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carelessly spilt milk | accountingweb | Definition of reasonable care - have to ask for HMRC advice
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Is it careless not to ask HMRC for advice?

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HMRC has justified careless error penalties on the basis that the taxpayer relied on third-party advice and did not contact HMRC directly.

29th Aug 2023
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HMRC has recently been issuing careless inaccuracy penalties to companies that had claimed research and development (R&D) tax credits. HMRC has justified these penalties on the basis that the taxpayer did not contact HMRC directly. Rebecca Cave discusses the issue with Jesminara Rahman. 

Rebecca Cave: How did this come about?

Jesminara Rahman: HMRC justifies the taxpayer’s behaviour as “careless” in the penalty notice on these grounds:

  • failure to adequately consult HMRC’s guidance at CIRD8000
  • reliance on advice given by a third party 
  • did not contact HMRC directly before submitting the R&D tax relief claim. 

By classifying the taxpayer’s behaviour as “careless” the penalty would be 15% to 30% of the potential lost revenue. 

RC: How is “careless” defined in law for the tax penalty rules?

JR: We first need to look at Para 3(1)(a) Sch 24 FA 2007 that states an “inaccuracy in a document given by (a person) to HMRC is ‘careless’ if the inaccuracy is due to the failure by (the person) to take reasonable care.” 

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Replies (46)

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By Hometing
29th Aug 2023 10:55

*asks HMRC a basic question*

i) Takes 5+ attempts at webchat due to agents 'disconnecting' at anything queried out of the norm.

ii) Tries to ring the helpline - temporarily no longer exists.

iii) Writes a letter and waits 12 months - still no response.

Tell me more about how we should get advice from HMRC...

Thanks (50)
Replying to Hometing:
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By Michael C Feltham
30th Aug 2023 11:34

When I last tried to use the Agent's Helpline, (over 18 months ago) after waiting for nearly one hour, the agent I spoke to was utterly clueless and admitted she was not competent to respond to the question.

She then stated that a qualified adviser would call me back and then demanded I provide a password for the future call.

I am still waiting...

What I now do, is to write to Jim Herrar, the head honcho.

I advise all other practitioners to do the same.

Thanks (3)
Replying to Michael C Feltham:
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By Hometing
30th Aug 2023 14:35

I've been promised about 20 call backs in the last year.... not received one.

Thanks (3)
Replying to Michael C Feltham:
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By Hometing
30th Aug 2023 14:35

I've been promised about 20 call backs in the last year.... not received one.

Thanks (0)
Replying to Hometing:
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By NotAnAccountant2
30th Aug 2023 14:48

Hometing wrote:

I've been promised about 20 call backs in the last year.... not received one.

But accountingweb gives you an extra reply for free to make up for it :-)

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By richard thomas
29th Aug 2023 11:26

No

Thanks (3)
Replying to richard thomas:
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By NotAnAccountant2
29th Aug 2023 13:14

richard thomas wrote:

No

Betteridge's law.

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By SteveHa
29th Aug 2023 13:31

I'd suggest that relying on HMRC's advice is careless, without verifying that advice with someone who has a clue.

Certainly not the other way round.

Thanks (27)
Replying to SteveHa:
By ireallyshouldknowthisbut
29th Aug 2023 14:57

SteveHa wrote:

I'd suggest that relying on HMRC's advice is careless, without verifying that advice with someone who has a clue.

Certainly not the other way round.

Quite.

If my clients relied on what HMRC said to them sometimes I would have filed some shocking tax returns.

Thanks (14)
Replying to ireallyshouldknowthisbut:
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By Catherine Newman
29th Aug 2023 22:26

If my clients tell me what HMRC have told them my standard response is the long form of "FFS" or "Complete B------s".

Thanks (15)
Replying to Catherine Newman:
Chris M
By mr. mischief
30th Aug 2023 13:17

Quite. Barely a month goes by without a client ringing me to report a call he or she has had with HMRC, only for me to then point out the glaring factual errors - never mind errors of tax law! - that exist within what the HMRC person said.

This very week was the last one, concerning 3 separate notices - each dated within 10 days of each other - from HMRC demanding payment of PAYE. The demands varied from under £50 to over £3k. So which is right HMRC - the day 1 request for £50 or the day 10 one for £3k?

Having checked through things, I am able to confirm NONE of the three letters were correct. The correct demand was for 0.00. Par for the HMRC course.

Thanks (5)
Replying to ireallyshouldknowthisbut:
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By Catherine Newman
29th Aug 2023 22:26

Duplicated.

Thanks (1)
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By More unearned luck
29th Aug 2023 16:25

Although Marlow Rowing Club [2020] UKUT 20 concerned VAT and reasonable excuse rather than a direct tax and carelessness, the UT concluded, on the facts, that the club had acted reasonably in not seeking advice from HMRC.

