Bakery Badjie v The Commissioners for HMRC
[2023] UKFTT 537 (TC)
H & H Contract Scaffolding Ltd v The Commissioners for HMRC
16 February 2024
[2024] UKFTT 151 (TC)
First-tier Tribunal
A company was fined for a mistake on their tax return related to a research grant. They argued they used a professional company to help with the tax return, and the court agreed that they had done everything a normal person should do to avoid mistakes. Therefore, the fine was cancelled.
Key Facts
- •H & H Contract Scaffolding Ltd (Appellant) appealed against a £6,632.01 penalty for a careless inaccuracy in their Corporation Tax return for 1.7.18 - 30.6.19.
- •The inaccuracy related to a Research and Development (R&D) tax credit claim of £40,194 and enhanced expenditure of £490,774.
- •The Appellant used 'Legal Rooms', a supposedly reputable company, to prepare and submit the R&D claim.
- •HMRC argued the Appellant was careless in not verifying the claim's eligibility.
- •The Appellant argued they relied on the expertise of 'Legal Rooms' and took reasonable care.
Legal Principles
A penalty is payable for a careless inaccuracy in a tax return leading to an understatement of tax liability (Schedule 24 Finance Act 2007). A careless inaccuracy is defined as one due to the failure to take reasonable care.
Schedule 24 Finance Act 2007
The burden of proof for carelessness lies with HMRC, unless the burden shifts to the taxpayer under para.18 Sch.24 FA07.
Schedule 24 Finance Act 2007, para 18
The standard for judging carelessness is that of a prudent and reasonable taxpayer in the taxpayer's position.
Collis v HMRC [2011] TC 01431
Outcomes
The appeal was allowed.
The Tribunal found that the Appellant took reasonable care by relying on a seemingly reputable company with experience in R&D claims for scaffolders. The Tribunal did not find HMRC's evidence sufficient to show the Appellant was careless.