“any matter relating to the laws of any jurisdiction other than England and Wales; or evaluating the commercial and/or financial merits of the proposed transaction being undertaken; or the CGT IHT implications of the proposed gift of B shares.”
“At first glance I do not see anything wrong with the proposal to give some B shares to David and Gillian but as previously discussed I am not an out and out tax expert. If you want proper sign off both on CGT and IHT I would need to refer the proposal to Lisa and there would be a cost implication for the extra work.”
“The knowledge you have gained as a result of this enquiry is what will assist you in determining whether potential future claims to BADR are valid. I am unable to set any specific, measurable, achievable, realistic and time bound (SMART) conditions to help you avoid making these inaccuracies in future and so the penalty will be charged.”
“(1) A penalty is payable by a person (P) where – (a) P gives HMRC a document of the kind listed in the table below, and (b) conditions 1 and 2 are satisfied. (2) Condition 1 is that the document contained an inaccuracy which amounts to, or leads to (a) an understatement of a liability to tax (b) a false or inflated statement of a loss, or (c) a false or inflated claim to repayment of tax. (3) Condition 2 is that the inaccuracy was careless or deliberate on P’s part.”
“It is of the essence of the reasonable care test that in normal circumstances this should avoid simple errors of omission, or mere oversights.”
“The obligation to file a correct tax return is on the taxpayer, and the taxpayer cannot transfer that obligation. If PDC relies on an accountant to prepare and file a tax return on his behalf, then PDC will be responsible if errors in the tax return are due to negligence by the accountant acting on his behalf (compare Smith v HMRC[2010] UKFTT 92 (TC) at [25]-[29] and [107]; Employee v HMRC [2008] STC (SCD) 688, SpC 673). If there has been negligence on the part of an accountant, it may be that the taxpayer may have some recourse against the accountant. However, that does not normally affect the liability of the taxpayer to a penalty for filing an incorrect return.”
“[Section 100B of the Taxes Management Act 1970 ] permits the tribunal to set aside a penalty which has not in fact been incurred, or to correct a penalty which has been incurred but has been imposed in an incorrect amount, but it goes no further… it is plain that the First-tier Tribunal has no statutory power to discharge, or adjust, a penalty because of a perception that it is unfair.”
“As regards the issue of suspension of the penalty, our jurisdiction is confined to that of judicial review. We cannot substitute our opinion for that of HMRC simply because, if we had been in their shoes, we might have come to a different conclusion. We can only overturn HMRCʼs decision on suspension if we consider it to be ‘flawed’ in the judicial review sense of that expression.”
“A condition of suspension, therefore, must contain something more than just a basic requirement that tax returns should be free from careless inaccuracies.”
“the error arose because of the Appellant’s incorrect belief that employment income did not need to be included on his return. He was now aware that such income had to be included and his future responsibility. Therefore, HMRC could not identify any future careless inaccuracies that would result from the same underlying cause.”
“We are fortified in this view by reference to the Explanatory Notes published together with the Finance Bill 2007 in respect of the provisions which were eventually enacted as Schedule 24Finance Act 2007 . The relevant extract from the Explanatory Notes reads as follows: " Suspended penalties will not be appropriate for one off inaccuracies in returns such as a capital gain or a one off transaction. They are more likely to be appropriate for accounting system or record keeping weaknesses, where the money that may have been spent on the penalty could be used to remedy the defective processes ensuring future returns are accurate."”
“ 31. The apparent underlying purpose of the legislation is not simply to allow a taxpayer the opportunity of “a last chance” if he mends his ways (akin to a suspended sentence in the criminal sphere) but only to allow him that last chance if he takes some specific and observable action which is specifically designed to improve his compliance. 32. Although the legislation does not specify the nature or extent of the required linkage between the earlier default and the action required by the suspensive condition, the use of the word “further” in paragraph 14(3) seems to us to imply that there must be some such linkage. 33. It therefore seems unlikely that paragraph 14(3) is intended to cover a situation where, for example, a taxpayer carelessly gives inaccurate information in a Construction Industry Scheme return and then seeks to have the penalty suspended on the basis of a promised improvement in his PAYE record keeping processes.”
