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HMRC fumbles penalty appeal
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HMRC fumbles penalty appeal


HMRC was so sure the taxpayer had deliberately omitted income and benefits from his tax return that it asked the tribunal to allow the appeal against the penalties if it found the taxpayer’s behaviour was only careless.   

9th Jul 2021
Tax Writer
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In his recent first tier tribunal appeal, Angel Rodriguez-Issa challenged HMRC’s decision that inaccuracies in his tax return were the result of deliberate behaviour on his part.

HMRC had issued penalties for deliberate inaccuracies in Rodriguez-Issa’s 2016/17 tax return and when the taxpayer appealed, HMRC advanced its case on an all or nothing basis, leaving no room for the appeal to succeed if the penalties had to be recalculated on a careless basis.

The taxpayer was represented by the legendary Robert Maas.


Angel Rodriguez-Issa was made redundant by Morgan Stanley in July 2016, and subsequently took up employment with BNP Paribas.

Rodriguez-Issa’s 2016/17 tax return, which he completed himself, omitted £176,738 of income received from Morgan Stanley between December 2016 and February 2017 (ie after leaving Morgan Stanley). The return also omitted any reference to Morgan Stanley having written off a loan to him of £143,420.

In July 2019, HMRC issued a penalty under paragraph 1, schedule 24, FA 2007 for inaccuracies in the 2016/17 tax return, with those inaccuracies being the result of deliberate behaviour.

The potential lost revenue was £68,016.59. Following a review, the amount of penalty issued was reduced to £23,805. Rodriguez-Issa appealed (TC08123).

HMRC’s case

HMRC put forward the following arguments to support its case:

  • Rodriguez-Issa agreed that income was omitted from his 2016/17 tax return and, therefore, the return contained inaccuracies.
  • His tax affairs were very straightforward, containing just PAYE income and employment benefits. Despite this, he failed to declare a significant sum, and this was unlikely to be an innocent mistake.
  • His settlement agreement with Morgan Stanley provided that he was liable for income tax arising out of the settlement sums. He also took legal advice prior to signing the settlement agreement.
  • He failed to declare a taxable benefit (an interest free loan) in his 2015/16 return, and for that inaccuracy HMRC had issued a penalty for careless behaviour.
  • The taxpayer could have taken advice to ensure his 2016/17 return was accurate, but did not do so.

All or nothing approach

In what can be described as an interesting approach, HMRC submitted the evidence established that the inaccuracies were the result of deliberate behaviour by the taxpayer rather than carelessness.

HMRC told the judges that if they did not find the deliberate error was proven, they should allow the appeal, as HMRC did not seek to advance a case based on carelessness.

While the FTT expressed surprise at HMRC’s position, that was how HMRC presented its case and the basis on which taxpayer fought it.

Taxpayer’s case

The taxpayer’s representative Robert Maas argued that HMRC did not establish that any inaccuracies in the 2016/17 tax return were due to deliberate behaviour on the part of the taxpayer.

While Rodriguez-Issa accepted that the 2016/17 return contained omissions, he argued that he was unaware of those omissions until they were brought to his attention by HMRC.

He had used his forms P60 and P45 from his employers to complete his return, arguing this complied with HMRC guidance on completing self-assessment tax returns. While Morgan Stanley had made payments to him after ceasing employment, he claimed that he was not aware of those payments until after he had filed his 2016/17 return.

Maas highlighted the fact that HMRC only informed Rodriguez-Issa about the inaccuracy in his 2015/16 tax return in February 2018, ie after the taxpayer had filed his 2016/17 return.

When Rodriguez-Issa received the penalty for the 2015/16 return, he did not amend his 2016/17 return, as he still did not appreciate that there was anything to amend.


Although the FTT agreed that there were inaccuracies in the 2016/17 tax return, HMRC did not successfully discharge the burden of proving that the inaccuracies arose from the taxpayer’s deliberate conduct, applying the approach in Auxilium (TC 05024).

The FTT also found that HMRC failed to establish that this case was one of the circumstances envisaged in Clynes (TC 05123) “where it can be said that deliberate conduct is made out because the taxpayer consciously or intentionally chose not to find out the correct position (where the circumstances are such that the person knew that he should do so).”

