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Accountant’s mistake not a deliberate error

An accountant failed to consider the statutory residence test (SRT) when checking his own 2013/14 tax return, but the tax tribunal ruled this was not a deliberate error.

1st Feb 2021
Tax Writer
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Monaco at night
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In July 2013, Simon Dolan moved to Monaco and ceased to be a UK resident. His 2013/14 tax return reported UK dividend income of £320,000 and stated that Dolan was not UK resident in that year. The result was that Dolan’s dividend income was treated as non-taxable.

In actuality, Dolan’s tax return should have reported that he met the criteria for split year treatment under the SRT, as the amount of time Dolan spent in the UK during that year meant he did not satisfy the tests for automatic non-UK residence.

This also meant that Dolan’s dividend income should have been subject to UK income tax, as it had been received prior to his departure from the UK in July 2013.

Out of date knowledge

Dolan is a qualified accountant, but has not practised since 1997. Although he knew the tax residency rules in force prior to April 2013 he was not aware of the SRT rules, which were introduced from 6 April 2013 and so were applicable in his 2013/14 return.

He did not check his 2013/14 return, arguing that he expected his advisors would do it and that the return “went in last minute”. He failed to obtain up-to-date professional tax advice before submitting the return.

Penalty issued

HMRC opened an enquiry into Dolan’s return in September 2015. In September 2017, it issued a penalty under FA 2007 Sch 24 for £46,199.63 for an inaccuracy in his 2013/14 tax return.

HMRC held the inaccuracy to be deliberate, but not concealed. It calculated the penalty based on a prompted disclosure, with a penalty percentage of 47.25% of the potential lost revenue (PLR) of £97,777.

Appeal

Dolan’s representative put forward two grounds of appeal [TC07924]:

  • The penalty was invalid because FA 2007, Sch 24 para 13(3)(a) does not allow a penalty assessment to be raised before the tax is brought into charge, arguing that the window for the penalty assessment begins at the expiration of the appeal period.
  • HMRC was wrong to say that the inaccuracy was deliberate. It was entirely reasonable that Dolan made the simplest of errors, simply not staying up to date with new legislation in the most hectic period of his life. At worst the error was careless, but Dolan’s behaviour amounted to a mistake despite taking reasonable care such that no penalty should be due.

Decision

On the matter of whether the penalty assessment was validly made, the FTT rejected the argument that the legislation does not allow a penalty assessment to be raised before the tax is brought into charge. While paragraph 13 provides that an assessment must be made before the end of a defined period, the legislation does not provide for the beginning of that period when the window opens. The assessment was, therefore, validly made.

Careless or deliberate?

As to whether the inaccuracy was deliberate, HMRC argued that a person cannot escape liability by claiming complete ignorance where they clearly knew that they should have taken steps to ascertain the position.

Although the FTT agreed, it commented that in this case Dolan did not know that he should have taken steps to ascertain the correct position, as he was under the mistaken belief that he already knew it. Accordingly, Dolan did not knowingly provide HMRC with an inaccurate document, and so the inaccuracy was not deliberate.

Instead, the FTT found that Dolan did not take reasonable care when completing the return, and that the inaccuracy was careless.

The FTT reduced the amount of penalty to £19,799.84, based on a percentage of 20.25% of the PLR. The appeal was therefore allowed in part.

Comment

Not all errors in self-assessment tax returns are deliberate. Taxpayers who receive similar penalty assessments, when in fact the error may only be careless, should consider appealing.

Replies (10)

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By Mr J Andrews
01st Feb 2021 11:23

So, the FA 2007 legal technicalities demonstrated with the appeal far outweighed the ignorance with the 2013 SRT rules. Not a bad outcome for someone out of practice since 1997.
And Monaco is such a wonderful place.

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Replying to Mr J Andrews:
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By TalkSense
01st Feb 2021 11:30

Not practicing since 1997. Confused?? I had a meeting with him in his office in Hemel Hempstead in 2005

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By AndrewV12
01st Feb 2021 11:26

Extract above
Appeal
Dolan’s representative put forward two grounds of appeal [TC07924]:

Simon was not taking any chances, he got a specialist to handle his case, didn't he trust his own ability / judgement (he was a qualified accountant after all).

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By Mrbailey
01st Feb 2021 12:49

I think this retired agent was very lucky as he would have known that a tax return must be accurate
There can be no excuse in my humble opinion

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Replying to Mrbailey:
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By GR
01st Feb 2021 15:27

He is not retired. After selling and resigning from SJD in September 2014 he subsequently setup another accountancy firm in June 2017 called Dolan Accountancy Limited.

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By Ian McTernan CTA
01st Feb 2021 13:26

It wasn't deliberate, it was dumb. £320k of dividends whilst moving countries and wanted to save on a couple thousand (if that) of paid for advice has cost him £20k plus costs.

Valuable lesson in there for accountants- get a tax expert to give you advice.

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By GR
01st Feb 2021 15:52

According to AccountingWeb, Sovereign Capital bought SJD Accountancy (and another contractor tax firm called Nixon Williams) for more than £100 million in 2014.

According to Companies House, Mr Dolan resigned as director from SJD Accountancy Ltd on 17 September 2014. He was a director there from June 2007 to September 2014 and his occupation is listed as "chartered tax advisor".

According to Companies House, he setup another accountancy and tax firm in June 2017 called Dolan Accountancy Limited. He is listed as the only director and only person with significant control for this accountancy firm (he holds 75%+ of the shares).

Consequently, in my opinion, I feel like his knowledge of tax is potentially being slightly down played here. I wonder if HMRC will appeal this decision?

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By North East Accountant
01st Feb 2021 15:04

Physician, heal thyself.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
01st Feb 2021 15:16

Thanks everyone for your comments on this case. I have stepped in to moderate a number of repetitive posts drawing on published information on Simon Dolan.

It is all in the public domain, but we do not think it is good practice to post personal information about anyone on the net without a very good reason.

Some of the points made in comments are supported by such statements, but please consider your sources carefully. For example, Wikipedia is not a definitive source of the truth and is not reliable for fact-checking.

Everyone is entitled to their professional opinions and to air them here, but also remember to abide by our community guidelines not to denigrate or insult anyone else in the AccountingWEB community. Thanks for doing so in this instance.

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By Kemu
02nd Feb 2021 13:33

Quote: Although the FTT agreed, it commented that in this case Dolan did not know that he should have taken steps to ascertain the correct position, as he was under the mistaken belief that he already knew it. Accordingly, Dolan did not knowingly provide HMRC with an inaccurate document, and so the inaccuracy was not deliberate.

I do like this argument. "Save for future use"

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