“Mr Steady’s case is not on all fours with Fane. In Fane, the suspension condition being considered was merely that Mr Fane file accurate self-assessment returns in future. In Mr Steady’s case, it is proposed that a detailed schedule of his savings accounts is kept, and that this will help him to ensure that his tax returns are accurate in future. It matters not that a prudent taxpayer might keep such a schedule (although we would question whether a typical prudent taxpayer would keep such a schedule) – indeed it could be argued that the purpose of the suspension conditions is to bring the standard of compliance of the careless taxpayer up to the standard of a prudent taxpayer. We are satisfied (and find) that a requirement to maintain a schedule of the sort described by Mrs Foyle, would be a practical and measurable condition (e.g. improvement to systems) which would help Mr Steady to achieve the statutory objective that his tax returns should be free from errors caused by a failure to exercise reasonable care.”
“Anthony Fane [2011 UKFTT 201 TC 01075] suggested that a Tribunal should look at the issue of suspension and flawed decisions in the judicial sense of the expression, and it is necessary to consider if HMRC, in exercising their discretion, had correctly directed themselves in law. Judge Brannan goes on to state: “The important feature of paragraph 14(3) is the link between the condition and the statutory objective: there must be a condition which would help the taxpayer to avoid becoming liable for further careless inaccuracy penalties. In other words, if the circumstances of the case are such that a condition would be unlikely to have the desired effect (e.g. because the taxpayer in question has previously breached other conditions or has a record of repeated non compliance) HMRC cannot suspend a penalty. The question therefore is whether a condition of suspension would have the required effect. On the face of the wording of paragraph 14 (3), there is no restriction in respect of a "one off event". Nonetheless, it is clear from the statutory context that a condition of suspension must be more than an obligation to avoid making further returns containing careless inaccuracies over the period of suspension (two years). Paragraph 14(6) provides: ‘If, during the period of suspension of all or part of a penalty under paragraph 1, suspended penalty or part becomes payable’. If the condition of suspension was simply that, for example, the taxpayer must file tax returns for a period of two years free from material careless inaccuracies, paragraph 14(6) 5 would be redundant. Moreover, it is difficult to see how a taxpayer could satisfy HMRC that the condition of suspension, if it contained no requirement other than a condition not to submit careless inaccuracies in their tax returns had been satisfied as required by paragraph 14(6). This would, effectively, require the taxpayer to prove a negative and will require HMRC to conduct a detailed review of the taxpayer's tax returns. A condition of suspension, therefore, must contain something more than just a basic requirement that tax returns should be free from careless inaccuracies. This suggests, therefore that the condition of suspension must contain a more practical and measurable condition (e.g. improvement to systems) which would help the taxpayer to achieve the statutory objective. The tax returns should be free from errors caused by a failure to exercise reasonable care. Bearing these considerations in mind, HMRC's guidance indicating that a one off error would not normally be suitable for a suspended penalty is understandable and, in our view justified. We are fortified in this view by reference to the Explanatory Notes published together with the Finance Bill 2007 in respect of the provisions which were eventually enacted as Schedule 24Finance Act 2007 . The relevant extract from the explanatory Note reads as follows: ‘Suspended penalties will not be appropriate for one off inaccuracies in returns such as a capital gain or a one off transaction. They are more likely to be appropriate for accounting system or record keeping weaknesses, where the money that may have been spent on the penalty could be used to remedy the defective processes ensuring future returns are accurate.’”
“If the inaccuracy has been brought about by human error, the proper question to be addressed is whether there is scope for the risk of human error in the future to be minimised. The enquiry should not stop with the identification of a human error; it should start with it.”
