Reasonable Care in Reliance on Tax Agents: Hanson v. Revenue & Customs [2012] UKFTT 314 (TC)

Introduction

The case of Hanson v. Revenue & Customs ([2012] UKFTT 314 (TC)) involves an appeal against a penalty imposed under Schedule 24 of the Finance Act 2007. The appellant, Mr. J.R. Hanson, contested a penalty related to an alleged inaccuracy in his 2008-09 Capital Gains Tax (CGT) return. The primary issue revolved around whether Mr. Hanson had taken reasonable care to avoid inaccuracies in his tax return by relying on his accounting agent, Clarke Broome Fleming (CBF).

Summary of the Judgment

The First-tier Tribunal (Tax Chamber) considered the appellant's reliance on his accountant, CBF, in preparing his tax return. The appellant had claimed relief against chargeable gains, which the Revenue & Customs (HMRC) contested as an incorrect claim, resulting in a CGT liability and a penalty under the Finance Act 2007. The Tribunal examined whether Mr. Hanson took reasonable care to avoid inaccuracies by relying on a reputable accounting firm. Ultimately, the Tribunal found in favor of Mr. Hanson, concluding that he had indeed taken reasonable care, and thus canceled the penalty imposed by HMRC.

Analysis

Precedents Cited

The Tribunal referred to the case of Heaney-Irving v HMRC TC01619, which dealt with the responsibility of taxpayers in ensuring the correctness of their returns when relying on accountants. Additionally, the judgment cited Anderson (deceased) v Revenue and Customs Commissioners [2009] UKFTT 206 and Colin Moore v Revenue and Customs Commissioners [2011] UKUT 239 (TCC), which articulated the standard of a reasonable taxpayer in assessing negligence or carelessness in tax matters.

These precedents established that reliance on professional advice can be a reasonable excuse for inaccuracies in tax returns, provided the taxpayer exercised due diligence in selecting a competent advisor and ensuring that the information provided was accurate.

Legal Reasoning

The Tribunal's legal reasoning centered on the interpretation of Paragraph 18 of Schedule 24 of the Finance Act 2007, which addresses the liability of taxpayers when agents are involved in preparing tax documents. The key question was whether Mr. Hanson took "reasonable care" to avoid inaccuracies by relying on his accountant.

The Tribunal adopted the standard from previous cases, assessing whether a reasonable taxpayer would have taken similar steps under the circumstances. Factors considered included the reputation and expertise of CBF, the nature of the tax matters involved, and the professional relationship between Mr. Hanson and his accountant. The Tribunal concluded that Mr. Hanson had fulfilled his obligation by providing all relevant information to a reputable accounting firm and relying on their professional judgment without any reason to doubt their competence.

Furthermore, the Tribunal emphasized that while taxpayers cannot absolve themselves entirely by relying on agents, they are not liable for penalties if they have taken reasonable steps to ensure accuracy by choosing competent advisors and verifying obvious errors.

Impact

This judgment reinforces the principle that taxpayers are entitled to rely on professional advisors without personal liability for inadvertent inaccuracies, provided they take reasonable steps to ensure the advisor's competence and the accuracy of the information submitted. It clarifies the scope of "reasonable care" in the context of tax compliance, particularly when agents prepare tax returns.

Future cases involving penalties under Schedule 24 will likely reference this judgment when assessing whether a taxpayer has sufficiently relied on their agent. It underscores the importance for taxpayers to engage reputable and competent advisors and to maintain oversight of their tax affairs to the extent reasonably possible.

Complex Concepts Simplified

Schedule 24 Finance Act 2007: A section of the UK tax law that outlines the penalties for inaccuracies in tax documents submitted to HMRC, including definitions of carelessness and the circumstances under which penalties apply.
Capital Gains Tax (CGT): A tax on the profit realized from the sale of non-inventory assets, such as investments or property.
Reasonable Care: A legal standard that assesses whether an individual has taken appropriate steps to avoid errors or negligence, especially when delegating tasks to professionals.
Entrepreneurs Relief: A tax relief that reduces the amount of CGT payable when selling a business or shares in a personal company, subject to certain conditions.
Hold-over Relief: A provision allowing the deferral of CGT by transferring an asset to another party, typically in the context of business restructuring or family transfers.
First-tier Tribunal (Tax Chamber): A judicial body in the UK that hears appeals against decisions made by HMRC regarding tax matters.

Conclusion

The Hanson v. Revenue & Customs case serves as a significant precedent in delineating the responsibilities of taxpayers when engaging professional agents for tax matters. It establishes that taxpayers are not automatically liable for penalties arising from the actions of their accountants or advisors, provided they have taken reasonable steps to ensure accuracy and have relied on competent professionals. This judgment offers clarity and reassurance to individuals and businesses that delegate tax preparation, emphasizing the balance between professional responsibility and taxpayer due diligence in the realm of tax compliance.