PLN Analysis
PLN Analysis
Auxilium Project Management Limited v HMRC
This case provides important guidance on how the Tribunal approaches allegations of deliberate penalties. Five critical points emerge from the decision.
1. Definition of Deliberate Inaccuracy
A person commits a deliberate inaccuracy when they know that a document contains an error at the time of its completion. The inaccuracy must be intentional – an honest mistake, however careless, does not meet the threshold for deliberateness.
2. Burden of Proof
The burden of proving that an inaccuracy was deliberate falls on HMRC. It is not for the taxpayer to prove that the inaccuracy was innocent – HMRC must establish that it was intentional.
3. Balance of Probabilities
The standard of proof is the balance of probabilities. HMRC must show that it is more likely than not that the inaccuracy was deliberate.
4. Post-Event Conduct
The Tribunal may consider post-event conduct when assessing whether an inaccuracy was deliberate. How the taxpayer responded after the error came to light can be relevant to determining their state of mind at the time the document was completed.
5. Subjective Assessment
The assessment of deliberateness is subjective. The Tribunal considers the individual circumstances of the person concerned, not what a hypothetical reasonable person might have done.
The Case: Ms Gillian Edgar
Ms Gillian Edgar, director of Auxilium Project Management Limited, omitted output VAT from invoice payments. HMRC alleged the inaccuracy was deliberate and issued penalties accordingly.
The Tribunal found that this was an honest mistake and not a deliberate act. Full mitigation was applied, and the penalty was reduced to zero.
Contact
For further information, contact Liban Ahmed, Director (Serious Tax Disputes), on 07738 666548 or at liban@ctmlaw.co.uk.
Frequently asked questions
What is a deliberate inaccuracy for HMRC penalty purposes?
A person commits a deliberate inaccuracy when they know that a document contains an error at the time of its completion. The inaccuracy must be intentional. An honest mistake, however careless, does not meet the threshold for deliberateness, as set out in Auxilium Project Management Limited v HMRC.
Does the taxpayer have to prove a mistake was innocent?
No. The burden of proving that an inaccuracy was deliberate falls on HMRC, not on the taxpayer. The standard of proof is the balance of probabilities, so HMRC must show that it is more likely than not that the inaccuracy was deliberate rather than an honest mistake.
Can conduct after an error is discovered affect a deliberate penalty?
Yes. The Tribunal may consider post-event conduct when assessing whether an inaccuracy was deliberate. How the taxpayer responded after the error came to light can be relevant to determining their state of mind at the time the document was completed.
Is the test for deliberate behaviour subjective or objective?
The assessment of deliberateness is subjective. The Tribunal considers the individual circumstances of the person concerned rather than what a hypothetical reasonable person might have done. In Auxilium Project Management Limited v HMRC, the Tribunal found the director's omission of output VAT was an honest mistake, and the penalty was reduced to zero.
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