Acting in a professional capacity

In Patrick Cannon v HMRC (TC2016/02491) the First-tier Tribunal (FTT) ruled that the taxpayer, a tax barrister, was entitled to rely on the advice of his tax adviser, when engaged to not only file the return but to act in a truly advisory capacity.

The case is especially interesting as the taxpayer is a tax barrister specialising in SDLT.  While HMRC have historically deemed all professionals to be held to a higher standard, the decision seems to turn this on its head.  The FTT ruled that the taxpayer would have a reasonable excuse if they were to rely on their professional advisor with the requisite expertise to make a deduction or claim, as the UK tax system is complex, convoluted and under constant change.

It was made clear that the professional adviser was bound to provide advice to the best of their ability, “whilst taking reasonable care in and about preparing and giving that advice.”

It was interesting that the FTT believed it was unreasonable to expect the average taxpayer to have anything more than a basic working knowledge of the main taxes, in view of the complexities of the rules and laws.

Why is this important? HMRC have seemingly been tasked with pursuing more and more ‘deliberate’ penalties where it is established tax has been lost.  The general assertion is that there must have been some knowledge on the taxpayer’s part that the return submitted was incorrect.

While the burden of proof where careless behaviour is asserted, rests with the taxpayer, the onus is on HMRC to show that the taxpayer had acted deliberately and was either aware of the error or had intended to misrepresent the truth.

HMRC often refer to their powers to make a discovery going back up to 20 years where there has been deliberate behaviour; however, they are often silent on the point that the onus is on HMRC to satisfy the court, on the balance of probabilities, that the taxpayer was aware that the return was incorrect.

It is important to remember that where the taxpayer had a reasonable excuse and/or sought the appropriate professional advice, there would not normally be a reason to charge a tax-geared penalty, as the taxpayer had not been careless.

While the Patrick Cannon decision is not legally binding, it is nonetheless a significant victory for taxpayers.

Gabelle specialise in all types of enquiries and voluntary disclosures to HMRC.  A key component of this is minimising the exposure to tax-geared penalties. For further information on how we can assist you and your clients, please contact John Hood on 0845 4900509.