Thanks (6)
Replying to More unearned luck:
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By More unearned luck
01st Sep 2023 11:16

Perhaps I should add that the key words of my post are 'on the facts'. Which were that another taxpayer had recently lost in the FTT on the same underlying issue. However that taxpayer had appealed to the UT. Therefore asking HMRC for their view would have been pointless as it was already known from the FTT case. Marlow's experts expected the FTT decision to be reversed by the UT. In the event they were wrong.

The test is what would a sensible and reasonable taxpayer have done. If expert advice has been sought and followed that should be the end of the matter, if that advice is not obviously wrong.

Thanks (0)
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By Penny Cole
30th Aug 2023 09:47

We tried to get advice from HMRC and was told the advice we sought was above the salary grade of the HMRC helpdesk adviser

Thanks (5)
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By sammerchant
30th Aug 2023 10:03

I remember of a case where HMRC disowned the advice on their website which the taxpayer had relied upon. Can someone remember the actual case?

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Replying to sammerchant:
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By dwgw
30th Aug 2023 13:28

sammerchant wrote:

I remember of a case where HMRC disowned the advice on their website which the taxpayer had relied upon. Can someone remember the actual case?

No, but I had a similar experience seeking a non-statutory clearance a few years ago.
The detail escapes me but there was some ambiguity in the legislation and my interpretation, on which I sought clarification, was entirely supported by an example in HMRC's manual.
HMRC said the manual was wrong and couldn't be relied upon. Last time I looked it hadn't been changed.

Thanks (1)
Replying to sammerchant:
Northumberland flag
By MJShone
04th Sep 2023 16:33

Are you thinking of IR20 and the Robert Gaines-Cooper case?

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By snickersinatwix
30th Aug 2023 10:18

We had exactly this with an R&D claim which was rejected recently by HMRC. Our client agreed to accept the adjustment, without accepting that the claim was wrong, due to the time, costs and effort that would be involved in a challenge (and the current brick wall approach from HMRC that they were correct).

They then tried to add a 30% penalty for a careless error on the following basis:

1. By accepting the adjustment we agreed the client had been careless - WRONG - we simply agreed to disagree.

2. Our client was careless because they did not consult HMRC for advice!!!!!!!!!!!!!!!!!!! (nb we had filed R&D claims for this client for many years).

HRMC refused to budge, so we appealed to the Solicitors office and I am very happy to say we won :)

Thanks (8)
Replying to snickersinatwix:
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By sammerchant
06th Sep 2023 13:03

Did they repay your client for your fees/time?

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Ray McCann
By Ray McCann
30th Aug 2023 10:20

No! However if you don’t seek advice at all in a situation where there is a level of complexity you are at risk of a penalty.

Thanks (1)
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By Beef curtains
30th Aug 2023 10:44

"contact HMRC" for advice??????HaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaHaha und so weiter

Thanks (8)
Replying to Beef curtains:
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By johnjenkins
30th Aug 2023 12:27

Mahlzeit

Thanks (1)
Replying to johnjenkins:
By Nick Graves
30th Aug 2023 12:51

Sein Majistäts Lächerliche Kluster...

Thanks (1)
Replying to Nick Graves:
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By johnjenkins
30th Aug 2023 13:06

Or as Clint would say HMRC is a "cluster f...".

Thanks (0)
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By Andrew Snowdon
30th Aug 2023 10:46

HMRC should recognise that the taxpayer should not be obliged to seek their opinion as they are conflicted. Their ultimate duty is to raise revenue, albeit tempered by fairness and courtesy, so it is quite alarming that they therefore cannot recognise a conflict of interest when it is staring right at them.

Thanks (4)
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By BryanS1958
30th Aug 2023 10:55

We tried to ask HMRC in writing to confirm our stance that a supply was exempt for VAT purposes. They refused to confirm! If they don't know then who does?

Thanks (3)
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By Justin Bryant
30th Aug 2023 11:26

This is another example of where using R&D claims cowboys has no downside, coz bizarrely such fraudulent claims are treated more generously re potential tax penalties than mere tax avoidance claims re "disqualified advice".

Thanks (0)
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By richards1
30th Aug 2023 11:35

If you are all so serious about how ineffectual HMRC is (and I don't disagree)why dont you organise a tax strike?

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By sammerchant
30th Aug 2023 13:28

I have just tried to access the Agent's page on HMRC's website. I was faced with the following message

"This HM Revenue & Customs web service is currently unavailable. We apologise for this inconvenience.

Some of our online services may be available, please follow the link below to access them. If the service you wish to use is not currently available please try again later."

This is sheer incompetence. They should really smarten up. Mr Harra, are you listening??

Thanks (2)
Replying to sammerchant:
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By Catherine Newman
30th Aug 2023 15:40

I had the message several times last week.

