A tax barrister has won part of an appeal against three penalties for inaccuracies, after a First Tier Tribunal (FTT) found he had relied on professional accountancy advice and could not be expected to have specialist knowledge of all areas of taxation
HMRC issued the penalty assessments to Patrick Cannon under FA 2007, Sch. 24, in respect of errors made in his 2010-11 tax return. These consisted of a duplicated claim for repair/refurbishment works undertaken at his professional premises; the omission of certain professional fees which had instead been included in the following year’s return; and the inclusion of an incorrect furnished holiday letting (FHL) loss claim. [Patrick Cannon and the Commissioners for Her Majesty’s Revenue and Customs, [2017] UKFTT 0859, TC06254].
The penalties were calculated on the basis that the FHL loss claim was a deliberate error or misrepresentation, and the other two errors were careless omissions/errors.
Cannon made an appeal, and in his evidence to the tribunal made note of the fact he specialised in SDLT cases and was also consulted on an ad hoc basis by HMRC when consideration was being given to changes in the legislation.
He claimed that at a meeting held with a senior HMRC official in August 2012, he was invited to cease giving legal advice to clients in respect of any SDLT mitigation strategies or arrangements.
Cannon described the request as ‘polite’ and non threatening, but FTT said it carried with it an underlying subtext to the effect that he would be sensible to heed that request which Cannon construed as ‘a demand dressed up as a request’.
However, the FTT said it could not make a finding as to whether this was the case or to whether or not this meeting had any bearing on the subsequent investigation, although it did note that the HMRC officer involved had carried out his duties ‘with great assiduity, bordering upon zealousness’, although this could be coincidental.
Professional advice
The FTT found that HMRC placed great store on the appellant being a tax barrister and argued that the question of whether he had taken reasonable care in completing and submitting his tax return should have been considered differently to others, even though he had relied on professional advice from an accountant.
However, in the FTT’s judgment a taxpayer could only be liable to a penalty if he had been negligent, and if the advice of a professional was negligently provided, that negligence was not to be imputed to the taxpayer.
The tribunal said that when a person sought appropriate professional advice from somebody who professed to be expert in the applicable discipline, it would almost always be reasonable for the person who had sought out such advice to rely upon that advice provided only that that person had selected a seemingly competent professional adviser and there was nothing to indicate that the advice ought not to be relied upon.
In this case the appellant’s own abilities meant that he was in a better position to assess his accountant’s degree of proficiency and expertise, which bore mainly upon the issue of whether it was reasonable for the appellant to seek and rely upon his advice. By contrast the FTT noted that a deliberate error in a tax return required that the taxpayer knew about the error and intended to misrepresent the true position to HMRC.
Unintentional error
With regard to the FHL loss claim, HMRC submitted that the appellant had deliberately made a claim for relief to which he knew he was not entitled, on the basis there was not a de facto business and the arrangements were retrospective and designed to provide a tax advantage.
In addition, Cannon either knew or should have known the definition of ‘the relevant period’ for deciding whether he met the 70 day/night requirement (as was then required by the legislation in former ITTOIA 2005, s. 325) and that he made his sideways loss relief claim deliberately knowing that he did not meet this, and nor had he spent an average of 10 hours per week engaged in the FHL business.
The FTT rejected HMRC’s submissions, finding that the error on the holiday letting sideways loss relief claim was not deliberate, and nor was it careless.
The omission of professional fees arose because Cannon received a payment of professional fees one or two days prior to the end of his accounting period, and although he informed his clerk of this in the relevant accounting period, his clerk entered the receipt into the Chambers’ computer accounting system on the next working day, which fell within the new accounting period.
In the FTT’s judgment a barrister in this position would have taken reasonable care by placing reliance in the integrity and reliability of his Chambers’ maintained accounting records, and Cannon did not have any reason to suppose his clerk would take this course of action.
Unprompted disclosure
The duplicated claim for repair/refurbishment works arose because Cannon provided his accountants with a specialist report identifying expenditure qualifying for capital allowances and also reported the figure included in that report in his draft profit and loss account as office repairs and redecoration expenditure. The accountants did not appreciate that the figures were double counted.
The FTT found that he had acted without reasonable care by not pointing out that the figures were one and the same. However, whereas HMRC had categorised the disclosure of the error as prompted, the FTT found that it had been reported unprompted to HMRC.
As a result, the FTT quashed the penalties in respect of the FHL error and the omission of professional fees as they were non-deliberate and non-careless errors, and the penalty in respect of the repairs being double counted was upheld on the basis that it arose from a failure to take reasonable care, but the penalty was reduced because the disclosure of the error was unprompted.
Meg Wilson, CCH tax writer, said: ‘HMRC submitted that because the taxpayer was a tax barrister the question of whether he had taken reasonable care in completing and submitting his tax return should have been considered differently to others even though he relied upon professional advice from an accountant. The FTT was satisfied that it was unrealistic for a person to know almost every single detail of the UK’s extensive and complex tax legislation and saw no reason why a barrister should not place reliance upon his accountant.’
Report by Pat Sweet
