Jaroslaw Krason v The Commissioners for HMRC [2026] UKFTT 675 (TC)

[2026] UKFTT 00675 (TC)Case No TC 09876
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on 29 April 2026Date Judgment date: 07 May 2026
At Taylor House, London
Appeal reference: TC/2022/11066
INCOME TAX – penalties – whether deliberate and concealed – no – whether careless – reliance on trusted qualified accountant – appeal allowed and penalties cancelled
Before
TRIBUNAL JUDGE ANNE REDSTON
Between
JAROSLAW KRASONAppellantTHE COMMISSIONERS FORRespondentHIS MAJESTY’S REVENUE AND CUSTOMSRespondentThe Appellant in person for in personMr Paul Marks, litigator of HM Revenue and Customs’ Solicitor’s Office for RespondentsDECISION

Introduction

[1]This was Mr Krason’s appeal against penalties of £224,750, charged on the basis that his behaviour had been “deliberate and concealed”. Mr Marks submitted in the alternative that Mr Krason had acted carelessly.[2]For the reasons explained below. I found that Mr Krason did not act deliberately or carelessly. His appeal is therefore allowed and the penalties cancelled.

The evidence

[3]The Tribunal was provided with a document bundle of over 900 pages; Mr Krason provided a few more pages at the hearing. Mr Marks did not object to those documents and I admitted them into evidence.[4]Mr Krason gave oral evidence, was extensively cross-examined by Mr Marks and answered questions from the Tribunal. He had previously given oral evidence at an earlier strike-out hearing before me, at which Mr Marks also represented HMRC. That evidence was recorded in the decision notice and was taken as read for the purposes of this hearing. Mr Krason was an entirely honest and credible witness, and I accepted his evidence.[5]Mr Michael Shannon, the HMRC investigating officer, provided a witness statement and gave oral evidence. Most of his evidence summarised the correspondence in the documents bundle. He also gave his reasons for having decided that Mr Krason had acted deliberately and with concealment. In relation to the former, his evidence reflected the documents; in relation to the latter, the question as to whether or not Mr Krason had acted deliberately was to be decided by the Tribunal.[6]On the basis of the evidence, I make the findings of fact set out in this decision.

Findings of fact

[7]I begin with general findings about Mr Krason, and then make more particular findings about the tax arrangements into which he entered and what happened as the result of HMRC’s investigation and the subsequent appeals.

General findings

[8]Mr Krason is Polish dentist. He moved to the UK at the end of 2004, and worked with Nationwide Healthcare Providers Ltd, which is based in Nottingham. Mr Krason was one of a number of Polish dentists working in the same part of the country. His language skills were good enough to work here, but as English is not his native language he is not entirely fluent: in particular, he finds complex language difficult. He has no financial or business knowledge: as he put it, “I know about tooth decay, not about financial things”.[9]Shortly after his arrival in the UK, he was told by Polish colleagues that they used a firm of accountants called Moor Green & Co (“Moor Green”) based in Birmingham. Moor Green was owned and operated by a Mr Masoud Davood, who had previously worked for HMRC. I had no information as to how many people were employed by Moor Green at the relevant times, but as Mr Krason’s main interactions were with Mr Davood himself, references in this decision to Mr Davood and/or to Moor Green are to be read as essentially synonymous.[10]At all relevant times, Moor Green was a member of the Association of Certified Public Accountants; the Association of International Accountants; the Institute of Financial Accountants and the Association of Accounting Technicians, among others.[11]Moor Green did the accounts and self-assessment (“SA”) tax returns tor Mr Krason and his colleagues for many years on a completely straightforward basis. Mr Krason trusted Mr Davood and his firm because he was a professional, qualified in both accounting and in tax. Mr Krason thought he was “safe and in good hands”, given that Mr Davood had worked for HMRC and was currently a member of so many professional tax and accountancy bodies. Mr Krason continued to trust Mr Davood at least until after the first strike out hearing, about which I make findings at §31 below.[12]On 30 December 2012, Moor Green emailed Mr Krason a copy of his accounts for the year to 5 April 2012 and a copy of a draft 2011-12 SA return. The email instructed Mr Krason to sign both documents under his typed name. The draft SA return included profits of £116,170 after various costs including “other business expenses” of £3.325. Mr Krason signed the SA return and sent it back to Moor Green.[13]At or around the same time, Mr Davood told Mr Krason that he was currently paying too much tax, but if he wanted to reduce it, he would need to come to his office to sign some documents. Mr Krason asked Mr Davood whether this was all above board and legitimate, and Mr Davood assured him it was.[14]Mr Krason was also told by his dentist colleagues that Mr Davood had significantly reduced the tax they had to pay. Mr Krason asked his colleagues if the reductions were legitimate, and they said this was the case.