Ultimately, the FTT found that:

  • Rodriguez-Issa understood that he had accurately completed his 2016/17 tax return because he had used the figures provided on the P60 and P45 in relation to his employment income.
  • The taxpayer did not understand the tax treatment of the loan waiver and did not know that it needed to be included on his return.
  • He did not know that there were inaccuracies in his 2016/17 return until informed by HMRC.

As such, HMRC failed to prove that the inaccuracies in the 2016/17 return were the result of deliberate behaviour on the part of the taxpayer. The appeal was allowed.


HMRC could have advanced a case based on careless behaviour on the part of the taxpayer. However, HMRC put all its eggs in the “deliberate behaviour” basket and presented a weak case to support such a strong position.

The FTT, for example, noted that HMRC’s cross-examination of the taxpayer (who was found to be vague and somewhat evasive) was lacking, with HMRC failing to challenge significant parts of the taxpayer’s account.

Replies (11)

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By Hugo Fair
09th Jul 2021 16:49

Are there any remaining stones in the 're-wilded' HMRC forest that, if lifted and a light was shone on what is found underneath, would cause any reasonable person to exclaim "Oh look, a perfect example of how to do things correctly and efficiently"?

Thanks (5)
By Paul Crowley
09th Jul 2021 17:34

£300,000 missing from a tax return
pure accident
FTT still fit for purpose?

HMRC still fit for purpose?
Big penalty or nothing

You could not make it up

Thanks (2)
Replying to Paul Crowley:
By SteveHa
12th Jul 2021 08:33

Paul Crowley wrote:
FTT still fit for purpose?

I think that is a little disingenuous. HMRC themselves limited the FTT's scope by being over-confident, and then failing to make an even half decent case. The FTT judged on what they were asked to judge on, and found that the behaviour was not deliberate (reasonably, IMO).

If HMRC had not been so up themselves they could have still gotten careless (which they would have likely won).

Thanks (3)
By Justin Bryant
12th Jul 2021 10:02

Well done (as usual) to Robert Maas.

Mind you, that's peanuts compared to this recent c£83m HMRC c*ck-up:

Which was co-incidentally a similar amount to this other recent c£84m HMRC c*ck-up:

Thanks (0)
By Yorick
13th Jul 2021 10:27

Often, probably usually, there is something of a grey area around what is unintentional omission and intent to defraud, but this doesn't sound like a grey area to me. If HMRC couldn't persuade a tribunal that this "loss of memory" or "failure to understand" is an attempt to defraud them, what omission could they prove was an attempt to defraud?

Thanks (0)
By Paul Crowley
13th Jul 2021 17:34

I think this case is may be useful precedent to challenge ANY attemt at deliberate from HMRC

Thanks (1)
By mydoghasfleas
14th Jul 2021 10:50

I have no sympathy with HMRC on this one. It and its counsel did not allow for the possibility FTT could only see it their way. If there is only one argument advanced you would not get a decision on what was not argued.

Nonetheless if the appellant was vague and evasive, it was not so much Maas making a great save but more HMRC putting it over the bar*.

* bar as in cross bar not bar as in Chancery Bar

Thanks (0)
Replying to mydoghasfleas:
By Caber Feidh
15th Jul 2021 00:34

Why was the bar cross? Perhaps because the crossbar had been split (into two words).

Thanks (0)
By meadowsaw227
14th Jul 2021 11:37

So a "professional" person absent mindly forgot to put £320k on his tax return, he knew it was taxable AND he took legal advice.
Then another so called "professional" person manages to get him off and yet I worry about the minutia with my clients, beggars belief.

Thanks (2)
By thestudyman
14th Jul 2021 12:18

Is it really common for companies to loan money to non director employees in the region of £143k? Crazy numbers.

Thanks (0)
Replying to thestudyman:
JD Portrait
By John Downes
14th Jul 2021 18:58

For Morgan Stanley and other big city banks it probably isn't.
We're all in the wrong business.

Thanks (0)