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An illustration of a business man grieving| AccountingWEB | Tax return omissions tied to accountant's tragedy
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Tax return omissions tied to accountant’s tragedy

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A taxpayer subject to a Code of Practice 9 investigation has won their appeal, with the first tier tribunal finding that the omissions in his tax returns were not deliberate, but rather the result of a terrible family tragedy suffered by his accountant.

26th Jan 2024
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Charles Collier had been involved in property development for over 40 years. His tax affairs were complex, with multiple income sources, including from partnership income, employment income, as well as dividends, rental income and interest. His income in the relevant years was regularly in the six figures, sometimes in the millions.

As a child, Collier was diagnosed as dyslexic, with a reading age of 12. As a result, he relied on the services of a small group of trusted professionals for business purposes.

One of the core professionals Collier relied upon during the appeal period was a chartered accountant and chartered tax adviser, referred to as PC. PC had been involved with Collier’s tax affairs since the late 1980s and had prepared and submitted the relevant tax returns on behalf of Collier and the partnership.

However, following a terrible family tragedy in 2006 in which he lost his son, PC suffered a decline in the standards of his professional work, including regular absences from the office. Although the drop in quality of work was understandable given PC’s circumstances, late preparation and filing of accounts became the norm.

In light of the circumstances and Collier’s long-standing relationship with PC, Collier was reluctant to terminate the relationship. However, after much deliberation, the decision was made to gradually move work away from PC. By October 2011, a new adviser (Young & Co) had taken over all the accounts.

Irregularities

Subsequent evidence showed that there had been tax irregularities while Collier’s returns had been prepared by PC.

Young & Co noted that PC’s records were extremely messy and not very organised. Over the years under appeal, there had been several omissions and errors, including undeclared rental income, an undeclared capital gain of some £30,000 in 2006/7, as well as six undeclared commissions within Collier’s partnership accounts, one of which amounted to nearly £312,000 for the accounting year to 31 October 2007/tax year 2007/8.

Many omitted figures stemmed from Collier’s Bank of Scotland account. PC was aware of the account, that the account was used for both business and non-business transactions, and had been provided with that account’s bank statements.

Assessments

In December 2012, HMRC issued Collier with a Code of Practice 9 investigation, as it suspected tax fraud had occurred.

By May 2017, HMRC issued Colier various assessments and penalty determinations covering tax years 2006/7 to 2010/11. Similarly, in April 2021, HMRC issued amendments to partnership tax returns for various accounting periods ending between 31 October 2006 and 2010, as well as penalty determinations and assessments to Collier and his wife, in their capacity as partners in the partnership. Both Collier and the partnership appealed [TC09004].

Good faith

The taxpayers did not dispute that amounts that should have been included in the relevant returns had been omitted. Rather, they argued that the omitted amounts occurred as a result of negligent conduct and/or were brought about carelessly. In other words, they argued that HMRC’s assessments and amendments were out of time, having been made more than six years after the end of the year of assessment to which they relate.

Collier asserted that at all times he had acted in good faith, and believed his tax returns to be correct when they were submitted. While the professional problems he had experienced with PC were inconvenient and time consuming, Collier believed such issues were only timing related.

Decision

The fundamental issue for the first tier tribunal (FTT) to consider was whether the assessed loss of tax was brought about deliberately.

The FTT found Collier to be a credible witness and accepted his evidence, including Collier’s submission that the amounts involved in this case were not sufficiently significant in absolute terms or in relative terms (considering Collier’s overall business activities) so as to demonstrate that it would have been apparent to him (taking his dyslexia and reading age into account) that the returns contained omissions that required correction.

Further, the FTT was not satisfied that Collier had a suspicion, firmly grounded and targeted on specific facts, that the returns contained omissions: he did not have “blind-eye knowledge” that demonstrated he deliberately brought about the loss of tax.

Ultimately, the FTT accepted Collier’s submission that the omitted amounts occurred as a result of negligent conduct and/or were brought about carelessly. The assessments and amendments, having been made more than six years after the end of the relevant year of assessment, were therefore out of time and invalid. Consequently, the penalty assessments and determinations were also invalid.

The appeal was allowed.