What Mr Davood said, and what Mr Krason signed

[15]Mr Krason travelled to Birmingham to meet Mr Davood. At the meeting Mr Davood told Mr Krason that:(1) he could significantly reduce his tax payable by using an entirely legitimate trust structure. Mr Krason did not understand what a trust was, as the concept does not exist in Polish law, but Mr Davood explained that it is a structure which allows people legally to reduce their taxes; he told Mr Krason that these arrangements have long been used by “special people” such as MPs;(2) Mr Krason would be required to make a monthly contribution of 11% of his gross earnings. Mr Krason understood that this was his contribution to the trust. That remained his understanding until this hearing, because (as Mr Marks accepted) some of the documentation provided referred to the 11% as his contribution. For example, the email from Moor Green attached to his 2012-13 SA return, sent to him on 9 May 2013, said “your contribution to the Remuneration trust is based on £122780 @ 11% = £13505.80 plus £200 annual fee = £13,705”; and(3) the 11% was significantly less than the tax he was currently paying on his income. Mr Krason understood from this that the 11% would be paid to HMRC.[16]In fact, none of the above was correct:(1) The arrangements were a complex tax avoidance structure involving loans and an offshore trust, devised by Baxendale Walker Ltd.(2) The 11% was not a contribution to the trust, but a fee to the operators of the structure, including Baxendale Walker Ltd and Minerva Services Ltd, a Belize company.(3) The 11% was not tax and was not paid to HMRC.[17]Mr Davood told Mr Krason that in order to enter into the arrangement, he would have to sign certain documents and set up a “personal management company” or “PMC”; he would also need to set up a bank account for the PMC. Mr Davood asked Mr Krason what name he would give to the PMC, and Mr Krason said “Katarzyna Ltd”. In addition, Mr Davood also told Mr Krason that on entering the structure, HMRC would almost immediately make a significant payment to Mr Krason.

What happened subsequently

[18]Mr Davood provided Mr Krason with a package of documents headed “Umbrella Remuneration Trust”, which ran to many pages of closely typed text. Mr Krason did not understand the documentation, which was in difficult English, and included terms such as “fiduciary services agreement”. Mr Krason signed the documents where Mr Davood indicated, including a page which headed Katarzyna Ltd, which said that a sum of £116,607 had been lent to Mr Krason from Katarzyna Ltd on 5 April 2012 for five years (“the 2012 Document”). Another document was a form headed “authorisation to instruct Baxendale Walker LLP” which read:
“I…herby instruct Minerva Services Ltd to instruct Baxendale Walker LLP on my behalf in respect of dealings with HMRC relating to any taxable matters concerning my remuneration trust arrangements.”
[19]Moor Green subsequently amended the 2011-12 tax return which Mr Krason had already signed, so as to increase the “other business expenses” from £3,325 to £119,932, and this return was filed with HMRC. Mr Krason’s unchallenged evidence was that he was not provided with that amended return, and he did not know until the hearing that the return filed on his behalf was not the one he had signed.[20]Mr Krason’s consistent evidence was that he did not understand the 2012 Document, which was one of several he was required to sign “in order to start the trust”, and that he did not know until the hearing that it was the 2012 Document which underpinned the change to his tax return (of which he was also unaware until the hearing).[21]Although Mr Marks cross-examined Mr Krason extensively on that evidence, I find it to be entirely credible and consistent with the following:(1) the complex nature of those documents;(2) Mr Krason’s ignorance of financial matters generally and about the concept of a trust;(3) the fact that English was not his native tongue; and(4) Mr Krason’s complete trust in Mr Davood as an expert in the field of taxation, founded on his professional qualifications, his previous HMRC employment and Mr Krason’s seven previous years of experience using Moor Green to draw up his accounts and file his tax returns.[22]Shortly after the amended 2011-12 return had been filed, HMRC paid £45,412 to Mr Krason. Mr Krason saw this as confirmation of what he had been told by Mr Davood about the scheme’s legitimacy. In fact it was a refund of his earlier payments on account, which had been triggered by Moor Green’s filing of the amended return.[23]On 15 January 2013, Mr Krason set up his PMC, Katarzyna Ltd, and he subsequently opened a bank account for that company with NatWest. It was common ground that apart from the 11% (and a small fixed annual charge), no money was moved to a trust from bank accounts under Mr Krason’s control. Money paid into the NatWest account of Katarzyna Ltd was paid back to Mr Krason’s personal account.[24]Mr Krason remained in the scheme until 2017-18; he was required to sign similar but not identical documents each year and he did so.

