Bakery Badjie v The Commissioners for HMRC
[2023] UKFTT 537 (TC)
Philip Cox & Anor v The Commissioners for HMRC
6 June 2024
[2024] UKFTT 510 (TC)
First-tier Tribunal
The Coxes got hit with tax penalties for incorrectly claiming a tax break on selling shares. They said their advisors told them it was okay, but the advisors’ advice wasn't specific enough. The court said the Coxes should have checked themselves, and the penalties stood.
Key Facts
- •Philip and Deborah Cox (Appellants) appealed against penalty notices issued by HMRC for £16,152.90 and £16,252.35 respectively, relating to an invalid claim for Business Asset Disposal Relief (BADR).
- •The penalty was for carelessness in submitting inaccurate tax returns for the 2019-20 tax year.
- •The Appellants claimed they reasonably relied on professional advice from EWM Solicitors, who acted for their company, DWIFA, not them individually.
- •HMRC argued the advice was generic, not tailored to the Appellants' specific circumstances, and that the Appellants failed to take reasonable care by not obtaining individual advice after a share transfer reduced their holding below the 5% threshold required for BADR.
- •The Appellants also appealed HMRC's refusal to suspend the penalties.
Legal Principles
A penalty is payable if a document given to HMRC contains an inaccuracy which understates tax liability and the inaccuracy was careless or deliberate.
Schedule 24, Finance Act 2007
The standard of reasonable care is that of a prudent and reasonable taxpayer in the taxpayer's position; it should avoid simple errors of omission or mere oversights.
David Collis v Her Majesty’s Revenue and Customs [2011] UKFTT 588
Taxpayers cannot transfer the obligation to file a correct return to an agent; they remain liable for errors due to the agent's negligence.
Wald v Revenue & Customs [2011] UKFTT 183
HMRC may suspend penalties for careless inaccuracy if compliance with conditions would help avoid further penalties; the tribunal's jurisdiction is limited to judicial review of HMRC's decision.
Schedule 24, Finance Act 2007, paragraph 14; Anthony Fane v HMRC [2011] UKFTT 210
Suspension conditions must do more than simply require accurate future returns; they must be practical and measurable to help avoid further careless inaccuracies.
HMRC v David Alan Webb [2016] UKFTT 364
When assessing reasonable care, consider the taxpayer's attributes, experience and circumstances. Reliance on professional advice is usually reasonable unless the taxpayer had reason to believe it was wrong.
Hicks v HMRC [2020] UKUT 0012; Elizabeth Mariner v HMRC [2013] UKFTT 657
Outcomes
Appeal dismissed.
The Tribunal found the Appellants acted carelessly by not seeking specific professional advice after their shareholding fell below the BADR threshold, despite being aware of the requirement and having access to professional expertise. They unreasonably relied on assurances from fellow shareholders. HMRC's refusal to suspend the penalty was not flawed as the inaccuracy was a 'one-off' event and the proposed conditions amounted to little more than basic requirements of a reasonable taxpayer.