Comment

Broadly, in respect of the time limits for making assessments and amendments as applicable in this case, HMRC ordinarily have four years after the end of the year of the relevant assessment (section 34 TMA 1970).

However, where a loss of tax is brought about carelessly, the time limit is extended to six years (section 36(1)), which is further extended to 20 years where a loss of tax is brought about deliberately (section 36(1A)).

Replies (22)

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By FactChecker
26th Jan 2024 17:13

Although not clearly stated above, but 'putting 2 and 2 together', the practical takeaway isn't the interesting interpretation of careless vs deliberate ... it's the fact that HMRC only became aware of the shortfalls through happenstance:

".. after much deliberation, the decision was made to gradually move work away from PC.
By October 2011, a new adviser (Young & Co) had taken over all the accounts."
.. and ..
"Subsequent evidence showed that there had been tax irregularities while Collier’s returns had been prepared by PC."
.. and ..
"In December 2012, HMRC issued Collier with a Code of Practice 9 investigation"

So, IF the impact of tragedy on PC had not resulted in eventual appointment of new advisers THEN no flags would have been raised within HMRC in the first place.
Hardly the message they want to portray of being 'hard on the heels of the rich who fail to pay their due share of tax'!

Thanks (7)
Replying to Postingcomments:
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By Anonymous Accountant
27th Jan 2024 11:54

Agree with the general sentiment that people can be too sensitive/lenient these days but comparing the loss of a 95 year old gran to the loss of a son is a bit ridiculous.

Are you really shocked that he was "so upset for 5 years" about the loss of his son?

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Replying to Anonymous Accountant:
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By Postingcomments
27th Jan 2024 13:11

I don't buy that it caused him to mess up several years worth of returns.

If the claim is that it did, I'd want to look at other tasks that he did or didn't manage to achieve in that timeframe. Did he manage to get his work invoices out? I bet he did. Did he manage to get down the car dealership and upgrade his car to a shiny new one? Or did these things fall apart too? They don't seem to have done for other people who end up under investigation and pull the bereaved card.

Just saying that in my time of working with people under tax investigation, they always seem to find one of these heart strings to pull - even though it is pretty clear that they were functioning very well in areas other than their accounting "mishaps".

People try to conflate this point with "Oh you are being insensitive". Well, I'm making a separate point to that. In any case, truths are truths.

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Replying to Postingcomments:
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By towat
29th Jan 2024 10:14

The death of the accountant's son doesn't appear to be relevant to the judgement in any case, the point is did the taxpayer know or should have known about the omissions? It is accepted that the accountant screwed up, the reason for which are irrelevant.

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Replying to Postingcomments:
paddle steamer
By DJKL
29th Jan 2024 13:14

Not sure I agree- my Father was certainly not as on top of his game as a solicitor after my Mum died in 1974 , age 46, and I suspect this certainly led in time to him retiring from practice in 1982, age only 55. I think grief/depression etc can have a very significant impact on professional performance.

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Replying to Anonymous Accountant:
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By Tom+Cross
27th Jan 2024 13:29

I always wonder how 'Posting Comments' would react in similar circumstances.
Ever the expert.
He/She must have the skin of a rhinoceros.

Thanks (23)
Replying to Anonymous Accountant:
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By moneymanager
29th Jan 2024 10:01

My sister lost a sson to suicide some fifteen years ago, neither parent will ever 'get over it'.

Thanks (14)
Replying to Postingcomments:
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By OrmeGoat
29th Jan 2024 09:27

Crass original comment by Postingcomments.

I look forward to Postingcomment's expected timetable for recovering from traumatic events, ranging from serious illness to death of a child/spouse.

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Replying to Postingcomments:
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By Tereha_K
29th Jan 2024 14:44

@Posting Comments - I don't think anyone or any thing can prepare you for the lost of a child, and we do not know the circumstances of his Son's passing. It must have been a very tragic, nevertheless, grief is dealt with in all manner of ways for any length of time, and I can understand why his client took so long to move his affairs to another firm, it must have been a very hard decision.
Compassion and understanding is free - not sure why its so difficult for people (YOU!!) to express it.

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7om
By Tom 7000
29th Jan 2024 09:34

So it says there are 3 time limits 4 years 6 years 20 years

What I have never understood is the 4 year one.

