Roy Baker v The Commissioners for HMRC
[2024] UKFTT 126 (TC)
Nigel Alexander Moore v The Commissioners for HMRC
13 June 2024
[2024] UKFTT 518 (TC)
First-tier Tribunal
Someone got hit with tax penalties for not fixing a dodgy tax scheme quickly enough, even after multiple warnings. They claimed their tax advisor messed up, but the court said they should have acted sooner and got proper advice. The court also explained that the penalty calculation wasn't wrong, even though the taxpayer felt some expenses should reduce it. They lost the appeal because they didn't follow the rules.
Key Facts
- •Appeal against HMRC's decision to impose penalties under section 208 Finance Act 2014 (FA 2014) for failure to take corrective action in response to Follower Notices (FNs).
- •Appellant used tax consultancy Montpelier for tax planning involving an Isle of Man Trust and Partnership, later deemed a tax avoidance scheme.
- •HMRC issued FNs and Accelerated Payment Notices (APNs); appellant failed to take timely corrective action despite multiple warnings and extensions.
- •Appellant relied on Montpelier's advice, which was often delayed or contradictory, and did not seek independent advice promptly.
- •HMRC reduced penalties on review, but appellant appealed, arguing his case was similar to David Andreae v HMRC [2022] UKFTT 142.
- •Appellant claimed ‘missing expenses’ should reduce his liability, but this was deemed irrelevant to the FN penalties.
Legal Principles
Section 208(2) FA 2014 imposes a penalty if necessary corrective action is not taken before the specified time.
Finance Act 2014
Necessary corrective action requires amending the return or entering a written agreement with HMRC to relinquish the denied advantage, and notifying HMRC.
Finance Act 2014
The 'denied advantage' is defined as the tax advantage denied by the application of principles in the judicial ruling identified in the FN.
Finance Act 2014
HMRC can reduce penalties for cooperation (defined in section 210(3) FA 2014).
Finance Act 2014
An appeal against a section 208 penalty may be made on grounds including that it was reasonable in all the circumstances not to take corrective action.
Finance Act 2014
The onus is on the appellant to demonstrate it was reasonable in all the circumstances not to take corrective action.
Case Law
In considering whether it was reasonable not to take corrective action, the Tribunal must consider the taxpayer's thought process and the fact that the deadline was missed.
HMRC v Comtek Network Systems (UK) Limited [2021] UKUT 81 (TC)
Outcomes
Appeal dismissed; penalties upheld.
Appellant failed to discharge the burden of proving it was reasonable not to take corrective action; he repeatedly missed deadlines, relied on unreliable advice from Montpelier, and did not act promptly to seek independent advice.
HMRC's penalty calculation method affirmed.
The 'denied advantage' is correctly calculated based on income from the Isle of Man Partnership, not total taxable income; ‘missing expenses’ are irrelevant to FN penalties.
Penalty reduction for cooperation deemed inappropriate.
Appellant's actions frustrated the purpose of the legislation; limited cooperation, repeated delays, and failure to counteract the denied advantage.