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No tax returns meant no suspension of penalty

Lisa McCann no longer filed tax returns, but that meant she didn't meet suspension conditions for a penalty relating to earlier errors.

23rd Oct 2020
Tax Writer
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Tribunal turns down suspension appeal because taxpayer no longer files returns
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In 2016/17, McCann was the director of a company and received employment income and dividends from it. In addition, she had other employment income and a small amount of untaxed bank interest. She was also liable to make student loan repayments.

In September 2018, HMRC enquired into McCann’s tax return, and found that McCann had failed to declare £13,029 of employment income, £16.11 of bank interest, and that she should have made a student loan repayment. The total amount of additional tax due was £1,354.73. The penalty imposed was £243.85, at a rate of 18% of the potential lost revenue of £1,354.73.

McCann’s accountants called HMRC and said they were unaware of the missing employment income, and asked for a suspension of the penalty, pending an appeal.

Reliance on accountant not an excuse

Before the first tier tribunal [TC07827], McCann argued that relying on the advice of her accountant amounted to taking reasonable care in completing her tax return. As she was inexperienced in dealing with a limited company, she had hired an accountant and trusted that they would handle her tax return correctly.

This well-trodden argument held little force with the tribunal judge Marilyn McKeever, who commented, “It was not sufficient to engage an agent, hand over the information and assume that the agent will get it right.”

The FTT also noted that the taxpayer was responsible for checking her tax return to make sure it was accurate. In this case, McCann either did not check the return at all or, if she did check it, failed to note that it omitted more than £13,000 of additional employment income as well as the other omitted items.

The tribunal found that McCann failed to take reasonable care to avoid any inaccuracy in her tax return and that the penalty was properly due under FA 2007 Sch 24.

Penalty suspension not available

McCann then argued that if the penalty were upheld, it should be suspended.

Penalties for careless errors can be suspended if conditions to require good tax return behaviour for two years can be imposed.

However, the FTT agreed with HMRC that McCann was not eligible for a penalty suspension. As she no longer had to complete self-assessment tax returns, HMRC’s decision that it was unable to suspend the penalty was correct.

The tribunal decision explained that a penalty is only payable under FA 2007, Sch 24, para 1 where the taxpayer has to complete a tax return. If they do not have to complete a tax return, imposing suspension conditions cannot help a taxpayer avoid becoming liable for further inaccuracy penalties since they cannot, by definition, make further errors.

Potential avenue for other appellants

While a penalty suspension was not available to the taxpayer in this case, it may be an avenue available to other taxpayers, for example where there is a weakness or failure in the taxpayer’s record-keeping system.

Replies (1)

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By SteveHa
24th Oct 2020 17:17

FTTs have taken conflicting views with regards to reliance on an agent.

It's about time one made its way to the UT.

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