The investigation

[25]On 10 January 2018, Mr Shannon issued Mr Krason with a letter under Code of Practice 9 (“COP 9”) on the basis that he was suspected of committing tax fraud. Attached to the letter was a “Contractual Disclosure Facility” or CDF contract.[26]Mr Krason was shocked; he spoke to Mr Davood, who said that HMRC were “absolutely wrong”; that Moor Green had instructed a barrister who “will save everything and it will all be fine”. Moor Green initially instructed Mr Howard of Counsel, who advised Mr Krason not to sign the CDF.[27]Although Mr Shannon copied Mr Krason on his subsequent correspondence with Moor Green, all responses were from Moor Green. This was in accordance with the Authorisation he had previously signed. From time to time Mr Krason was asked to sign letters to HMRC written by Moor Green, which he did.[28]On 5 September 2018, HMRC issued a Notice under FA 2008, Sch 36 which required the provision of Mr Krason’s bank statements. Moor Green asked Mr Krason for copies, which he provided. On 12 October 2018, Moor Green provided those statements to HMRC in heavily redacted form; they showed only the fees paid for the Scheme, and not the amounts being paid back to Mr Krason from Katarzyna Ltd . Moor Green carried out the redactions without explaining to Mr Krason the basis on which they had been made. I return to these redacted statements at §54(2), §59 and §60(3) below.

The assessments

[29]On 18 December 2019, Mr Shannon issued discovery decisions for 2011-12 to 2015-16, disallowing the deductions and increasing the tax payable. On 17 January 2020, Moor Green appealed on Mr Krason’s behalf against those decisions. Following a statutory review, Moor Green notified Mr Krason’s appeal to the Tribunal on 20 July 2020.[30]On 9 September 2020, Mr Shannon issued closure notices for 2016-17 and 2017-18, and on 7 December 2020, the penalties which are at issue in this hearing; these were charged under FA 2008, Sch 24 on the basis that Mr Krason had acted deliberately and with concealment, and that a penalty percentage of 66% was applicable. The sums assessed were as follows: Year £ 2011 -12 41,276 2012 -13 40,978 2013 -14 35,794 2014 -15 30,985 2015 -16 27,111 2016 -17 26,240 2017 -18 22,366 £224,750[31]The closure notices and penalties were appealed and notified to the Tribunal. Moor Green instructed Mr Setu Kamal of Counsel. As Moor Green was Mr Krason’s representative at the Tribunal, correspondence after his appeal was between Moor Green and the Tribunal; the Tribunal does not write directly to the litigant when there is a representative.

The first strike out hearing

[32]At some point before February 2022, HMRC applied to strike out the appeals against the discovery assessments. There was a hearing of that strike out application before Judge Anne Scott on 2 February 2022, at which Mr Kamal represented Mr Krason and two other Polish dentists, Ms Kondrat Wilk and Mr Cajdler, who had entered the same scheme following advice from Mr Davood, Judgment was given on 14 September 2022 in favour of HMRC; three separate decision notices were published, that for Mr Krason was issued under reference [2022] UKFTT 00341 (TC).[33]Mr Krason was told very little about what was happening, and was not asked by Moor Green to give witness evidence or to attend the hearing. He was, however, asked to pay fees to Moor Green and Mr Kamal and he paid those fees.[34]Mr Krason returned to Poland to care for his elderly and sick mother, with whom he had a joint bank account. HMRC asked the Polish tax authorities to collect the debt due following the strike out of the appeals against the discovery assessments: with interest this was over £200,000. The Polish authorities froze all Mr Krason’s bank accounts, including the joint account with his mother. He was given very little time to raise funds, which he did by selling his home and his car.