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Replying to Catherine Newman:
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By Hugo Fair
30th Aug 2023 18:13

You've obviously not understand the veiled meaning of the message - (don't keep trying to contact us, we don't care and anyway we don't know the answer) :=(

Thanks (2)
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By hyper10
30th Aug 2023 13:32

What about the case where the Taxpayer relied on internal HMRC manuals ( god knows how these are available to view for the public) and then they (HMRC) said oh no that's just internal gobblegook, never rely on them.
I once called and spoke to their helpline and the geordie fella who was friendly was adamant of a point in fact he told me "end of, simples" clearly legal definite terms and then I picked up on something and he just said "you need to speak to your accountant"
Anyone who relies on the helpline is simply bonkers

Thanks (2)
Replying to hyper10:
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By sodge2000
01st Sep 2023 17:08

I called HMRC regarding Film Tax Credit and was told to call Citizens Advice as they deal and advise on Credits.

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By dwgw
30th Aug 2023 13:37

Whilst agreeing entirely that the notion of seeking HMRC advice is risible these days, it might be instructive to know a little more about the claim itself and the third party adviser in this case.

If the claim was less than robust (and we've all heard examples of those) I could understand HMRC's approach to the penalty.

If the question of seeking HMRC advice ever came before a tribunal, it would be illuminating for a live attempt to contact HMRC for advice to be made during the hearing. I doubt the hearing would be long enough though.

Thanks (1)
Replying to dwgw:
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By SM80
31st Aug 2023 19:54

A live call to hmrc should happen in a select committee hearing with hmrc seniors in the room

Thanks (0)
7om
By Tom 7000
30th Aug 2023 14:20

If the client was carless... and he relied on the accountant... then wasnt the accountant carless?
So who pays the fine?
Or has the boutique R and D advisor disappeared in a storm of '' unacceptable'' claims so the client is stuck with it

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Replying to Tom 7000:
Stepurhan
By stepurhan
31st Aug 2023 08:28

They'd have to walk briskly away from taking blame if they were carless. :-)

It is the dodgy R & D claim companies that are the problem. HMRC's answer appears to be to make life more difficult for everyone instead of addressing them directly.

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Replying to stepurhan:
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By johnjenkins
31st Aug 2023 09:03

Par for the course. If we can't get the individuals, let's get em all.

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By sphilpott
30th Aug 2023 14:50

Had one of these recently for a client who had used a well known R&D advisory firm for a previous claim that was initially paid out and then revisited under their new guidelines and rejected. As well as seeking repayment of the original R&D tax credit claim they also decided to seek a penalty for careless behaviour.

Let's just say that following a stiffly worded letter the penalty was rescinded without any further justification of the penalty being offered, so suggest if any clients are in same position to send HMRC a robust response.

Frankly the whole R&D tax credit situation has become a fiasco - now HMRC have changed the interpretation of the rules and applying it retrospectively and then seeking extra monies via illicit penalties - unfortunately not answerable to anyone for how they operate and virtually impossible to contact anyone there who has a clue about the issue.

Once again the honest masses have to suffer for the actions of a load of illicit R&D advisors who see the legislation as a money making machine - clearly this is easier for HMRC than trying to tackle these advisors directly.

We can only hope at some point that the balance of power shifts back towards the taxpayer but don't hold your breath. Yet another Government department that is totally broken.

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Replying to sphilpott:
By SteveHa
30th Aug 2023 15:11

sphilpott wrote:

unfortunately not answerable to anyone for how they operate and virtually impossible to contact anyone there who has a clue about the issue.

That's not strictly true, and is exactly what the tax tribunals are there for. To correct HMRC when they are wrong, just as much as to correct the taxpayer when they are wrong.

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Replying to SteveHa:
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By BryanS1958
31st Aug 2023 15:25

I think the point is to get a reliable opinion from HMRC before filing, rather than to have to incur time and costs after filing.

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By Simon@CoodenConsulting
30th Aug 2023 17:40

Contacting HMRC for advice on R&D Tax Relief claims!

"We don't give advice, please refer to the open source guidance at CIRD80000"

Perhaps they want everyone to ask for Advance Assurance, can you imagine how much that would clog up the R&D system even further? And given their current default position I suspect they might just say no to everything going for advance assurance that comes from an SME or start up.

"Dear Mr Musk, Thank you for applying for Advance Assurance for your Electric Battery. Unfortunately we have performed a google search and discovered that batteries have been around for more than 100 years therefore we are unable to provide you with Advance Assurance that your project will qualify for R&D Tax Relief."

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By AndrewV12
31st Aug 2023 11:19

If only HMRC would provide tax information and advice as easily as they claim above.

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By BryanS1958
31st Aug 2023 14:43

I just tried to register for the HMRC community forum, I couldn't register because the CAPTCHA code was blanked out and the audio option was silent. Even if you ask for help you cannot get it!

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By Justin Bryant
01st Sep 2023 10:54

"8. Mr Bradley’s position is straightforward. What is required is that an agent takes reasonable care to avoid an insufficiency or loss of tax and clearly an agent who read HMRC’s guidance but then takes a different respectable technical review is not careless."

https://www.bailii.org/uk/cases/UKFTT/TC/2022/TC08483.pdf

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