Relying on an Agent
Relying on an Agent
CTM successfully appealed a careless penalty at the Tax Tribunal on behalf of a taxpayer whose accountant had made an error. The central issue was whether the penalty should apply to the agent rather than the taxpayer.
The Reasonableness Standard
When a taxpayer relies on a professional agent, the reasonableness standard considers the length and nature of the professional relationship and the complexity of the tax matter involved. HMRC must prove carelessness on the part of the taxpayer, and carelessness in this context is equated with negligent conduct.
The Case
The appellant had received loan notes from selling their business, resulting in capital gains of £1.26 million. Their accountant firm, Clarke Broome Fleming, advised that holdover relief applied to the transaction. This advice was incorrect.
HMRC imposed a penalty of £14,365.56 on the basis that the taxpayer had been careless in submitting an inaccurate return.
Tribunal Decision
The Tribunal cancelled the £14,365.56 penalty in its entirety. The key findings were that the taxpayer had taken reasonable care by:
- Instructing a reputable and longstanding firm of accountants
- Providing complete and accurate information to their advisers
- Receiving specialist advice on the tax treatment of the transaction
The Tribunal found that the taxpayer was entitled to rely on the professional advice received and that the error was attributable to the agent, not the taxpayer.
HMRC’s Own Guidance
It is important to note that HMRC’s own guidance acknowledges the role of agents. However, their guidance also states that a taxpayer cannot simply appoint an agent and then deny all responsibility for the accuracy of their tax affairs. There must be a genuine and reasonable reliance on competent professional advice.
In this case, the Tribunal was satisfied that the taxpayer had done everything that could reasonably be expected of them, and the penalty was therefore not justified.
Frequently asked questions
Can I be penalised for a mistake made by my accountant?
Not necessarily. In a case CTM appealed, the Tribunal cancelled a careless penalty of £14,365.56 because the taxpayer had taken reasonable care and was entitled to rely on professional advice, so the error was attributable to the agent. However, HMRC's guidance states that a taxpayer cannot simply appoint an agent and then deny all responsibility.
Who has to prove carelessness for a careless penalty?
HMRC must prove carelessness on the part of the taxpayer, and in this context carelessness is equated with negligent conduct. Where the taxpayer relied on a professional agent, the reasonableness standard considers the length and nature of the professional relationship and the complexity of the tax matter involved.
What counts as reasonable care when relying on an accountant?
In a Tribunal case involving incorrect holdover relief advice, the taxpayer was found to have taken reasonable care by instructing a reputable and longstanding firm of accountants, providing complete and accurate information to their advisers, and receiving specialist advice on the tax treatment of the transaction. The taxpayer was entitled to rely on that advice.
What was the holdover relief error in this careless penalty case?
The taxpayer received loan notes from selling their business, resulting in capital gains of £1.26 million. Their accountants, Clarke Broome Fleming, advised that holdover relief applied to the transaction, which was incorrect. HMRC imposed a £14,365.56 penalty for an inaccurate return, but the Tribunal cancelled it in its entirety.
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