McCann v Revenue & Customs (INCOME TAX- penalty for inaccuracy in return)

Factual and Procedural Background

The Appellant, who was a director of a company during the 2016-17 tax year, submitted a self-assessment tax return which contained inaccuracies relating to undeclared employment income, bank interest, and student loan repayments. HMRC opened an enquiry into the return, identifying an understatement of tax liability amounting to £1,354.73. Despite reminders and correspondence, the Appellant delayed responding and only later acknowledged the additional income. HMRC issued a penalty assessment of £243.85 based on the inaccuracy being careless and the disclosure being prompted, with reductions applied for cooperation. The Appellant appealed the penalty and requested suspension, which HMRC refused on the basis that no conditions could be imposed to prevent future errors as the Appellant was no longer required to file self-assessment returns. The Tribunal determined the appeal without a hearing due to the Covid-19 pandemic.

Legal Issues Presented

1. Whether the Appellant took reasonable care in completing the 2016-17 self-assessment tax return.
2. Whether the penalty imposed for careless inaccuracy under Schedule 24 Finance Act 2007 was correctly applied.
3. Whether HMRC’s refusal to suspend the penalty was lawful and whether the Tribunal should interfere with that decision.

Arguments of the Parties

Appellant's Arguments

• The Appellant asserted that she took reasonable care by providing all requested information to her accountant and trusted the return would be completed correctly.
• She denied carelessness, stating she acted honestly and truthfully.
• In the event the penalty was upheld, she argued it should be suspended and challenged HMRC's position that suspension was impossible because she was no longer within the self-assessment regime.

Respondents' Arguments

• HMRC maintained that the taxpayer bears ultimate responsibility for submitting an accurate tax return and that the Appellant failed to take reasonable care.
• They relied on established legal principles that a taxpayer cannot delegate the obligation to file a correct return to an agent and remain free of penalty liability for errors caused by the agent’s negligence.
• HMRC argued that the Appellant should have verified the figures before submission.
• HMRC refused to suspend the penalty because the Appellant no longer had to complete tax returns, thus no conditions could be imposed to prevent future inaccuracies.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal analysed the statutory framework under Schedule 24 Finance Act 2007 concerning penalties for inaccuracies in self-assessment returns. It emphasized that a penalty arises if an inaccuracy is careless, defined by failure to take reasonable care.

The Tribunal found that the Appellant was responsible for ensuring the accuracy of her tax return, including verifying income figures, notwithstanding her reliance on an accountant. The return omitted significant employment income and other taxable amounts, which the Appellant either failed to provide to the accountant or the accountant failed to include.

Given the absence of complex technical issues, the Tribunal concluded that the Appellant did not meet the standard of care expected of a prudent taxpayer in her position. The Tribunal accepted HMRC’s reductions to the penalty for cooperation but found no basis to interfere with HMRC’s refusal to suspend the penalty.

Regarding suspension, the Tribunal highlighted that HMRC may only suspend a penalty if compliance with suspension conditions would help the taxpayer avoid future careless inaccuracies. Since the Appellant was no longer required to file tax returns, no such conditions could be imposed, rendering suspension impossible. The Tribunal found HMRC's decision on suspension reasonable and lawful.

Holding and Implications

The Tribunal DISMISSED the appeal.

The holding confirms that the Appellant was liable for a penalty due to careless inaccuracy in her 2016-17 tax return. The Tribunal upheld the penalty calculation and HMRC’s refusal to suspend it based on the Appellant no longer being within the self-assessment regime. The decision directly affects the parties by affirming the penalty and refusal to suspend but does not establish new precedent beyond applying established principles to the facts.