bailii.org/uk/cases/UKFTT/TC/2014/TC03887.html

This “deliberate” point is a rather grey area and may be worse for the taxpayer if it’s a wrong tax entry i.e. act (like HMRC attempted to find in the Tooth case) rather than an omission of a tax entry, especially if HMRC are aware beforehand. See for example the Smith case in the link below:

http://www.taxationweb.co.uk/tax-articles/general/tax-case-update.html

[Edit] See also para 60 here that suggests that recklessness = deliberate failure:

https://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06844.html

But this case suggests recklessness is short of dishonesty/fraud:

https://www.bailii.org/ew/cases/EWHC/Ch/2019/2071.html

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By Colin Warren
06th Aug 2018 11:49

It didn't let him off the hook. It reduced an excessive penalty hopelessly out of sync with the tax at issue to simply a very large penalty of more than 100% of the tax payable.

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By Justin Bryant
06th Aug 2018 12:02

Yes; you're right and my c£800k maths above must all be totally wrong and if the taxpayer does not try appeal this highly unfair result to the SC I will be amazed!

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By Justin Bryant
02nd May 2019 10:01

Para 44 of the case in the link below supports my above view that recklessness = deliberate misconduct re tax penalties etc. (the latter has been held in several cases to be tantamount to fraud/dishonesty):

http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11012/TC0...

This so-called "blind-eye knowledge" re dishonesty is considered in the case below:

https://www.bailii.org/ew/cases/EWCA/Civ/2019/614.html

But see this case where recklessness may only be equivalent to dishonesty in special cases i.e. it depends on the facts:

http://www.bailii.org/ew/cases/EWCA/Civ/2019/392.html

HMRC's burden of proof is still high nevertheless it seems. See:

https://www.accountancydaily.co/cch_uk/cln/news_008400_faux_properties

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By Justin Bryant
19th Sep 2023 10:41

The taxpayer won this "ignorance is bliss" recklessly negligent vs. deliberate misconduct penalty argument re s455 at para 122 here:
https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12829/TC...

Maybe HMRC should have instead assessed it as salary per this case here: https://www.accountingweb.co.uk/any-answers/property-out-to-shareholder-...

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By More unearned luck
19th Sep 2023 13:07

Andrew Hubbard thinks that HMRC will appeal this point.

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By Justin Bryant
19th Sep 2023 14:32

I used to work with the taxpayer's advocate at Deloitte and did not find it surprising that he won on this point (given also the above CoA case and other decisions in the taxpayer's favour). Maybe the CoA will have to re-write this area of law re taxpayer recklessness (the SC dodged that point in Tooth).

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Replying to More unearned luck:
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By Justin Bryant
20th Sep 2023 14:43

HMRC should have assessed/pleaded carelessness as an alternative. See: https://www.taxjournal.com/articles/p-gopaul-v-hmrc

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By More unearned luck
22nd Sep 2023 10:36

I don't think that is allowed or, at least, it holes the deliberate case below the waterline. If HMRC aren't sure that the taxpayer's conduct was deliberate how can they make out a case that it was? It would amount to a complete lack of faith in their own case!

Under art 6 ECHR the accused must understand the nature and cause of the charge he is facing. That requires HMRC to plump and not make cases in the alternative.

Anyway this is was an ignorance of the law case. How could an accusation of carelessness have made a difference?

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By More unearned luck
22nd Sep 2023 10:40

HMRC lost the penalty case as they failed to adduce sufficient evidence of the company's bad conduct and didn't cross-examine the director on the matter.

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Replying to More unearned luck:
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By Justin Bryant
28th Sep 2023 15:48
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By Justin Bryant
20th Nov 2023 18:19

As with alternative tax (e.g. IT or CGT) assessments per para 33 here: https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12897/TC...

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Replying to Justin Bryant:
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By Justin Bryant
10th Nov 2023 14:57

I'm not sure I agree with this TJ bloke's analysis: https://www.taxjournal.com/articles/penalties-on-misappropriations-?utm_...

See for example para 114 et seq here: https://caselaw.nationalarchives.gov.uk/ukut/tcc/2023/265

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By More unearned luck
10th Nov 2023 17:52

I'm not sure what this has to the discussion on whether an inaccuracy can be simultaneously careless and made on purpose. But it seems to me that point being made is that ignorance of the law can be a defence to an accusation of deliberately bringing about a loss of tax .

BTW 'this TJ bloke' represented the appellants in the UT in the bonkers case.

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By Justin Bryant
11th Nov 2023 10:52

Eh? It's 100% relevant to OP and this thread (your alternative pleading assertion was merely an incidental, incorrect aside that I already corrected above).

Also, I'm not sure why the point being made here only "seems to" you, as that's the very obvious point of this entire thread.

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By Justin Bryant
29th Feb 2024 17:22

See also this case re alternative HMRC pleadings of carelessness and deliberate misconduct being OK: https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j12976/TC...

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