“The test to be applied, in my view, is to consider what a reasonable taxpayer, exercising reasonable diligence in the completion and submission of the return, 25 would have done.” 20. I am satisfied that the effect of paragraph 18 is to remove the liability of a taxpayer to a penalty where: (1) a return is completed and lodged by an agent, and (2) an inaccuracy in the return is the result of something done or omitted by the agent, but (3) the taxpayer took reasonable care to avoid that inaccuracy. 21. What is reasonable care in any particular case will depend on all the circumstances. In my view this will include the nature of the matters being dealt with in the return, the identity and experience of the agent, the experience of the taxpayer and the nature of the professional relationship between the taxpayer and the agent. In my view, if a taxpayer reasonably relies on a reputable accountant for advice in relation to the content of his tax return then he will not be liable to a penalty under Schedule 24. 22. I am fortified in these conclusions in relation to paragraph 18 by the content of the HMRC Compliance Handbook at CH84540 which states in relation to paragraph 18 as follows: “A person cannot simply appoint an agent and deny responsibility for their tax affairs. The person still has a duty to take reasonable care, within their ability and competence, to make sure that what they are signing for is correct. The person has to show that they took reasonable care, within their ability and competence, to avoid default by their agent. This will include • making sure that they give the agent all relevant information with which to work ... 1 • implementing the professional advice received, and not neglecting some vital step • checking the agent’s work to the extent that the person is able to do so. For example, an ordinary person cannot be expected to challenge specialist professional advice on a complex legal point. But they ought to be able to recognise the complete absence of a major transaction. A person saying and meaning ‘I leave it all to my agent’ is hardly taking care, let alone reasonable care, over their obligations or the work of their agent. The person has an obligation to choose an adviser who is trained and competent for the task in hand ... The benchmark is a person who goes to an apparently competent professional adviser • gives the adviser a full and accurate set of facts • checks the adviser’s work or advice to the best of their ability and competence and • adopts it. The person will then have taken reasonable care to avoid inaccuracy on the part of themselves and their agent.” 23. At one extreme is an error of omission, for example failing to declare a source of income. In those circumstances it seems to me that a taxpayer will almost always be expected to identify the error. At the other extreme an error might involve wrongly construing a complex piece of legislation. In those circumstances the possibility of a penalty may still arise because of the carelessness of the agent, but the taxpayer’s liability to a penalty might well be excluded on the basis that he took reasonable care but did not identify the error. 24. I agree with the general thrust of the guidance given in the HMRC Compliance Handbook. In particular that a taxpayer cannot simply leave everything to his agent. A taxpayer must certainly satisfy himself that the agent has not made any obvious error. That might involve the taxpayer seeking to understand the basis upon which an entry on his return has been made by the agent. However in matters that would not be straightforward to a reasonable taxpayer and where advice from an agent has been sought which is ostensibly within the agent’s area of competence, the taxpayer is entitled to rely upon that advice. At the heart of this issue is the extent to which a taxpayer is required to satisfy himself that the advice he has received from a professional adviser is correct. The answer to that will depend on the particular circumstances of the case.”
“For circumstances to be special [they] must be exceptional, abnormal or unusual...” 69. In Warren v HMRC[2012] UKFTT 57 , the FTT put a gloss on the meaning of “special”
“The adjective “special” requires simply that the circumstances be peculiar or distinctive. But that does not necessarily mean that the circumstances which affect most taxpayers could not be special: an ultra vires assertion by HMRC that for a period penalties would be halved might well be special circumstances; but generally special circumstances will be those confined to particular taxpayers or possibly classes of taxpayers. They must encompass the situation in which it would be significantly unfair to the taxpayer to bear the whole penalty.” 70. In Welland v HMRC[2017] UKFTT 870 the FTT likewise did not confine the meaning to circumstances which did not affect many taxpayers. After referring to the passage in Warren cited above, the FTT said at [125]: “What was said in Warren seems right, if very general. … In summary, it seems to me that the alleged special circumstances must be an unusual event or situation which does not amount to a reasonable excuse but which renders the penalty in whole or part significantly unfair and contrary to what Parliament must have intended when enacting the provisions.” 71. By contrast, in Collis v HMRC[2011] UKFTT 588 the FTT said at [40] that: “to be a special circumstance the circumstance in question must operate on the particular individual, and not be a mere general circumstance that applies to many taxpayers by virtue of the scheme of the provisions themselves.” 72. In our view, as the FTT said in Advanced Scaffolding ( Bristol ) Limited v HMRC[2018] UKFTT 744 (TC) at [99], there is no reason for the FTT to seek to restrict the wording of paragraph 16 of Schedule 55 FA 2019 by adding a judicial gloss to the phrase. In support of that approach the FTT referred to the observation made by Lord Reid in Crabtree v Hinchcliffe at page 731D-E when considering the scope of “special circumstances” as follows: “the respondent argues that this provision has a very limited application… I can see nothing in the phraseology or in the apparent object of this provision to justify so narrow a reading of it”. 73. The FTT then said this at [101] and [102]: “101. I appreciate that care must be taken in deriving principles based on cases dealing with different legislation. However, I can see nothing in schedule 55 which evidences any intention that the phrase “special circumstances” should be given a narrow meaning. 102 It is clear that, in enacting paragraph 16 of schedule 55, Parliament intended to give HMRC and, if HMRC’s decision is flawed, the Tribunal a wide discretion to reduce a penalty where there are circumstances which, in their view, make it right to do so. The only restriction is that the circumstances must be “special”
