When one of my clients had a dreadful tax investigation a few years ago, HMRC accused my client of negligence. The basis of its allegation was that (according to it) he had over-claimed the professional use of his home and his car and it wanted to go back over 20 years. My client's immediate response was that he had relied on the advice of his accountants – in this case, yours truly.
The response from HMRC was swift, it looked through the accountant and place the burden onto the client. You will be pleased to hear after a scrap HMRC backed off, and agreed the professional use of home, but nevertheless, this is how HMRC looked at the client's culpability….up to now.
There is now a new penalty regime in place, and one principle is that the taxpayer will not be penalised if he or she takes reasonable care to get their taxes right. This week, there was an important case which clarified the new rules. The taxpayer, (a Mr Hanson) had given his accountant details of a capital gain that was made, and the accountant incorrectly calculated the capital gain. HMRC slapped a penalty of £14,000 onto Mr Hanson. At a hearing, the taxpayer claimed that he had taken reasonable care and that he should not be responsible for the mistakes of his accountant – and won.
This is a welcome decision and frankly makes sense. If you give your accountant details for your tax return and they get it wrong, if is difficult to argue that the client should be penalised.
So if you are facing a penalty from HMRC perhaps give it some thought whether you have done all that could be reasonably expected of you.
The question you might be asking - is who is going to pay the £14,000 penalty? The accountant? No – in fact there are no provisions (at the moment) to charge the taxpayer's agent for the penalty, so the penalty notice is just cancelled, a kind of win-win all round.