The second strike out hearing

[35]HMRC then applied to strike out Mr Krason’s appeals against the closure notices and the penalties. That hearing was listed on 29 October 2025 before me. Mr Kamal said it would cost Mr Krason a further £12,000 to represent him, which Mr Krason could not afford to pay: he was living on a pension and caring for his mother who by now was terminally ill.[36]The second strike-out hearing was therefore attended by Mr Krason as a litigant in person; he explained the background and reasons why he had entered the scheme. Having heard from Mr Krason and from Mr Marks on behalf of HMRC:(1) I directed that there be a separate hearing of Mr Krason’s penalty appeal; this is that hearing. and(2) I struck out the appeals against the closure notices; the extra tax was £56,525.81.[37]At the end of the hearing:(1) HMRC asked Mr Krason to provide a letter of authority allowing them to access to his bank accounts. Mr Krason willingly agreed; this was sent to HMRC who thereby obtained unredacted copies of his statements; and(2) Mr Krason asked Mr Marks how much more he had to pay as a result of the strike out, and Mr Marks said that it was around £57k. However, Mr Shannon subsequently told him that he had to pay £164k on top of what he had already paid. Mr Krason was shocked: he did not understand how that figure had been arrived at, but he trusted Mr Shannon to have given him the correct figure.[38]Mr Krason then called HMRC from Poland three times; twice the call was ended without anyone picking up. On the third occasion he reached HMRC’s debt management team and subsequently agreed a payment plan. This required him to pay HMRC the £30k which remained of his savings, plus a monthly amount of £1,200 for the next ten years (when Mr Krason will be seventy years of age). In order to pay those monthly amounts, Mr Krason has returned to work; the payment plan leaves him with £150 pcm to live on.[39]For Mr Krason, entering the scheme was “the biggest mistake of [his] life” and “a nightmare”; the consequences have damaged his health and destroyed his financial security.

The costs

[40]In the meantime, on 12 October 2022, HMRC had applied for their costs of the first strike out hearing. That application was determined by Judge Dean on 23 January 2026, ie after the second strike out hearing but before this hearing; it was not published but was handed up to me.[41]HMRC had claimed costs on the basis that Mr Krason and the other two Polish dentists, Ms Kondrat Wilk and Mr Cajdler, had acted unreasonably, as had Mr Kamal and Moor Green; Mr Marks said that HMRC’s application thus related to both unreasonable behaviour by the appellants and wasted costs. Judge Dean concluded that it was “appropriate to make an award of costs in principle against the three appellants” but directed that they be subject to detailed assessment if not agreed.[42]At some point after the publication of that decision but before this hearing, HMRC wrote to Mr Krason saying he owed legal costs of £11k. Mr Krason was surprised and dismayed to have yet another figure added to the amounts he owed. HMRC did not tell him that he could challenge that sum, but he was informed that HMRC would settle for a reduced figure of £9k. He agreed to that additional amount being added to his debt.

Whether Mr Krason acted deliberately

[43]HMRC’s primary case was that Mr Krason acted deliberately and with concealment, and that as a result the penalties charged by Mr Shannon under FA 2008, Sch 24 should be upheld.

The legislation

[44]FA 2008, Sch 24 para 1 includes the following provisions: “(1) A penalty is payable by a person (P) where—(a) P gives HMRC a document of a kind listed in the Table below, and(b) Conditions 1 and 2 are satisfied. (2) Condition 1 is that the document contains an inaccuracy which amounts to, or leads to— (a) an understatement of 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 (within the meaning of paragraph (3) or deliberate on P’s part.” (a) P gives HMRC a document of a kind listed in the Table below, and (b) Conditions 1 and 2 are satisfied. (a) an understatement of liability to tax, (b) a false or inflated statement of a loss or (c) a false or inflated claim to repayment of tax.[45]The “table below” includes as the first item listed, a self-assessment return.[46]FA 2008, Sch 24 para 3(1) reads:
“For the purposes of a penalty under paragraph 1, inaccuracy ina document given by P to HMRC is— (a) “careless” if the inaccuracy is due to failure by P to take reasonable care, (b) “deliberate but not concealed” if the inaccuracy is deliberate on P's part but P does not make arrangements to conceal it, and (c) “deliberate and concealed” if the inaccuracy is deliberate on P's partand P makes arrangements to conceal it (for example, by submitting falseevidence in support of an inaccurate figure).”