“121. We prefer an alternative reading of para 15(3), which we find wholly consistent with the broad discretion given by para 9. We read “HMRC’s decision” in the 40 sentence “HMRC's decision in respect of the application of paragraph 9 was flawed” as meaning HMRC’s decision about the application of para 9 and not HMRC’s decision as to the amount of the penalty. In other words, we think that the statute envisages two decisions, one “as to the amount of penalty payable by P” and a second decision “in respect of the application of para 9.” 122. Reading para 15(3) in this way allows HMRC to exercise the para 9 discretion at any time before the tribunal makes its decision. This is in accordance with the 5 discretion granted by Parliament under para 9, allowing HMRC to “reduce a penalty” including staying a penalty, without limit as to time, and agreeing a compromise in relation to proceedings for a penalty. HMRC can therefore consider special circumstances at the time of the statutory review, when drafting the statement of case, or during the tribunal proceedings…………… 151. What is the position where, as here, it is HMRC’s presenting officer who has made the special circumstances decision? We know from our own experience that presenting officers can and do make concessions during the hearing: for instance, to reduce the amount under appeal or even to withdraw assessments entirely. Presenting officers are not only advocates, but representatives who have authority to make compromises and settlements on HMRC’s behalf. We see no reason why a presenting officer should be unable to exercise the discretion contained in para 9. Indeed, that she should be able to do so is entirely consistent with the reference in para 9(3)(b) to the special circumstances discretion including “agreeing a compromise in relation to proceedings for a penalty.” 152. We therefore find that Mrs Levy was exercising the discretion given to HMRC under para 9, and that there was no failure by HMRC to consider the exercise of that discretion. 153. Where it is the presenting officer who makes the decision, she must give her reasons orally to the tribunal, as Mrs Levy has done. Our task is therefore to consider whether her decision was “flawed” according to the principles of judicial review…….”
“[68] It is true that the common law, ‘at present’, does not recognise a general duty to give reasons for administrative decisions (R v Home Secretary ex p. Doody[1994] 1 AC 531 per Lord Mustill at page 564). However, in many cases if a public body, such as HMRC, fails to give reasons for its decision it will be found to have acted unlawfully. As 40 explained in ‘Administrative Law’ (10th edition) Wade & Forsyth, there is no closed list of circumstances in which fairness will require reasons to be given. [69] In this case, [the relevant statutory provision] envisages this Tribunal having to decide whether HMRC's decision is flawed, in the judicial review sense of that term. A failure to give reasons for a decision makes this task almost impossible. It would not then be possible to determine whether the decision-maker applied the correct 5 legal test, whether he took account of all relevant factors or whether he took account of irrelevant factors. In short, a failure to give reasons makes it almost impossible for the Tribunal to determine the issue of Wednesbury unreasonableness. Parliament must have envisaged that an officer of HMRC deciding whether to exercise the discretion in 10 paragraph 11 would give reasons for the decision.” 149. We respectfully agree that a decision of HMRC in relation to special circumstances requires reasons: otherwise the tribunal cannot know whether the decision was flawed, and so cannot fulfil its obligations under para 15(3)(b). 150. The reasons do not need to be lengthy. Lord Brown’s summary of the correct 15 approach in South Bucks DC v Porter[2004] 1 WLR 1953 at [36] is accepted as authoritative and includes the following guidance: “The reasons for a decision must be intelligible and they must be adequate. They must enable the reader to understand why the matter was decided as it was and what conclusions were reached on the ‘principal important controversial issues’, disclosing how any issue of law or fact was resolved. Reasons can be briefly stated, the degree of particularity required depending entirely on the nature of the issues falling for decision. The reasoning must not give rise to a substantial doubt as to whether the decision-maker erred in law, for example by misunderstanding some relevant policy or some other important matter or by failing to reach a rational decision on relevant grounds. But such adverse inferences will not readily be drawn. The reasons need refer only to the main issues in the dispute, not to every material consideration…””
“102. It is clear that, in enacting paragraph 16 of schedule 55, Parliament intended to give HMRC and, if HMRC’s decision is flawed, the Tribunal a wide discretion to reduce a penalty where there are circumstances which, in their view, make it right to do so. The only restriction is that the circumstances must be “special”