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Reasonable care: years in scope and penalties?

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Non-resident client started to receive UK State pension in 2013/14. Accountant advised that this was not taxable in the UK and so omitted from tax returns for 2013/14 to 2016/17. In my view client took reasonable care as they told the accountant about the income; and for the client to know otherwise would have probably required them to interpret the DTA.

Voluntary disclosure now being made. As "reasonable care" selected, the HMRC Disclosure system only gives the opportunity to disclose back to 2016/17.

a) Do you agree that reasonable care is the correct choice (therefore 0% penalty)?

b) What action if any would you take regarding the years that have dropped out? Advise HMRC which would then lead to an invitation to make voluntary restitution without penalties? Or stay silent?

Replies (26)

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By Wanderer
22nd Sep 2020 16:55

First I'd make absolutely sure that the SRP was taxable in the UK as many DTAs determine that it isn't. What country is this?
If yes then:
a) Yes I would try that.
b) Wouldn't mention them, just follow the options on the digital disclosure.

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Replying to Wanderer:
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By Paul Crowley
22nd Sep 2020 17:18

Definitely check taxable
Then check the other half. Is overpaid tax in country of residence recoverable?

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Replying to Paul Crowley:
Red Leader
By Red Leader
22nd Sep 2020 17:31

Paul Crowley wrote:

Definitely check taxable
Then check the other half. Is overpaid tax in country of residence recoverable?

Yes, definitely UK taxable.
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By whitevanman
23rd Sep 2020 09:42

Am I the only one who thinks this sounds odd?
A non-UK resident gets a UK state retirement pension, has for some reason to make UK tax returns but doesn't think his UK state funded pension should be returned and claims that is because his accountant told him so?
There are lots of questions I would want answering before accepting those facts. Not least, who told him it is taxable? What evidence of previous advice? Was the adviser qualified to give such advice? Why would anyone believe it? There are many more.

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Replying to whitevanman:
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By Wanderer
23rd Sep 2020 09:51

whitevanman wrote:

Not least, who told him it is taxable?

That's the first one in my book, it is the OP who has advised him this & seems adamant that it is, however has not revealed which other country is involved.
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Replying to Wanderer:
Red Leader
By Red Leader
23rd Sep 2020 10:43

Several sources have confirmed the correctness of the tax position. The client files UK tax returns due to UK property income.

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By Wanderer
23rd Sep 2020 11:29

What country?

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By New To Accountancy
23rd Sep 2020 11:47

Many clients say 'the accountant said no, so i didn't'. Blame, blame, blame.
I am with whitevanman. I am probably the least knowledgeable on this forum (apart from Joe Bloggs) but I know this.

Sounds like the client is justifying their mess, blaming the accountant and hoping 'reasonable care' HMRC words, to help.

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Red Leader
By Red Leader
23rd Sep 2020 11:54

Guys, you're off track here. The client disclosed the UK State pension amounts to the accountant at the time the return was being prepared, within the yearly deadline. The client is genuine and not a "chancer".

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By Wanderer
23rd Sep 2020 11:59

What country?

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By whitevanman
23rd Sep 2020 12:49

Disclosing it to the agent is not sufficient to demonstrate reasonable care. Did he question why the pension was not on the return? Did he read the return? Did he check whether the agent was qualified / competent? All such issues would have to be considered, in detail before deciding this matter and you can expect HMRC to take a long, hard look and to require evidence.

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Replying to Red Leader:
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By New To Accountancy
23rd Sep 2020 15:59

Sorry to jump to conclusions, it's very different when you know the client I suppose.

I think there are sticky situations now that you're the holder of the information so all you can do if you do declare it is opt for 'reasonable care' and just gather as much evidence as you can and just try your best. I believe people would stay quiet and let 'sleeping dogs lie' too but just be careful if your conversations are on email, the client then has evidence that you too knew, but did nothing.

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By Justin Bryant
23rd Sep 2020 12:41

You should check if this will attract nasty RTC/FTC penalties.

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Replying to Justin Bryant:
Red Leader
By Red Leader
23rd Sep 2020 12:54

Although the client is non-resident, the income is UK. Therefore I believe that the RTC/FTC penalties are not in point.

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By whitevanman
23rd Sep 2020 15:53

Despite everything, you still have not answered the question posed by Wanderer (more than once), that is, "what country". No-one can say with certainty whether there is a problem without knowing that simple fact. The DTC's vary widely and whatever someone else has (apparently) told you, you can forgive the contributors on here for wanting to check for themselves before offering their opinions.

