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Social worker didn’t show sufficient care in relief claim

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The first tier tribunal found that a taxpayer’s penalties could not be reduced further as they had not taken reasonable care with a repayment claim made on their behalf.

20th Sep 2023
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Sunil Joseph was employed as a social worker for many years, working within a variety of departments. During the 2013/14 tax year he moved to an alcohol services department at Croydon Social Services, again as an employee.

Joseph was subsequently told by his trade union and also by a friend working in a similar role that he may be able to claim tax relief on expenses incurred. He approached an agent for assistance as to whether a claim was possible and the amount that could be included.

The agent he chose claimed to have previously worked for HMRC, which Joseph accepted at face value without carrying out any due diligence. The agent submitted tax returns for the five years to 2017/18, which showed Joseph as being self-employed and making trading losses throughout. These losses were then set against employment income, generating repayments of £22,750.40 over the five years. The agent took 10% of these repayments as their fee.

HMRC subsequently raised discovery assessments to recover the repaid tax, also charging penalties of £3,412.56. Joseph appealed to HMRC against the penalties in November 2020, but accepted that the underlying tax was payable. Although this appeal was several months too late, HMRC accepted it and responded in October 2021, upholding the penalties.

Joseph appealed to the first tier tribunal (FTT).

Lack of tax knowledge

The grounds of appeal focused on Joseph’s lack of tax knowledge and the level of assistance he gave HMRC at every stage of the process. He noted that he had colleagues who had received similar repayments, but that HMRC had merely required they be reversed without charging penalties, which he felt was unfair.

He also argued that he had trusted the agent at their word regarding their background and would not otherwise have paid them 10% of the repayment for their assistance.

Reasonable care

Joseph accepted that the repayments were in error and so his appeal was purely against the related penalties. 

The FTT noted that the penalties had been based on careless, prompted errors, for which the penalty range was 15%–30%. The penalties of £3,412.56 represented 15% of the potential lost revenue, therefore HMRC had given Joseph the maximum reduction available within the penalty band.

The fact the disclosures were prompted was not disputed, so the question to be determined was whether the errors were careless or whether Joseph had taken “reasonable care”. The FTT adopted the approaches used in Anderson (deceased) and Hanson in this regard, effectively considering what a reasonable taxpayer would have done and taking into account their relationship with their agent.

With regard to his reliance on his agent, FA 2007 Sch 24 Para 18 effectively states that an inaccuracy is treated the same way whether it is made by the taxpayer or their agent, unless the taxpayer can demonstrate reasonable care.

The FTT concluded that a taxpayer taking reasonable care would have checked the credibility and reliability of a potential agent before engaging them, in particular determining whether said agent was regulated by a professional body.

Further, such a taxpayer would then check the returns being submitted on their behalf for accuracy. In Joseph’s case, the agent had only asked for his P60s but had somehow found over £113,000 (assuming Joseph was a basic rate taxpayer throughout) of expenses over the five years in question, which should have raised alarm bells with Joseph.

The FTT did not accept that Joseph’s lack of tax knowledge excused his behaviour – querying a substantial expense claim made on his behalf based on no paperwork did not require specialist knowledge.

Further reductions or suspension?

The FTT has the power to apply special deductions to penalties where HMRC has not taken into account all relevant factors. However, in this instance, HMRC had already given the maximum reduction within the careless and prompted penalty band. The FTT found that HMRC had also already considered whether any special circumstances applied, therefore the 15% penalty was correct.

As Joseph was not required to submit further tax returns and had no weakness in his record-keeping, there was also no scope to suspend the penalties contingent on future behaviour.

No evidence

As a final point, Joseph did not provide any evidence to support his claim that other taxpayers in similar circumstances to his own had not received penalties. Regardless, the FTT noted this would not have been a valid ground for appeal, even had Joseph held such proof.

The penalties, having already been reduced to their minimum level, were therefore confirmed by the FTT and the appeal was dismissed.

Replies (5)

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By JustAnotherUser
20th Sep 2023 12:19

A very nice way to say this guy was chancing it and encouraged by a dodgy "advisor" who was incentivised by his 10% kick back...

"Mr Joseph himself admitted that the agent did not ask for any documents from him
whatsoever to prepare for the returns" - Ok, mate I'm going to bang on a couple of grand the first year and if no one catches us we will up it to 5k a year and you give me 500 quid, deal!

13. The tax repayment claims for the five tax years represent the Potential Loss Revenue
(‘PLR’) and total £22,750.40:
(a) Year to 5 April 2014 in the sum of £1,848.80;
(b) Year to 5 April 2015 in the sum of £5,496.80;
(c) Year to 5 April 2016 in the sum of £5,443.80;
(d) Year to 5 April 2017 in the sum of £4,966.80;
(e) Year to 5 April 2018 in the sum of £4,994.20.

Looking at the numbers I am sure Benfords Law or some variant of it could be used to detect these obviously made up numbers, but also suspect there were much easier ways to spot this also.

Thanks (0)
Danny Kent
By Viciuno
20th Sep 2023 14:45

Hope HMRC have gone after the agent involved, and looked at every return he has ever submitted, including his own.

Although, I do take issue with this:

"The FTT concluded that a taxpayer taking reasonable care would have checked the credibility and reliability of a potential agent before engaging them, in particular determining whether said agent was regulated by a professional body."

Either accountancy is a regulated profession or it is not. There is no requirement to be a member of a professional body. Is it now the stance that engaging someone who is a member of a professional body automatically means the taxpayer is taking reasonable care?

I've engaged multiple lawyers over the years. Not once have I cross checked their credentials to their professional body. Same with a doctor or pharmacist.

Head in the clouds.

Thanks (7)
Replying to Viciuno:
By SteveHa
20th Sep 2023 16:41

I wrote a well considered reply to this, which has vanished in to the ether. I'm not writing it again. Suffice to say, there are aspects of what you say I disagree with (though not all).

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By cbp99
20th Sep 2023 16:03

The staggering thing about such cases is that HMRC make the repayments before they check their validity. How much do they fail to recover with this back-to-front way of doing things?

Thanks (4)
Replying to cbp99:
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By Catherine Newman
20th Sep 2023 18:11

I suspect this is why HMRC are now telling people "owed" refunds that their case is subject to security checks but how are they targeting who gets checked?

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