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HMRC can misuse carelessness as an argument for penalties

John Cassidy, Partner, Tax Resolutions
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During discussions on discovery assessments and penalty negotiations, HMRC often argues that the taxpayer or his/her agent has acted carelessly, justifying the assessment or penalty. HMRC may try and paint a picture of general carelessness to illustrate the point. However, that is not good enough, as the alleged carelessness must be focussed.

A careless penalty for an inaccurate tax return can only be levied if the carelessness is directly linked to the preparation of that return. Carelessness before that, such as not properly reading or signing contracts with customers or suppliers, or after that, perhaps when providing lax responses to HMRC enquiry letters, is not relevant. This is often overlooked by HMRC and advisors alike, and general carelessness becomes accepted as sufficient to stop any argument as to the validity of the penalty or assessment.

The point is best illustrated by quotes from the Judges in two Tribunal cases where we were the lead advisor. The first concerning penalties, the second concerning discovery assessments issued more than four years after the tax year in question.

Anthony Bayliss: "However, our task is not to decide whether the appellant was negligent in the abstract. The question is whether he negligently filed an incorrect return within s 95(1) TMA. So we need to focus on the error in the return and whether the appellant was negligent in making that error”.

John Hicks: "The issue is not whether Mr Hicks…was careless in general or in the abstract, but whether their failure to take reasonable care brought about the insufficiency in the return for 2008-09".

How Crowe can help

Penalty and discovery rules are extremely complex, made more difficult by the added ingredient of whether the behaviour was careless and, if so, who was careless. Our multi-award winning tax resolutions specialists can help you and your clients faced with such challenges from HMRC.

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John Cassidy
John Cassidy
Partner, Tax Resolutions