“A penalty is payable by a person (P) where P gives HMRC a document of a kind listed in the Table below [here, a tax return], and Conditions 1 and 2 are satisfied. Condition 1 is that the document contains an inaccuracy which amounts to or leads to an understatement of a liability to tax … . Condition 2 is that the inaccuracy was careless (within the meaning of paragraph 3)…”
“For the purposes of a penalty under paragraph 1, inaccuracy in a document given by P to HMRC is “careless” if the inaccuracy is due to failure by P to take reasonable care…”
“P is liable under paragraph 1(1)(a) where a document which contains a careless inaccuracy (within the meaning of paragraph 3) is given to HMRC on P's behalf. … Despite sub-paragraph (1) …, P is not liable to a penalty under paragraph 1 … in respect of anything done or omitted by P's agent where P satisfies HMRC that P took reasonable care to avoid inaccuracy (in relation to paragraph 1) …”
“Whether acts or omissions are careless involves a factual assessment having regard to all the relevant circumstances of the case. There are many decided cases as to what amounts to carelessness in relation to the completion of a self-assessment tax return. The cases indicate that the conduct of the individual taxpayer is to be assessed by reference to a prudent and reasonable taxpayer in his position…”
“On an appeal under paragraph 15(3) the tribunal may order HMRC to suspend the penalty only if it thinks that HMRC's decision not to suspend was flawed…”
“In sub-paragraph … (4)(a) ‘flawed’ means flawed when considered in the light of the principles applicable in proceedings for judicial review.”
“The important feature of paragraph 14(3) is the link between the condition and the statutory objective: there must be a condition which would help the taxpayer to avoid becoming liable for further careless inaccuracy penalties.”
“On the face of the wording of paragraph 14(3) there is no restriction in respect of a "one-off event". Nonetheless, it is clear from the statutory context that a condition of suspension must be more than an obligation to avoid making further returns containing careless inaccuracies over the period of suspension ….”
“When I look at the letter of22 June 2011 it is plain beyond doubt that the respondent's decision is flawed. That is because the writer of the letter has proceeded on the basis that he must set a condition “that is specific to the careless inaccuracy”
“We find that HMRC’s decision to refuse to suspend penalties is flawed, as they have reached a decision that is Wednesbury unreasonable. In essence, HMRC have fundamentally misinterpreted the operation of paragraph 14 of Schedule 24.”
“Mr Steady’s case is not on all fours with Fane. In Fane, the suspension condition being considered was merely that Mr Fane file accurate self-assessment returns in future. In Mr Steady’s case, it is proposed that a detailed schedule of his savings accounts is kept, and that this will help him to ensure that his tax returns are accurate in future. It matters not that a prudent taxpayer might keep such a schedule (although we would question whether a typical prudent taxpayer would keep such a schedule) – indeed it could be argued that the purpose of the suspension conditions is to bring the standard of compliance of the careless taxpayer up to the standard of a prudent taxpayer. We are satisfied (and find) that a requirement to maintain a schedule of the sort described by Mrs Foyle, would be a practical and measurable condition (e.g. improvement to systems) which would help Mr Steady to achieve the statutory objective that his tax returns should be free from errors caused by a failure to exercise reasonable care.”
“It is necessary, in order that HMRC can operate fairly amongst all taxpayers, that guidance is issued to officers tasked with the exercise of a discretion such as that which applies to the question of the suspension of a penalty. But that guidance should go no further than is required to ensure consistency of approach. It should not fetter the discretion of an HMRC officer otherwise than is consistent with the legislative scheme itself. If it does, then any decision which is constrained in that way will be likely to be flawed in the sense provided for by para 17(6).”
“In the same way that the penalty for careless inaccuracy seeks to deter careless behaviour and penalise it, para 14 recognises that the imposition of conditions may alter behaviour so as to avoid that behaviour being repeated. It is therefore necessary, in exercising a discretion, for the decision-maker to have regard to the underlying behaviour that has given rise to the penalty and to determine whether a condition may be imposed to affect or obviate that same behaviour in the future. That is not something that is confined to the nature of the original inaccuracy, including whether it arose as a consequence of a one-off event that is not expected to be repeated.”
“That review was not one that could have been made by a reasonable reviewer; it was unreasonable in its assertion that a penalty suspension condition would have to address an ongoing record-keeping system or something similar, and that because Mr Eastman could simply have taken more care the inaccuracy could not be considered as having resulted from a weakness in process or record-keeping system that Mr Eastman had in place. That failed to consider the relevant question whether there was anything Mr Eastman could have done that could reasonably be considered would have obviated the error, and whether the imposition of a condition requiring that to be done in the future would help avoid a repetition.”