The case law

[47]In HMRC v Tooth [2021] UKSC, the Supreme Court held at [47] that:
“…for there to be a deliberate inaccuracy in a document within the meaning of section 118(7), there will have to be demonstrated an intention to mislead the Revenue on the part of the taxpayer as to the truth of the relevant statement or perhaps, (although it need not be decided on this appeal) recklessness as to whether it would do so.”
[48]That passage concerns TMA s 118(7), but the Supreme Court held at [45] that FA 2008, Sch 24 contains the “same concept of deliberate inaccuracy”.[49]In CF Booth Ltd v HMRC [2022] UKUT 217 (TCC), the Upper Tribunal (“UT”) expressly approved the following passage from the earlier First-tier Tribunal (“FTT”) judgment in Auxilium Project Management Ltd v HMRC [2016] UKFTT 249 (TC) (“Auxilium”) at [63]:
“…a deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. This is a subjective test. The question is not whether a reasonable taxpayer might have made the same error or even whether this taxpayer failed to take all reasonable steps to ensure that the return was accurate. It is a question of the knowledge and intention of the particular taxpayer at the time.”
[50]In CPR Commercials v HMRC [2023] UKUT 61 (TCC) at [23], the UT held as follows:
“In our view, where a taxpayer suspects that a document contained an inaccuracy but deliberately and without good reason chooses not to confirm the true position before submitting the document to HMRC then the inaccuracy is deliberate on the part of the taxpayer. If it were otherwise then a person who believed there was a high probability that their return contained errors but chose not to investigate would never be subject to a deliberate penalty. However, the suspicion must be more than merely fanciful. Lord Scott of Foscote urged caution in this context in Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2001] UKHL 1 at [116] [“Manifest Shipping”]: “In summary, blind-eye knowledge requires, in my opinion, a suspicion that the relevant facts do exist and a deliberate decision to avoid confirming that they exist. But a warning should be sounded. Suspicion is a word that can be used to describe a state-of-mind that may, at one extreme, be no more than a vague feeling of unease and, at the other extreme, reflect a firm belief in the existence of the relevant facts. In my opinion, in order for there to be blind-eye knowledge, the suspicion must be firmly grounded and targeted on specific facts. The deliberate decision must be a decision to avoid obtaining confirmation of facts in whose existence the individual has good reason to believe. To allow blind-eye knowledge to be constituted by a decision not to enquire into an untargeted or speculative suspicion would be to allow negligence, albeit gross, to be the basis of a finding of privity.” “In summary, blind-eye knowledge requires, in my opinion, a suspicion that the relevant facts do exist and a deliberate decision to avoid confirming that they exist. But a warning should be sounded. Suspicion is a word that can be used to describe a state-of-mind that may, at one extreme, be no more than a vague feeling of unease and, at the other extreme, reflect a firm belief in the existence of the relevant facts. In my opinion, in order for there to be blind-eye knowledge, the suspicion must be firmly grounded and targeted on specific facts. The deliberate decision must be a decision to avoid obtaining confirmation of facts in whose existence the individual has good reason to believe. To allow blind-eye knowledge to be constituted by a decision not to enquire into an untargeted or speculative suspicion would be to allow negligence, albeit gross, to be the basis of a finding of privity.”

