Wilkins Southworth were pleased to act for a client in a successful defence of an HM Revenue & Customs (HMRC) enquiry.
Our client approached us after his accountant had filed his 2025 tax return. The tax return was filed with HMRC incorrectly and our client notified his accountant of the errors. His accountant then refiled the tax return, but again it was incorrect.
HMRC opened up an enquiry into our client’s tax affairs and he then approached Wilkins Southworth to act for him.
We resolved their questions quite quickly but HM Revenue & Customs then contended that despite our client having paid his full tax liability of £1.6 million in January 2025, his last accountant had incorrectly filed an amended 2024/25 tax return, which our client hadn’t signed, stating a tax liability of a little over £65,000.
The contention from HMRC was that if they had not opened up an enquiry they would have refunded our client around £1.55 million plus interest. Therefore, they contended that our client was Careless.
HMRC are now being proactive in this area and the First Tier Tribunal case of Douglas Boulton and The Commissioners for His Majesty’s Revenue and Customs reflects this.
HMRC alleged that a penalty of up to 30% under Schedule 24 Finance Act 2007 could be levied, which would have given rise to a maximum liability of around £460,000, for our client.
Schedule 24 Finance Act 2007 states penalties may be chargeable if the errors are found to result from Careless or Deliberate behaviour. It is the taxpayer’s obligation to ensure their tax return is complete and accurate and by signing the tax return they make a formal declaration to that effect.
HMRC guidance CH82160 explains.
HMRC factsheet CC/FS7a ‘Penalties for inaccuracies in returns and documents’ explains how penalties for inaccuracies in returns and documents are levied. Penalties will be charged if the behaviour is Careless, Deliberate or Deliberate and Concealed. HMRC will work out the potential lost revenue (PLR) and this arises as:
- A result of correcting an inaccuracy in a return or document.
- An incorrect repayment.
- An incorrect claim.
Careless prompted disclosures suffer penalties of between 15% to 30%.
Our defence highlighted that the standard of ‘Reasonable Care’ is the behaviour which a prudent and reasonable person in the position of the taxpayer would adopt.
When our client appointed a Chartered Accountant and provided that person with the complete facts, you are entitled to rely on their advice (assuming the advisor was sufficiently qualified in the area of tax that the advice was given on) even if it turns out that your advisor was careless.
Needless to say, Wilkins Southworth won the argument.