“For the reasons given above, I think … the correct test is the two-fold test set out [in Eastman]; namely; Firstly, one must ask what the taxpayer could have reasonably (and proportionately) done differently that would have avoided the original inaccuracy; and Having decided what could have been done in that respect, whether, educated by that answer, a condition may be imposed which will help avoid future careless inaccuracies.”
“I note your point in response to my previous mention of “similar” inaccuracies and would explain that this is not a reference to the legislation but to HMRC guidance on suspension of penalties as per the previously issued factsheet CC/FS10. The legislation at FA 2007 Sch.24 paragraph 14 is not specific regarding which careless errors could be avoided in the future through any suspension conditions as you point out. However, the point remains that I cannot see any future careless error(s) that could be avoided by setting a suspension condition in this case. As mentioned in my previous correspondence, the legislation states that HMRC may suspend a penalty, only if compliance with a condition of suspension would help a taxpayer to avoid becoming liable to further penalties for careless inaccuracy. Your response suggests a condition relating to your clients seeking individual advisors that will consider only your clients particular circumstances, in the event any further advice is required. This condition would unfortunately not meet the suspension criteria for several reasons. Firstly, a promise to check with an advisor in future is not a measurable condition. I would refer again to CC/FS10 which sets out that any suspension condition must be specific, measurable, achievable, realistic and timebound. The condition does not relate to a definite specific action, but rather an action that could be taken if the situation arose. Furthermore, such a situation may not arise within the suspension period and therefore again this would be a suspension condition which does not meet the criteria set out in the legislation (as above) as the condition will not have avoided any future careless errors. Also, were this to be the case, adherence to the condition could not be measured. Additionally, seeking appropriate advice where required, to meet tax obligations is a responsibility already expected of reasonable taxpayers, regardless of a suspension condition. It’s everyone’s own responsibility to get their tax right. As mentioned above, in HMRC’s view it is reasonable to expect a person who encounters a transaction or other event with which they are not familiar to take care to find out about the correct tax treatment or to seek appropriate advice. Therefore, due to the points raised above I can’t see how appropriate suspension conditions can be set to avoid a future careless inaccuracy and allow the penalties to be suspended.”
“We can understand your view that promising to do something contingently in the future may not be a suitable condition for suspension. However, our proposal is that each year, with immediate effect, our client should have a formal minuted, in-person meeting with a partner in this firm specifically to review each entry on the return before the return is submitted. Had that happened in this case, the anomaly between the client’s circumstances and the advice received would have become apparent, enabling a further review to be undertaken and the inaccuracy obviated. It is beyond question that undertaking such a pre-submission review is a condition that will “help [our client] to avoid becoming liable to further penalties”, as sch.24 para.14(3) FA 2007 requires, not just in relation to complex technical matters but across the board. Please note that the language of the statute only requires that the likelihood of a further careless error occurring is reduced (“help … to avoid”), reflecting Parliament’s wish to change careless behaviour wherever possible if that can be done, rather than simply to penalise. The condition we propose does exactly that and therefore fully meets the requirements of the statute (as well as the non-statutory requirements of HMRC’s instructions). We note in passing that our experience is that where this condition has been proposed, it has been accepted by HMRC: and our client would be treated inconsistently were you not to allow suspension based on this condition.”
“HMRC may suspend all or part of a penalty only if compliance with a condition of suspension would help P to avoid becoming liable to further penalties under paragraph 1 for careless inaccuracy.”
“a condition of suspension would help P to avoid becoming liable to further penalties.”
“….it is necessary, in order that HMRC can operate fairly amongst all taxpayers that guidance is issued to officers tasked with the exercise of a discretion such as that which applied to the question of a suspension of a penalty.”
“….the tribunals were making the valid observation that the statutory framework did not preclude suspension where the inaccuracy had arisen in relation to a ‘one off’ event…but that it would be unreasonable for HMRC to adopt too rigid approach and thereby fetter their discretion.”
“…remains vulnerable to the criticism that it unreasonably fetters the discretion of HMRC. All that para 14(3) requires is that the conditions or conditions (sic) would help avoid further penalties for careless inaccuracy. There is no necessary link between the type of inaccuracy and the possibility of further penalty.”
“…likely to complete further self-assessment tax returns. This is not a “one-off” case.”