HMRC’s case

[51]Mr Marks submitted that Mr Krason acted deliberately:(1) when he signed the 2012 Document which underpinned the “other business expenses” figure in the 2011-12 SA return; and(2) by including incorrect figures for “other business expenses” in his SA returns for 2012-13 through to 2017-18.[52]In relation to the former, Mr Marks said that the 2012 Document referred to a loan made by Katarzyna Ltd in 2012, before that company had been incorporated, and that as Mr Krason knew that Katarzyna Ltd did not exist in 2012, he also knew when he signed it that that the 2012 Document was incorrect.[53]However, I have already found as a fact, for the reasons given at §21, that Mr Krason did not understand the 2012 Document. In addition, as Mr Marks accepted, Mr Krason did not know Moor Green had relied on the 2012 Document when filing the 2011-12 return (with its higher figure for other business expenses). As the FTT said in Auxilium, whether a person acts deliberately is “a question of the knowledge and intention of the particular taxpayer at the time”. Mr Krason did not intend to mislead HMRC as to the truth of the figure in his 2011-12 return, because(a) he did not understand the 2012 Document; and(b) did not know Moor Green had changed his 2011-12 return to include a higher figure for other business expenses in reliance on the 2012 Document. I therefore find that Mr Krason did not act deliberately when he signed the 2012 Document.[54]In relation to the other years, Mr Marks submitted that Mr Krason either(a) knew that the “whole thing was a paper fraud” which did not work, but participated in it regardless, or(b) had suspicions (sufficient to amount to blind eye knowledge) that it did not work. Mr Marks supported those submissions by saying that Mr Krason: (1) must have realised that: (a) the money claimed in his SA return as other business expenses was not an expense of his business; and (b) the money which went into and out of the Katarzyna Ltd bank account could not have had the effect of creating a business expense; (2) although Mr Krason had asked Mr Davood if the scheme was legitimate, he received “nothing in writing”, and (3) he went ahead with the scheme without asking “questions…which would have enabled him to understand how the scheme worked”.[55]Mr Marks added that providing redacted bank statements, which hid the circular movement of funds, was evidence that Mr Krason was concealing the truth of what had happened.

Mr Krason’s response

[56]Mr Krason vehemently denied that he knew that the scheme did not work, or that he had suspicions but deliberately did not seek to find out whether his suspicions were correct. He had asked Mr Davood “several times if he was sure it was right and legal” but Mr Davood invariably replied that the arrangement were legitimate. Although Mr Krason accepted under cross-examination that it did seem “too good to be true”, he reiterated that at the relevant time he accepted Mr Davood’s repeated reassurances that the arrangements were “right and legitimate”.[57]When asked by Mr Marks why he did not ask questions about the increase in the “other business expenses” figure in his SA return, Mr Krason said he did not understand how the figures in his SA were derived, and had always trusted Moor Green to provide his annual accounts and returns.[58]Mr Marks also suggested to Mr Krason that he did not ask questions because he didn’t want to “lose out” when compared to his colleagues. Mr Krason readily accepted that he was aware that his colleagues were in the same trust arrangement and he wanted to participate, but was emphatic that he would never have entered the scheme had he thought it was not legitimate.[59]In relation to the redacted bank statements, Mr Krason accepted that he knew from a letter sent by Mr Shannon (on 25 January 2019) that Moor Green had redacted the statements he had provided. Mr Krason thought the redactions had been carried out because this was “the procedure” required when providing documents to HMRC.

The Tribunal’s view

[60]I have no hesitation in finding as facts that:(1) Mr Krason did not know the scheme did not work. That finding is consistent with: (a) his shock when he received the COP9 letter; (b) his lack of financial and business knowledge; (c) his belief, which he still held at this hearing, that the 11% was his “contributions” to the trust and that it would be paid to HMRC; and (d) his complete trust in Mr Davood, his long-standing accountant and tax adviser, who confidently and repeatedly reassured him that it was legitimate.(2) Mr Krason did not understand how the arrangements worked; he did not know the source of the figures on his SA return or how the entries linked to the trust; he did not (a) have a suspicion which was “firmly grounded and targeted on specific facts” or (b) make a decision to avoid obtaining confirmation of those facts, see Manifest Shipping. He therefore did not have “blind eye” knowledge.(3) The redactions were not carried out by Mr Krason or at his direction, and he did not know that one of the effects was to hide the circular nature of some payments. This finding of fact is consistent not only with his lack of understanding as to how the arrangement worked, but also with his agreement at the end of the second strike out hearing that he would provide HMRC with authority to access to his bank accounts. He did not have to provide that authority, but did so willingly and without hesitation. It was that which allowed HMRC to see the circular movement of the funds.[61]It follows that Mr Krason did not act deliberately, and the inaccuracy was not “deliberate and concealed”.

