Hanson v HMRCC [2012] UKFTT 314 (TC)

Analysis

In 2006, the appellant received loan notes as part of the consideration for a sale of a business. He disposed of these loan notes in 2008. The disposal gave rise to a chargeable gain for Capital Gains Tax (CGT) purposes of £1,261,387. Following the disposal the appellant read an article which suggested that UK holiday letting properties could be used to mitigate CGT charges. The appellant had already purchased such a property. He consulted with his usual accountants, Clarke Broom Flemming (CBF) who indicated to the appellant that a form of holdover relief would be available to mitigate the CGT charge on the disposal of the loan notes.

In late 2009, CBF were instructed by the appellant to prepare and lodge his 2008-09 tax return. CBF prepared and lodged the return and claimed relief from CGT in respect of the disposal of the loan notes. Following correspondence with HMRC CBF accepted that no relief was available in respect of the disposal of the loan notes and that there was accordingly an additional tax liability of £83,278. In consequence HMRC imposed a penalty charge of £14,365.56 on the appellant pursuant to Schedule 24 Finance Act 2007 on the grounds that there was an inaccuracy in his tax 2008-09 tax return which was careless. The appellant appealed the penalty charge on the grounds that he had taken reasonable care to avoid the inaccuracy.

Held (allowing the appeal):

1. (1) The effect of para 18 of Schedule 24 of the Finance Act 2007 was to remove the liability of a taxpayer to a penalty where:
2. a) a return was completed and lodged by an agent;
3. b) an inaccuracy in the return was the result of something done or omitted by the agent; and
4. c) the taxpayer took reasonable care to avoid the inaccuracy. What constitutes reasonable care will depend on all the circumstances of a particular case.
5. (2) If a taxpayer reasonably relies on a reputable accountant for advice in relation to the content of his tax return then he will not be liable to a penalty under Schedule 24. The extent to which a taxpayer can reasonably rely on the advice of his agent will depend on the particular circumstances of each case. A taxpayer cannot simply leave everything to his agent and must satisfy himself that the agent has not made any obvious error. However, in matters that would not be straightforward to a reasonable taxpayer and where advice from an agent is sought which is ostensibly within the agent’s area of competence the taxpayer is entitled to rely on that advice.
6. (3) It was for HMRC to show the inaccuracy on the appellant’s tax return was as a result of the carelessness of the appellant or CBF. It was clear that CBF had acted carelessly. In those circumstances the burden was on the appellant to show that he had taken reasonable care to avoid the inaccuracy. In the circumstances of the case he had discharged that burden. The appellant’s responsibility was limited to that which was in all the circumstances reasonable. Had the appellant simply read in an article that relief was available and gone on to claim that relief then he would have been liable. However, he had instructed an ostensibly reputable firm of accountants on matters that were ostensibly within their area of expertise. They were in possession of all the relevant facts and the appellant had no reason to doubt their competence or their advice.

DECISION Background [1] This appeal concerns a penalty imposed on the appellant pursuant to Schedule 24 Finance Act 2007. The penalty charged is £14,365.56. The respondents say that the appellant incorrectly claimed relief against chargeable gains in his tax return for 2008-09. As a result they say that Schedule 24 is engaged because there was …

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