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.
After an enquiry, HMRC found no relief was available. It said the taxpayer was liable for further capital gains tax.
HMRC also charged a penalty for what it said was a careless inaccuracy in the tax return. The taxpayer appealed against the penalty.
The first-tier tribunal said the taxman had to prove the inaccuracy in the return was careless on the part of the taxpayer or his agent. The taxpayer had to show he had taken reasonable care.
The judge, Jonathan Cannan, said although it was clear there has been carelessness on the part of the tax adviser, Clarke Broome Fleming (CBF), Hanson had taken reasonable care with his tax return.
“[Hanson] had no reason to doubt their competence or their advice that relief was available. They were in possession of all relevant facts. In the circumstances of this case the appellant was entitled to rely on CBF’s advice without himself consulting the legislation or any guidance offered by HMRC. .
“The taxpayer had no reason to doubt the competency of his tax adviser whose firm had been acting for the taxpayer for many years,” Judge Cannan said. “He was entitled to rely on the agent’s advice and to have expected him to taken into account the level of detail required.”
The judged cancelled the tax penalty and allowed the appeal.