Carelessness

[62]HMRC submitted, in the alternative, that Mr Krason acted carelessly.

The case law

[63]In HMRC v Hicks [2020] UKUT 12 (TCC), the UT held at [120] that:
“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.”
[64]In Christine Perrin v HMRC [2018] UKUT 0156 (TCC)at [81], the UT said that in deciding whether a person had a “reasonable excuse”, the FTT should:
“,,,decide whether, viewed objectively [the] proven facts do indeed amount to an objectively reasonable excuse for the default and the time when that objectively reasonable excuse ceased. In doing so, the Tribunal should take into account the experience and other relevant attributes of the taxpayer and the situation in which the taxpayer found himself at the relevant time or times. It might assist the Tribunal, in this context, to ask itself the question “was what the taxpayer did (or omitted to do or believed) objectively reasonable for this taxpayer in those circumstances?”
[65]In Hextall v HMRC [2023] UKFTT 00390 (TC) at [74], the FTT (Judge Sinfield and Mr Howard) held at [74] that there was no “meaningful distinction” between the two criteria of “reasonable care” and “reasonable excuse”. I agree: in both the FTT must find the facts, and then on the basis of those facts, determine whether the taxpayer acted as a prudent and reasonable taxpayer (who was in the same situation as the taxpayer and who had same experience and relevant attributes) would have acted.

HMRC’s submissions

[66]HMRC submitted that Mr Krason was careless for the following reasons:(1) he did not obtain any written advice concerning the transactions, and the reasonable person would have done this “to protect his position” or “to cover himself”;(2) he did not consult a lawyer when Mr Davood gave him details of the scheme;(3) he did not attempt to understand what he was doing so he could satisfy himself that it was a legitimate scheme, and in particular: (a) did not compare the 11% he was paying, to other information about the scheme, and had he done so this would have shown that he had misunderstood the term “contributions”; (b) he did not question how the scheme could possibly work when no monies existed within the PMC which could be loaned to him; he should have questioned how it was still a trust contribution if one immediately withdrew the money back after making the payment to the PMC; and(4) he should have checked his SA returns and asked questions about the other business expenses.

Mr Krason’s submissions

[67]Mr Krason reiterated the points he had previously made, about his overall lack of understanding about tax and accounting generally and about the arrangements in particular, and as to his reliance on Mr Davood and Moor Green. He responded to Mr Marks’ critique of the documents by saying “for you it was obvious but not for me – I was completely lost in all of it”.

