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Testa case: To suspend, or not suspend?

4th Mar 2013
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The recent Testa tribunal decision provides a useful argument to secure a penalty suspension. John Flood explains why accountants should be thanking Mr Testa.

Penalties for careless conduct may be suspended, as per FA 2007 Sch.24 para.14. The law, however, provides that HMRC may suspend all or part of a penalty only if compliance with a condition of suspension would help to avoid a person becoming liable to further such penalties.

HMRC interpreted this as meaning that penalties for “one off” inaccuracies cannot be suspended and have secured success in the tribunal with recent reasonable care cases as Fane v HMRC [2011] UKFTT 210 and Hearn v HMRC [2013] UKFTT 782.  Testa v HMRC [2013] UKFTT 151 bucks this trend .

In both of the pre-Testa cases cases there was a muddle over accounting for one-off payments in connection with employment matters and in each case it was unlikely that the same situation would occur again. The first tier tribunals upheld arguments from HMRC that the penaltyies imposed did not qualify for suspension.

Mr Testa, too, got in a muddle about different employment payments awarded to him. He acknowledged he had been careless and co-operated fully with HMRC but that still left a penalty of £5,829 to pay. Testa suggested suspension on condition that the next two returns should be submitted by a suitably qualified professional advisor, but HMRC wrote back: “ conditions that HMRC can set would prevent the error occurring in future …”  No suspension was agreed.

At the hearing that followed the tribunal considered that HMRC policy was placing a too narrow view of the legislation. This was not a case where somebody was pleading for one last chance to get things right. He was offering something positive by securing the assistance of professional help. This offer had not been properly considered by HMRC and accordingly the department's decision was flawed.

Testa's appeal was allowed and HMRC will have to reconsider the question of suspension and its terms.

In summary, Testa gives a good argument for suspension of a penalty and reveals the need for HMRC:

  1. to consider each case on its merits;
  2. to ensure that general policies were consistent with statutory provisions; and
  3. to have proper regard to positive suggestions for avoiding future errors.

As AccountingWEB member taxguru also pointed out, the Test decision echoes the reasoning of last year's tribunal decision in Boughey v HMRC, but clarifies the equal standing of chartered tax advisers: “For the avoidance of doubt, we would anticipate that ‘suitably qualified’ individuals for the purposes of the relevant condition would include at least those holding the ACA, ACCA and CTA qualifications.”

John Flood ia retired barrister and was formerly a deputy director of specialist investigations at HMRC.

Replies (3)

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By B Adder
04th Mar 2013 19:07

Accountants rejoicing maybe
But what about ATT tax advisers - ouch !

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Replying to mrme89:
By frustratedwithhmrc
04th Mar 2013 20:54


B Adder wrote:
But what about ATT tax advisers - ouch !

But I'd accept the opinion of my ATT qualified junior before a hundred HMRC staff.

Thanks (2)
By johnjenkins
05th Mar 2013 09:46

Here we go

what is a "suitably qualified professional advisor". If you're ATT and even ATII you're certainly qualified and an advisor.

I'm not convinced that the tribunal did us any favours.

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