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Replying to whitevanman:
Red Leader
By Red Leader
23rd Sep 2020 16:08

Not sure why you're not taking my word for it.

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Replying to Red Leader:
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By Wanderer
23rd Sep 2020 18:18

Not sure why you won't simply state which country. There's a few common misconceptions often made when reading DTAs.

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By unearned luck
23rd Sep 2020 23:17

I think that people are sceptical 'cos:
1) about 86% of DTAs give relief for the SP
2) in some cases HMRC take the view that relief is due under the other income article (ie it isn't obvious from reading the DTA in those cases)
3) Your caginess.

Which online disclosure facility are you using? I thought that there were only two currently - (UK) let property and the worldwide (ie non UK) income.

If your OP questions are still relevant then:

a) Yes, definitely with vehemence. Following professional advice that is not obviously wrong is taking reasonable care. But this defence will not necessarily help with the tax as the accountant's bad behaviour is also relevant.
b) HMRC can only assess 14/15 and 15/16 if taxpayer or accountant careless or dishonest and can only assess 13/14 if taxpayer or accountant dishonest. If HMRC can't prove these bad things the tax isn't due.

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Replying to unearned luck:
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By Wanderer
24th Sep 2020 05:25

unearned luck wrote:

Which online disclosure facility are you using? I thought that there were only two currently - (UK) let property and the worldwide (ie non UK) income.

Voluntary disclosure using DDS doesn't need a campaign:-
https://www.gov.uk/government/publications/hmrc-your-guide-to-making-a-d...
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Replying to Wanderer:
Red Leader
By Red Leader
24th Sep 2020 12:27

Yes, that's the route I'm using.

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By unearned luck
24th Sep 2020 23:35

Thanks

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Replying to Red Leader:
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By Tax Dragon
24th Sep 2020 09:55

Red Leader wrote:

Not sure why you're not taking my word for it.

Me neither. If people consider it relevant to the question (you know, the one you are asking) of whether reasonable care was taken, they haven't explained how so.

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By more rain
24th Sep 2020 12:56

If you are comfortable that the client is resident in a country without a DTT provision for pension income, I would want to see sight of evidence that

1 - the client has an email trail providing the information to the advisor
2- if possible the advisor documenting it is not taxable in UK

With this evidence I would go for reasonable care and only go as far back as the disclosure facility required.

If all this took place in a meeting or on the phone there is no written evidence I would say its careless and your client should self assess the penalties (without checking I say go for 10% for careless non-deliberate with tax due after 12m)

Part of me says your client is in a tax haven such as Monaco in which case he should pay the penalties and make it go away. It will make the champagne taste better on his yacht.

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By unearned luck
25th Sep 2020 00:16

There is prima facie evidence that the accountant's advice was that the SP wasn't taxable in the UK (the fact that the accountant didn't include it in the return despite being provided with the data - my software warns me if a client is over pension age and no SP has been entered) and as the burden is on HMRC to prove carelessness, I wouldn't concede the point as I can't see what evidence HMRC could adduce to advance their case. Even if Red leader's client was prepared to confess to carelessness, an application should be made for suspension.

A confession of carelessness allows HMRC to assess two more years plus the corresponding penalties and interest charges. All very good reasons not to admit any form of wrongdoing when there has been no wrongdoing by the client. Note HMRC can assess the tax and interest, but not further penalties, if they can pin carelessness on the accountant.

Your comment about Monaco is off the mark - the UK has no DTA with Monaco (there is only an exchange of info treaty) and is unlikely to have one with any other tax haven (how can there be double taxation if one of would-be contracting countries does not have income or capital gains taxes?)

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Replying to unearned luck:
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By more rain
25th Sep 2020 11:06

Who mentioned double tax?

If the client is tax resident in a tax haven and said tax haven does not have a tax treaty with the UK, who has primary taxing rights on a UK State Pension?

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By unearned luck
26th Sep 2020 11:52

"Who mentioned double tax?"

1) The OP did (and some respondents were concerned that the relevant treaty might not have been correctly interpreted) and 2), er, you in the first line of your post.

"If the client is tax resident in a tax haven and said tax haven does not have a tax treaty with the UK, who has primary taxing rights on a UK State Pension?"

Well, its not the UK. All states have the right to tax income that arises in that state and to tax the worldwide income of its residents, so when income flows from one country to another both states have an equal right to tax the income, ie neither state's right trumps the other's right. This is true even if one of the states for the time being choses not to exercise its right. In cases where both states exercise these rights, one of the purposes of DTAs to is remove that stalemate.

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