The Tribunal’s view

[68]The starting point is Mr Krason’s position, in other words, his experience and other relevant attributes and his situation. Of the findings of fact already made, the following are relevant:(1) Mr Krason is Polish; although he has a good working command of English, it is not his native language.(2) He had no financial or business knowledge; he knew about dentistry, not about tax, accountancy or running a business.(3) He was introduced to Mr Davood and Moor Green soon after arriving in the UK; he trusted Mr Davood to prepare his accounts and SA returns, because Mr Davood previously worked for HMRC and was accredited by numerous professional bodies.(4) Mr Davood and his firm prepared Mr Krason’s accounts and SA returns in a perfectly straightforward way for seven years: from 2005 to the end of 2012. Mr Krason’s trust in Mr Davood was cemented by that experience.(5) Mr Davood told Mr Krason that the trust arrangements were legitimate and used by many others, including MPs, and Mr Krason believed Mr Davood.(6) Mr Krason was not able to understand the trust documentation which was in complex English containing many difficult terms. He signed the documents because Mr Davood told him this was necessary to allow him to benefit from the arrangements.[69]Although after the relevant period, the same lack of financial knowledge and business acumen can be seen in the following:(1) Mr Krason was not able to understand why, after the second strike out hearing which had related to closure notice amendments of less than £57k, he owed HMRC £164k, almost three times the amount in issue at the hearing, but he nevertheless trusted Mr Shannon and agreed a related payment plan; and(2) he did not challenge HMRC when they told him he owed costs of £11k relating to the first strike out hearing, despite (a) his non-attendance at the hearing and (b) the lack of an order from the FTT to pay that sum (Judge Dean did not make a costs award).[70]The next question is how the reasonable taxpayer in Mr Krason’s position would have acted. I set out below HMRC’s submissions in italics, followed by my view.(1) The reasonable taxpayer would have obtained a written description of the scheme “to protect his position” or “to cover himself”. However, the reasonable taxpayer in Mr Krason’s position would not have considered there was any reason to “to protect his position” or “to cover himself” because he trusted Mr Davood. In addition, he was provided with documentation; it was not the case that all communications were oral.(2) The reasonable taxpayer would have consulted a lawyer to check that the arrangements worked. I disagree. The reasonable taxpayer in Mr Krason’s position had no reason not to trust and rely on Mr Davood, who held himself out as a recognised tax expert as a previous HMRC employee and as the member of numerous professional bodies; by the time he encouraged Mr Krason to enter into these arrangements, he had already prepared Mr Krason’s tax returns for seven years.(3) The reasonable taxpayer would have attempted to understand the scheme generally and in particular what was meant by “contributions” and how his PMC worked. It is clear from the facts already found that the reasonable taxpayer in Mr Krason’s position had no financial knowledge or business acumen. That reasonable taxpayer, like Mr Krason, would have been unable to understand the scheme, and would instead have relied on his trusted accountant. That is true also of the details to which attention was drawn during the hearing by Mr Marks, namely the contributions and the role of the PMC.(4) The reasonable taxpayer would have checked his SA returns and realised that the “other business expenses” could not be correct. The reasonable taxpayer with Mr Krason’s lack of understanding of tax and accounting could not check his returns so as to realise that the “other business expenses” were incorrect. That reasonable taxpayer, with no knowledge of tax and no grasp of financial matters, would have relied on qualified skilled professionals. That is exactly what Mr Krason did. Unfortunately, his trust in Mr Davood was misplaced, but that does not mean it was unreasonable.

Conclusion

[71]FA 2008, Sch 24 para 17(2)(b) provides that, when a person appeals against a penalty, the Tribunal may “substitute for HMRC’s decision another decision that HMRC had power to make”. HMRC issued the penalty decision on the basis that Mr Krason acted deliberately and with concealment. For the reasons given above, I substitute the decision that no penalties are due because Mr Krason did not act deliberately, with concealment, or carelessly.[72]I therefore allow Mr Krason’s appeal against the penalties, which are set aside (in other words, cancelled).

Appeal rights

[73]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.

Other matters

[74]I was the judge in the second strike out hearing, which concerned a sum of less than £57k. I am concerned that it had apparently resulted in a debt due from Mr Krason of £164k. By 28 days from the date of issue of this judgment, HMRC are to provide the Tribunal with an explanation in ordinary language (so Mr Krason can understand it) as to how that sum has been arrived at, and to copy that to Mr Krason. HMRC are to ensure that Mr Krason’s copy makes it absolutely clear that the letter is an explanation for the £164k which he was previously told by Mr Shannon was due, and that it is not a requirement to pay further sums to HMRC.[75]Although I fully acknowledge that I have no jurisdiction in relation to the costs amount of £9k, I invite HMRC to review their decision to seek that sum from Mr Krason, because:(1) no costs award was in fact made by the FTT;(2) had a costs award been made, the quantum of that award could not have been determined until Mr Krason’s financial means had been considered, see Rule 5(b), and no such information was before the FTT. That information would have shown that Mr Krason was surviving on only £150 pcm after selling his house, his car, and making a payment plan with HMRC to pay £1,200 month for the next decade (ie until he is seventy years old), and that he has returned to work after retirement, in order to repay that amount.(3) Mr Krason was not told by Mr Davood or by Mr Kamal that he could give evidence at the hearing and he did not attend;(4) although reference is made in the costs decision to Mr Krason having been invited to make representations, no communications went directly to him; they all went to Moor Green who was on the record for the purposes of the proceedings; and(5) the time spent by HMRC in dealing with the first strike out was caused by actions taken by Mr Kamal and Moor Green; as Mr Marks said, those are properly wasted costs. Release date: 07 May 2026