I get if you are careless its 6 and if its fraud and deliberate 20. But whats 4. Surely if theres a mistake its either careless ie I didnt mean it/know or deliberate. How can it be 4, if its less than careless surely its right and if its right its irrelevant?

It says....

Broadly, in respect of the time limits for making assessments and amendments as applicable in this case, HMRC ordinarily have four years after the end of the year of the relevant assessment (section 34 TMA 1970).

However, where a loss of tax is brought about carelessly, the time limit is extended to six years (section 36(1)), which is further extended to 20 years where a loss of tax is brought about deliberately (section 36(1A)).

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Replying to Tom 7000:
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By petestar1969
29th Jan 2024 09:55

4 years for "genuine" mistakes, I believe.

I agree its pretty tenuous trying to differentiate between genuine mistakes and careless errors.

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Replying to petestar1969:
By SteveHa
29th Jan 2024 10:22

Puts me in mind of Mark Drakeford's response to when 20Mph rule breakers will be prosecuted. If the driver was genuinely confused, they won't be. How do you demonstrate when someone is genuinely confused compared to someone being artificially confused?

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Replying to SteveHa:
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By Rgab1947
29th Jan 2024 11:26

I am always confused.

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Replying to Tom 7000:
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By richard thomas
29th Jan 2024 10:13

4 years is simply the limit for making discovery assessment, whether to correct mistakes or just to determine technical disputes.

What do you think the limit for assessing should be if not 4 years? None, or that HMRC should not be permitted to make discovery assessment if they've failed to open an enquiry?

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Replying to richard thomas:
7om
By Tom 7000
29th Jan 2024 10:28

I get it they have 4 years to find you and if they do they can then go back 6 or 20.
I dont have an opinion on what it should be, people cleverer than me make the rules, its hard enough just trying to follow them....

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Replying to Tom 7000:
Stepurhan
By stepurhan
30th Jan 2024 09:23

Tom 7000 wrote:
Surely if theres a mistake its either careless ie I didnt mean it/know or deliberate. How can it be 4, if its less than careless surely its right and if its right its irrelevant?


If you've taken advice from a professional, but you don't realise that professional's advice is wrong (maybe because they are grieving) is that not a mistake that is not careless? The taxpayer took care by taking advice. They made entries they believed were correct based on that advice, so not deliberate.
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By moneymanager
29th Jan 2024 09:59

This should never have been taken as a case by HMRC, mere opportunistic and vexatious kite flying.

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David Winch
By David Winch
29th Jan 2024 10:20

Interesting (to me at least!) to see the difference between "blind-eye knowledge" and mere "suspicion".
Per the case law, blind-eye knowledge requires that "the suspicion must be firmly grounded and targeted on specific facts". (See the FTT judgment at para 27 quoting earlier case law).
Whereas in relation to money laundering, "the statute does not require the suspicion to be 'clear' or 'firmly grounded and targeted on specific facts', or based upon 'reasonable grounds'". (See R v Da Silva [2006] EWCA Crim 1654 at para 16.)
David

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By Mr J Andrews
29th Jan 2024 10:21

Good to see Collier with barely a teenage reading ability did well to amass regular annual income into the millions in certain years ; and reliant a small group of trusted professionals in doing so. Shame this assistance was evidently lacking as far as the taxation side of his affairs were concerned.
What the article omits is that a certain Mr Baines { HMRC } took over from a Mr Levy, his retiring colleague, and admitted his knowledge in this case was limited to his ''reading in the files''. Baines was not briefed by Levy and did not meet either P.C. or Collier.
Whilst the F.T.T. found Collier to be a credible witness , this same accolade was given to Baines........with the additional comments that Baines's evidence was of limited value !
And what of Mrs Collier in her capacity as partner ?
A cynic might argue that that the appeal was allowed by more than a lack of ''blind-eye knowledge''.

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Replying to Mr J Andrews:
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By Justin Bryant
29th Jan 2024 11:27

I think this was clearly a case where having a good tax barrister helped the taxpayer more than anything else.

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Replying to Justin Bryant:
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By RetiredTax
30th Jan 2024 11:39

+1

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